Basic Policy on Corporate Governance of SBI Shinsei Bank

The Basic Policy on Corporate Governance of SBI Shinsei Bank provides the basic views and policy on the corporate governance of SBI Shinsei Bank, Limited (hereinafter “the Bank”) to promote the sustainable growth and increase of corporate value over the mid- to long-term of the Bank and the SBI Shinsei Bank Group (hereinafter the “Group”).

The Bank recognizes that enhancing corporate governance is one of the highest priorities to achieve our management principles, and has established a corporate governance framework as a “Company with an Audit & Supervisory Board”. This model aims to ensure appropriate managerial decision-making and business implementation in order to establish a corporate governance framework with sufficient organizational checking functions. We aim to achieve this through the following two key actions:

1) Setting the broad direction of corporate strategy and establishing an environment where appropriate risk-taking by the senior management is supported through decision-making by Board of Directors, the highest managerial decision-making body, on important corporate business execution matters, such as basic management policies including medium-term plan and annual plans; and

2) Assigning Audit & Supervisory Board Members and an Audit & Supervisory Board those are independent of the Board of Directors auditing duties that include auditing of the Board of Directors.

1. Securing the Rights and Equal Treatment of Shareholders
   The Bank takes appropriate measures to fully secure shareholder rights and develop an environment in which shareholders can exercise their rights appropriately and effectively. In addition, the Bank endeavors to ensure the effective equal treatment of shareholders.
   
    
2. General Meeting of Shareholders
   The Bank recognizes that General Meetings of Shareholders are opportunities for constructive dialogue with shareholders and therefore takes the following appropriate measures to ensure that shareholders can exercise their rights at such meetings:
   i       The Bank provides shareholders with accurate information considered helpful for their appropriate decision-making at General Meetings of Shareholders.
   ii      The Bank sends convening notices early enough to give shareholders sufficient time to consider the agenda and also discloses such information on its website.
   iii     The Bank appropriately determines the dates of General Meetings of Shareholders and any associated dates to facilitate sufficient constructive dialogue with shareholders and ensure the accuracy of information necessary for such dialogue.
   iv     To contribute to the convenience of institutional and foreign investors, the Bank uses the Electronic Voting Platform to enable electronic voting and also discloses English translations of convening notices.
   v      If a Bank proposal is approved despite considerable opposition, the Board of Directors analyzes the reasons behind the opposing votes and why many shareholders opposed.
   
    
3. Basic Policy on Constructive Dialogue with Investors
   The Bank complies with the Corporation Act, the Financial Instruments and Exchange Act, and other relevant laws and regulations, as well as the rules concerning timely disclosure established by the stock exchange where the Bank’s securities are listed. The Bank also strives to disclose corporate information in a timely, appropriate, and fair manner to promote a deeper understanding of the Bank among all stakeholders, including customers, shareholders, investors, analysts, and local communities, enhance management transparency and social trust, and contribute to appropriate corporate valuation.
   
    
4. Cross-Shareholdings
   i       Holding policy
   The Bank deems investment shares held for purposes other than purely investment purposes as cross-shareholdings and, in principle, does not hold such shares except those that are strategically held in connection with a new business or business partnership.
   However, for listed shares that the Bank determines need to be acquired or held in view of the specific business circumstances, including the need to maintain or strengthen business relationships, the Bank examines the appropriateness of acquiring and holding the shares. For cross-shareholdings already held, the Bank assesses the mid- to long-term economic justification and future outlook based on the returns and risks associated with holding those shares, and the assessment is annually reviewed by the Board of Directors.
   
   ii      Criteria for exercising voting rights
   In exercising voting rights for the shares it holds, the Bank decides whether to vote for or against the proposal based on criteria such as whether the proposal will help enhance long-term shareholder value, whether the proposal will cause any disadvantage to the Bank as a shareholder, and, in cases where the shares are held in connection with a new business or business partnership, whether the proposal will undermine the purpose of such holding.
   
    
5. Anti-Takeover Measures
   When anti-takeover measures are adopted or implemented, the Board of Directors examines their necessity and rationale, ensures appropriate procedures, and provides sufficient explanation to shareholders.
   
    
6. Capital Policy that May Harm Shareholder Interests
   For a capital policy that results in a change of control or in significant dilution, the Bank examines the necessity and justification, ensures appropriate procedures, and provides sufficient explanation to shareholders to avoid unfairly harming the existing shareholders’ interests.
   
