May 9, 2017

Administrative Action against the Shoko Chukin Bank, Ltd.

The Financial Services Agency, the Ministry of Finance, and the Ministry of Economy, Trade and Industry today took an administrative action  described below against the Shoko Chukin Bank, Ltd. (hereinafter, “Shoko Chukin”).

The competent ministries are to conduct on-site inspections of Shoko Chukin based on the Shoko Chukin Bank Limited Act to check on Shoko Chukin’s corporate structure in term of its compliance, business management, and internal control.

Section 1. Contents of the Order

Order based on the Article 59 of the Shoko Chukin Bank Limited Act (Act No. 74 of 2007)

1.  Investigations will continue of all crisis-response loans that have yet to be investigated, along with checks  conducted by outside experts to ensure proper objectivity, and the results of these investigations and of those conducted by the third-party committees will be utilized to identify problems and their root causes.

2.  For the present, the following approaches should be implemented immediately to ensure the appropriate administration of the crisis-response loans.

(1) Clarify administrative arrangements and establish/improve business management systems to address  the promotion of the suitable performance of operations and compliance

(2) Foster the awareness of the importance of compliance throughout the entire organization

(3) Establish operational processes that take into account the risk of fraud in order to ensure the appropriateness of operations

3.  For matters not corresponding to the requirements for crisis-response loans, procedures should be properly and promptly carried out to avoid detrimental effects on business partners through transfers to other loans, etc., and suitable measures such as cancelling guaranty insurance agreements with the Japan Finance Corporation Ltd. should be implemented, and the interest rate compensation already paid should be promptly refunded to the Japan Finance Corporation Ltd..

4.  Operational processes pertaining to 1. and 3. above as well as plans for the operation improvement pertaining to 2. above are to be submitted no later than Friday, June 9, 2017, and then promptly implemented.

5.  A report on the progress and the contens of implementation of the operational processes pertaining in 4 above is to be compiled each month until the completion of all tasks , and is to be submitted no later than the 20th day of the following month.

Section 2. Reasons for the Administrative Actions

1.  According to the report on misconduct from  Shoko Chukin based on the Article 90 (1) (xxxii) of the Enforcement Regulations of the Shoko Chukin Bank Limited Act (Cabinet Office/Ministry of Finance/Ministry of Economy, Trade and Industry Ministerial Ordinance No. 1 of 2008) and the report from Shoko Chukin requested by the Ministry of Economy, Trade and Industry, and the Ministry of Finance based on the Article 57(1) of Shoko Chukin Bank Limited Act, it was regarded that the crisis-response loans had been improperly administered as described below.

 (1)  Improper administration etc.

A.  Documents such as trial balances, etc., submitted by the customers to confirm the requirements of the crisis-response loans were falsified on numerous occasions by many branches/personnel over an extended period of time.

B.  Unsuitable actions, including preparing/using response guidelines designed to solicit certain answers from the staff  of Shoko Chukin during internal audits, were taken with regard to the cases discovered in the past at the Ikebukuro Branch  by the Compliance Management Division and the Audit Division, organizations designed to perform governance functions, in order to lead the conclusion that no misconducts had taken place.

(2) The following can be identified as underlying factors for this improper administration.

A.  The allocation the budget for Crisis-Response Loans set aside for crises occasions , was incorporated into the performance assessment of sales branches  meant that the administration could not be carried out strictly in  accordance with the aim of Crisis-Response Loans, creating an awareness gap between executives and branches and demonstrating insufficient attention toward compliance.

B.  Furthermore, the Audit Division and the Compliance Management Division were unable to perform their governance functions as supervisory organizations, which was considered to be a problem in the head office’s management structure.

C.  Inadequate awareness of the risk of fraud led to insufficient management structure, as illustrated by the shortcomings in the procedures designed to prevent fraud when confirming requirements.

2.  Accordingly, immediate necessary measures to prevent recurrences must be implemented , and investigations must continue of all Crisis-Response Loans that have yet to be investigated, with checks  conducted by outside experts to ensure proper objectivity, and the results of these investigations are to be utilized to identify problems and their root causes and to clarify an overall picture of the misconduct .

3.  New administrative actions may also be considered to establish/improve compliance systems,  business management, and internal control (including the clarification of responsibility among the executives and employees who caused these problems, etc.) in view of the problems and root causes, etc., identified under this Order.


Cooperative Financial Institutions Office Supervisory Bureau
Financial Services Agency
Tel: 03-3506-6000 (main)
(Ext. 3361, 3386)

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