Internal Controls

In order to ensure the appropriateness of accounting and the reliability of financial reporting for the SMFL Group as a whole, SMFL has formulated internal control evaluation regulations and others related to financial reporting, enabling it to put in place and operate the necessary systems for internal controls over financial reporting, and to assess their effectiveness.

Determining or amending basic policy for the overall evaluation of internal controls over financial reporting and relevant important matters are decided by the Management Committee and approved by the Board of Directors. The plans and policies for each fiscal year, the resulting evaluations and relevant important matters are approved by the Management Committee.

In order to understand the status of execution of duties by directors at SMFL Group companies, and to ensure that those duties are executed efficiently, basic matters for the management of Group companies are set out in the Group Company Regulations and other rules. Group companies are managed and operated in accordance with these rules and regulations. Group Company Regulations for Compliance have also been set out, and management of the SMFL Group is conducted in complete adherence to these regulations.

In addition, SMFL ensures the fairness and appropriateness of transactions within the SMFL Group in cases where transactions and the like are conducted within the SMFL Group, with either of our shareholders or with any of said shareholders' group companies. SMFL and its Group companies conduct multifaceted verifications in accordance with the procedures set out in the Legal Risk Management Regulations to establish whether the conditions of the trade, such as the consideration received for a product or service, are appropriate and reasonable in comparison to the usual conditions.

SMFL is a company with a Board of Corporate Auditors, consisting of four standing corporate auditors and two part-time corporate auditors. SMFL has established an Office of Corporate Auditors to assist the corporate auditors in the execution of their audit duties. In order to ensure the independence from directors of employees assigned to the office, the agreement of corporate auditors is required when evaluating or transferring personnel involved in assisting the execution of audit duties. Employees assigned to the Office of Corporate Auditors shall assist in the execution of audit duties in accordance with the instructions of the corporate auditors.

Corporate auditors attend key meetings, including meetings of the Board of Directors and Management Committee, and receive reports from directors, employees, and others on the execution of their duties, receive explanations as necessary, review important approval documents and investigate the status of operations and assets at the head office and main business departments. In addition, the corporate auditors communicate and exchange information with directors and auditors of subsidiaries, and receive business reports from subsidiaries as necessary.

The standing corporate auditors perform their duties smoothly and efficiently. This is ensured over the course of day-to-day audits carried out by all or some of the standing corporate auditors, and sufficient sharing of information and exchange of opinions with the other corporate auditors through the Standing Corporate Auditors' Meeting.

The duties of part-time corporate auditors include attending meetings of the Board of Directors and the Council of Corporate Auditors and submitting reports to, as well as exchanging opinions with, the standing corporate auditors at the Corporate Auditors' Liaison Meeting. Part-time corporate auditors also cooperate in the audit duties of the standing corporate auditors as necessary.

If any officer or employee of SMFL or its Group companies discovers any fact that may cause significant damage to SMFL or any Group company, any fraudulent act, or any material fact in violation of laws, regulations, or the Articles of Incorporation, said officer or employee is obligated to report their discovery to the corporate auditors. Furthermore, if explanation regarding the execution of duties is requested by a corporate auditor, officers and employees are obligated to report the requested matters promptly.

On discovery of any violation of laws or regulations, the violation can be reported to a corporate auditor of the company to which the officer or employee belongs, the internal reporting contact established at the company to which the officer or employee belongs, or the internal reporting hotline set up by Sumitomo Mitsui Financial Group.

In order to ensure that any officers and employees of SMFL and its Group companies reporting to the internal reporting contact established at their company or a corporate auditor at their company are not subject to unfair treatment for such report, the internal reporting regulations for each company stipulate the prohibition of any unfair treatment.

The Internal Audit Department works closely with the corporate auditors. When corporate auditors request assistance in their audit duties, the Internal Audit Department strives to ensure that the corporate auditors can conduct effective audits.

In addition, the representative directors strive to improve the effectiveness of the corporate auditors' audit function by ensuring opportunities for regular exchanges of opinion with the corporate auditors.

With the aim of ensuring the sound and appropriate management of SMFL's operations, the Company's Internal Audit Department, which is independent of other units, conducts internal audits of each department of the corporate staff and each business department. The Internal Audit Department verifies the efficiency and effectiveness of operations, the reliability of financial reporting, and the appropriateness and effectiveness of internal control systems and the like, creates evaluations based on the results, and presents recommendations for improvement. These audit results are reported at regular intervals to the director in charge of the Internal Audit Department, the representative directors, the Management Committee and the Board of Directors.

The Internal Audit Department, corporate auditors, and accounting auditors communicate and coordinate with each other as required, and work to implement appropriate and effective audits.