    
7. Related Party Transactions
   The Bank has established internal rules to appropriately manage transactions with related parties to ensure that such transactions do not harm its interests or shareholders’ common interests. When conducting such transactions, the Bank makes the decision only after fully examining the necessity and rationality for its business, appropriateness of the transaction terms, and other considerations, and discloses the necessary information.
   Conflict-of-interest transactions with Directors and their related parties are deliberated in accordance with the internal rules and subject to the approval of the Board of Directors.
   Transactions with the parent company or its subsidiaries and affiliates are deliberated in accordance with the internal rules. Decisions on important transactions require either prior approval from or prior reporting to the Board of Directors. Furthermore, all transactions with the parent company or its subsidiaries and affiliates are reported to the Board of Directors semi-annually.

1. Ensuring Diversity
   Recognizing that diverse perspectives and values constitute a strength that enables the sustainable growth of the Group, the Bank promotes diversity by encouraging the active participation of women, foreign nationals, and mid-career hires, including their promotion to middle managerial positions, and regularly discloses the status of these initiatives.
   
    
2. Sustainability
   Recognizing the resolution of environmental and social issues as one of the most important management priorities, the Bank has defined sustainability management as creating a virtuous cycle between “long-term contributions to the environment, society, and customers through business activities” and “the sustainable growth of the Group,” and actively promotes such efforts.
   
    
3. Whistleblowing System
   The Bank has a whistleblowing system to allow officers, employees, and other personnel to directly report violations of any laws, regulations, and internal rules concerning bank operations, providing internal and external contact points. The Bank also maintains an appropriate whistleblowing framework to secure the confidentiality of the information provider and prohibit any disadvantageous treatment.
   
    
4. Asset Owner
   i       For the management of pension assets under the defined benefit corporate pension plan, the Bank takes initiatives in both personnel and operational aspects, such as assigning qualified persons, to fulfill the functions expected of an asset owner. The Bank also appropriately manages conflicts of interest between itself and the pension beneficiaries.
   ​​​​​​​ii      For the defined contribution pension plan, the Bank selects products suitable for helping employees build stable assets and provides employees with sufficient information and education about asset management and the plan’s details.

 

1.  Structure of the Board of Directors
   i       The Board of Directors is composed of directors with diverse expertise and experience, and maintains an appropriate size to function efficiently and effectively.
   ii      As a general rule, Independent Outside Directors who meet the Bank’s independence criteria (Appendix) are appointed to constitute a majority of the Board members.
   iii     The Bank has an optional Nomination and Compensation Committee to further enhance the objectivity and transparency of the Board’s functions.
   
    
2. Roles and Responsibilities of the Board of Directors
   i       Under the Corporation Act, the Board of Directors determines basic business strategies and important matters concerning business execution and oversees Directors’ performance of duties.
   ii      Decisions, excluding those to be made by the Board of Directors under law, are delegated to the President & CEO. The Bank has a framework in which Executive Officers are appointed by the Board and they are responsible for their respective divisions as executive officers in charge. In addition, the Board of Directors, as necessary, delegates decision-making on business execution to Directors or Executive Officers.
   iii     Recognizing that the Medium-Term Plan is a commitment to shareholders, the Board of Directors makes its best effort to achieve it. In addition, the Board fully analyzes the progress made toward the plan, explains the progress to shareholders, and reflects the analysis in subsequent business plans.
   iv     The Board of Directors encourages constructive and open discussions and exchanges of views based on necessary information and conducts multifaceted and sufficient deliberations when making decisions.
   v      The Board of Directors formulates a basic policy for the Group’s sustainability initiatives to enhance corporate value over the mid- to long-term, as well as oversees the allocation of management resources and the implementation of business portfolio strategies to ensure that they contribute to the sustainable growth of the Group.
   vi     The Board of Directors establishes basic policies for the internal control system and risk management and oversees the development and operation of systems necessary to ensure their effectiveness.
   vii    When determining Director candidates and appointing or dismissing the President & CEO, the Board of Directors consults the Nomination and Compensation Committee and takes into account the committee’s recommendations.
   viii   The Board of Directors appoints Executive Officers from a pool of candidates based on their evaluations, performance, and other factors in accordance with the criteria provided in internal rules.
   ix     The Board of Directors appropriately manages conflict-of-interest transactions between the Bank and its related parties, including Directors and major shareholders such as the parent company.
   
