Administrative Actions on Sumitomo Mitsui Banking Corporation

(1)Sales operations (including proposals and solicitation) relating to interest-rate derivative products (including portfolio products) in the corporate sales department must be suspended from Monday, May 15, 2006 to Tuesday, November 14, 2006 (Excluding cases in which an existing customer voluntarily and rationally expresses his/her intention to purchase such products in the corporate sales department and the intention expressed is objectively deemed to be voluntary and rational.).

(2)No corporate sales department must newly be established between Monday, May 15, 2006 and Monday, May 14, 2007.

(3)In order to ensure the appropriateness of sales, etc. of financial instruments and realize a customer-oriented sales system as a bank, governance, internal control and compliance systems must be established with due emphasis on the following points:

• (i)An unequivocal statement of commitment by the management to establish a customer-oriented sales system and build a compliance system.

• (ii)Measures to develop a system to provide customers with a proper explanation in the corporate sales department and to strictly enforce compliance (including measures to build a guidance & control system by the headquarters).

• (iii)Establishment of a compliance system through the enhancement of mutual-checking functions in corporate sales departments (including the reevaluation of ''autonomic functions'' based on the principle of self-responsibility).

• (iv)Preparation of an operation plan to ensure a customer-oriented sales framework and proper business operation and control in compliance with laws and regulations, and measures on how operations should be carried out.

• (v)Reevaluation of systems, methods, etc. regarding audits conducted by the headquarters targeting the corporate sales department and the headquarters for the purpose of ensuring a customer-oriented sales framework and proper business operation and control in compliance with laws and regulations, thorough execution of audits and execution and enhancement of follow-ups.

• (vi)Establishment of a system, etc. to provide customers with an explanation on individual cases, including dealing with complaints, inquiries, etc. from customers (including dealing with customers with respect to the incident concerned).

• (vii)Proper efforts to thoroughly ensure the appropriateness of financial transactions, sales of financial instruments and services, etc. in consideration of the Request of Efforts by Financial Institutions to Ensure Appropriateness of their Transactions (FSA) dated January 5, 2006.

• (viii)Development and securement of systems through the control functions of the holding company.

• (ix)Establishment of a compliance system to enhance the mutual checking functions while ensuring objectivity at the headquarters.

(4)Responsibilities of the executives and employees who gave rise to the problems described in ''II. Reasons for the Administrative Actions'' hereunder must be clarified (including the clarification of the responsibilities of the executives and employees when the incident occurred).

(5)A plan to improve business operations pertaining to (3) and (4) described above must be submitted by Friday, June 2, 2006 and implemented promptly.

(6)Subsequent to the implementation of (5) described above, and until the plan to improve such operations is fully carried out, a summary outlining the progress and implementation of the plan, etc. and the status of improvement must be prepared every three months, starting at the end of August 2006, and is to be submitted by the 15th day of the following month.

(1)The Fair Trade Commission of Japan (JFTC) specifically pointed out that four interest-rate swap products for which the Bank made sales efforts between 2002 and 2004 violated Article 19 of the Law concerning Prohibition of Private Monopoly and Maintenance of Fair Trade (hereinafter referred to as ''Anti-Monopoly Law''), a provision which relates to the abuse of dominant position. The Bank accepted this and a judgment was handed down that a recommendation be given under Article 48 (4) of the said Law.

(2)In addition to the four aforementioned matters pointed out by the JFTC, according to the report submitted by Sumitomo Mitsui Banking Corporation (hereinafter referred to as ''the Bank'') in response to the reporting order issued under Article 24 (1) of the Banking Law in consideration of (1), the Bank's investigation identified more than a few cases in which its dominant position was used for abuse (including cases in which there are concerns of such abuse) centering on interest-rate swap products for which its corporate sales department made sales efforts between fiscal year 2001 and fiscal year 2004. Moreover, the Bank was found to have concerns over legal liability including accountability for the sale of financial instruments, etc. under the law in many cases.

This is attributable to the fact that it had become a norm to give priority to profit-making rather than compliance, and the Bank was found to have the following fundamental, serious problems in its governance, internal control and compliance systems, etc. in light of ensuring the appropriateness of transactions, etc. Furthermore, in order to make radical improvements, it is necessary to not only carry out reform in institutions and systems, but also fundamentally shift the mindset of executives and employees, which is deemed to take a considerable amount of time.

• (i)The operation plan formulated by the headquarters each fiscal year failed to fully analyze the regional characteristics and past results, but mechanically imposed profit targets on the corporate sales department based on the results of the previous fiscal year. The corporate sales department was found to have been inclined to sell interest-rate swap products that are easy to work on to achieve the targets, amid difficulties in building up loans.

• (ii)Guidance given by the headquarters to the corporate sales department focused on progress management with respect to the profit target. Evaluation of the corporate sales department was more or less linked to the extent to which the profit target was fulfilled. Even though gross operating profit surged in the last month of the fiscal year, the headquarters was found to have lacked the perspective of determining whether or not operations had been over-promoted with respect to interest-rate swaps, for which profits could be accounted up-front.

• (iii)Since January 2002, the headquarters has been expanding the scope of interest-rate swap sales to accounts requiring attention and small accounts with respect to the corporate sales department. However, it was found to have not given sufficient consideration in view of preventing the abuse of its dominant position when formulating the sales rules.

• (iv)The Bank's compliance system claims to execute checks through ''autonomic functions'' based on the principle of self-responsibility of each department/branch. However, both the headquarters and the corporate sales department were found to have a poor awareness of risks in relation to the Anti-Monopoly Law. Checks performed when formulating operation plans and promoting operations were found to be inadequate in terms of compliance.

• (v)Monitoring functions were found to be inadequate, as the system of analyzing complaints and dealing with situations on the basis of complaints and the system of dealing with situations associated with customer satisfaction surveys targeting corporate customers were inadequate in certain aspects.

• (vi)Auditing functions were found to be inadequate in that audits targeting the corporate sales department failed to examine the status of interest-rate swap sales at each corporate sales department in depth, and audits targeting each department in the headquarters failed to include the perspective of preventing the abuse of its dominant position in the audit items.

(3)Despite being repeatedly warned by the JFTC and the FSA about the importance of observing the Anti-Monopoly Law associated with changes in the environment surrounding the financial sector, the Bank failed to take effective action.