    
3. Procedures and Criteria for Nomination of Director Candidates
   i       Director candidates are first nominated by the Board of Directors based on recommendations from the Nomination and Compensation Committee, an advisory body to the Board, and then elected by resolution at a General Meeting of Shareholders.
   ii      Director candidates are nominated in accordance with the following criteria. The nomination process takes into account the Bank’s organizational scale and the candidates’ gender, international experience, professional background, and age and aims to achieve the necessary balance of knowledge, experience, and skills for the Board to fulfill its roles and responsibilities effectively.
   　　a　Candidates for Executive Directors
   　　(1)   A candidate must have expertise related to the Group’s operations.
   　　(2)   A candidate must have excellent managerial judgment and execution capabilities.
   　　(3)   A candidate must meet the statutory qualification requirements for directors.
   　　b     Candidates for Outside Directors
   　　(1)   A candidate must have broad knowledge and extensive experience and a proven track record in their field so that the Board of Directors has diverse viewpoints and can oversee management timely and appropriately.
   　　(2)   A candidate must meet the Bank’s independence criteria and have no risk of constant or substantial conflict of interest with general shareholders
   　　(3)   If a candidate is concurrently serving or intends to serve as a Director or Audit & Supervisory Board Member of another company (particularly a listed company), the candidate must hold only a reasonable number of such positions so as not to interfere their duties at the Bank.
   　　(4)   A candidate must meet the statutory qualification requirements for directors.
   
    
4. Procedures and Policy for Directors’ Compensation
   i　Procedures
   Compensation for Directors is first deliberated by the Nomination and Compensation Committee and then determined by the Board of Directors based on the committee’s recommendations within the total compensation limit approved at a General Meeting of Shareholders.
   ii      Policy
   Compensation for Executive Directors is determined in accordance with the policy below:
   　　a     Appropriate incentives should be provided to advance the Group business and realize the Group’s mid-to long-term management principles.
   　　b     The scheme will curb excessive risk-taking and contribute to ongoing sound management as a financial institution.
   　　c      Focusing on share price, the Plan incorporates a compensation system that provides incentive to further increase corporate value.
   
    
5. Evaluation of the Board of Directors
   The Board of Directors evaluates and analyzes its effectiveness at least once a year to improve its functions.

1. The Bank has the Nomination and Compensation Committee as an advisory body to the Board of Directors. The Board of Directors consults the committee on the matters listed below. The committee is also involved in the succession planning for the President & CEO.
   i       Contents of proposals regarding the election and dismissal of Directors to be submitted to the General Meetings of Shareholders
   ii      Matters related to the appointment and dismissal of the President & CEO
   iii     Matters related to compensation, etc. for Directors
   
    
2. The Nomination and Compensation Committee consists of the following members and chairperson:
   i       The committee consists of three Outside Directors and the President & CEO.
   ii      The chairperson is elected by resolution of the committee from among the Outside Directors.

 

1. Responsibilities of the Audit & Supervisory Board and Its Members
   i       The Audit & Supervisory Board audits Directors’ performance of duties to ensure both legal compliance and appropriateness.
   ii      Full-time Audit & Supervisory Board Members work to maintain an effective audit environment. They routinely monitor and assess Directors’ performance of duties and the development and operation of the internal control system by gathering internal information. They also share information obtained in the course of their duties with other Audit & Supervisory Board Members.
   iii     Outside Audit & Supervisory Board Members help enhance the effectiveness of audit activities by drawing on their experience and expertise and providing opinions from a more independent and objective standpoint.
   iv     The Audit & Supervisory Board and its members should positively and proactively exercise their authority and express their views at board meetings and to the management, without interpreting the scope of their function too narrowly.
   v      The Audit & Supervisory Board and its members work to ensure coordination with Outside Directors so that Outside Directors can strengthen their capacity to collect information without compromising their independence.
   
    
2. Procedures and Criteria for Nomination of Audit & Supervisory Board Member Candidates
   Audit & Supervisory Board Member candidates are first nominated by the Board of Directors after obtaining the consent of the Audit & Supervisory Board and then elected by resolution at a General Meeting of Shareholders, based on the following criteria.
   i       A candidate must have the knowledge and experience necessary to audit the execution of Directors’ duties accurately, fairly, and efficiently.
   ii      Candidates must be elected to ensure that at least one of the Audit & Supervisory Board Members has knowledge on finance, accounting, and the law.
   iii     If a candidate is concurrently serving or intends to serve as a Director or Audit & Supervisory Board Member of another company (particularly a listed company), the candidate must hold only a reasonable number of such positions so as not to interfere their duties at the Bank.
   iv     A candidate must meet the statutory qualification requirements for Audit & Supervisory Board Members.

1. The Bank recognizes the responsibility that external auditors owe toward shareholders and investors and strives to take appropriate steps to secure proper execution of audits.
   
    
2. To ensure proper execution of audits by external auditors, the Audit & Supervisory Board should establish standards for the appropriate selection and evaluation of external auditors and verifies whether external auditors possess necessary independence and expertise to fulfill their responsibilities.
   
    
3. To ensure proper execution of audits by external auditors, the Board of Directors and the Audit & Supervisory Board strive to give adequate time to ensure high quality audits. They also maintain frameworks to enable external auditors to regularly exchange opinions with senior management, including the CEO and Group CFO, and to work with the Audit & Supervisory Board, the Group Internal Audit Division, and Outside Directors. Furthermore, they maintain systems to take appropriate action when external auditors identify misconduct, violations of laws or the Articles of Incorporation, or other similar incidents or point out deficiencies or concerns.

 

1.  Operation Policy for Board Meetings
   To promote active deliberations, the Board of Directors has the following operation policy for its meetings:
   i       The agenda, deliberation time, and frequency of Board meetings should be set to allow for necessary discussions to make decisions on important business execution and oversee Directors’ performance of duties.
   ii      Materials for a Board meeting should be distributed to Directors and Audit & Supervisory Board Members well in advance of the meeting date.
   iii     Directors and Audit & Supervisory Board Members should be provided with sufficient information on the matters to be resolved or reported.
   iv     The annual schedule of Board meetings and expected matters for resolution and reporting should be communicated to Directors and Audit & Supervisory Board Members ahead of time.
   
    
2. Support Framework and Training for Directors and Audit & Supervisory Board Members
   To ensure that Directors and Audit & Supervisory Board Members fulfill their roles and responsibilities effectively, the Bank has the following support framework for them:
   i       The Bank has a division responsible for supporting Directors and Audit & Supervisory Board Members.
   ii      Newly appointed Outside Directors and Outside Audit & Supervisory Board Members are provided with explanations on the Group’s business strategies, internal control and risk management systems, and other important matters, as well as opportunities to gain necessary knowledge and insights.
   iii     Directors and Audit & Supervisory Board Members are provided with continuous access to information necessary for them to fulfill their responsibilities.
   iv     Directors and Audit & Supervisory Board Members are allowed to seek advice from external experts if they consider it necessary to fulfill their responsibilities. In this case, the Board of Directors provides the support reasonably necessary for such consultations.
   v　  When Directors and Audit & Supervisory Board Members need to gain or update knowledge, they are provided with such opportunities at the Bank’s expense.

At the Bank, those who do not fall under any of the following categories qualify as Independent Outside Directors and Independent Outside Audit & Supervisory Board Members who are unlikely to have a conflict of interest with general shareholders.
 

1.  A person or entity for whom the Bank is, or has been within the three years prior to appointment, a major client (*1), or an executive of the entity
2. A person or entity who is, or has been within the three years prior to appointment, a major client of the Bank (*2), or an executive of the entity
3. A consultant, accounting professional, or legal professional who currently receives, or has received within the three years prior to appointment, monetary or economic benefits exceeding ¥10 million per year from the Bank, in addition to executive compensation
4. A member of a law firm, accounting firm, consulting firm, or other professional service entity that currently receives considerable monetary or economic benefits from the Bank (exceeding 0.5% of its consolidated ordinary income)
5. A person or entity who currently receives, or has received within the three years prior to appointment, donations or other benefits from the Bank exceeding the greater of ¥10 million per year or 2% of the entity’s annual sales, or an executive of the entity
6. A major shareholder of the Bank, or an executive of such a major shareholder if it is a corporation or other similar entity (including those who were such a major shareholder or an executive of such a major shareholder within the past three years)
7. A close relative (*4) of any of the following persons (excluding those who are not important (*3)):
   (1) Any of the persons specified in items 1 through 6 above
   (2) A Director, Audit & Supervisory Board Member, Executive Officer, or other employee of the Bank, the parent company, a subsidiary, or a sister company (*5)
8. In the case of reappointment, a person whose total tenure would exceed eight years as of the time of reappointment
9. Any other person whom the Board of Directors determines to have a potential conflict of interest with general shareholders

 

(*1) A person or entity for which sales to the Bank account for more than 2% of their consolidated sales

(*2) A person or entity whose outstanding loans from the Bank exceed 0.5% of the Bank’s consolidated total assets

(*3) Examples of “important” persons include:

• Officer or general manager of a company or business partner
• Accounting or legal professional with a professional qualification such as a certified public accountant or an attorney

(*4) A spouse or a relative within the second degree of kinship

(*5) Companies that have the same parent company as the Bank