FSA Newsletter August, September 2006
Kaoru Yosano (Minister of State for Economic & Fiscal Policy and Financial Services) making an address at the 18th Round Table Conference on Money-lending Business on July 27 Yoshitaka Sakurada (Senior Vice Minister for Financial Services) meets with Mr. David Knott, Chief Executive of the Dubai Financial Services Authority (DFSA) on July 23
Kaoru Yosano (Minister of State for Economic & Fiscal Policy and Financial Services) making an address at the 18th Round Table Conference on Money-lending Business on July 27 Yoshitaka Sakurada (Senior Vice Minister for Financial Services) meets with Mr. David Knott, Chief Executive of the Dubai Financial Services Authority (DFSA) on July 23

 

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Quality Control of Audits of the Four Largest Japanese Audit Firms


1.

 Introduction
  The Certified Public Accountants and Auditing Oversight Board (CPAAOB) examines and as necessary, conducts inspections in response to reports from the Japanese Institute of Certified Public Accountants (hereinafter referred to as ''JICPA'') about fact-finding surveys on audit engagements (hereinafter referred to as ''quality control review'') pursuant to the Certified Public Accountant Law.
 
(Reference)  ''Quality control review'' involves ''reviewing the status of quality control of audits conducted by Certified Public Accountants (CPAs) or audit firms as entities in charge of conducting audits, notifying the results, recommending improvements as necessary, and receiving reports on the status of improvements based on such recommendations'' (Article 87 (1) of JICPA Rules) in consideration of the public benefits of audit work. It has been implemented by JICPA as a self-imposed regulation since April 1999 with the aim of maintaining and ensuring the quality level of audit engagements performed by CPAs.

2.

 Measures including Prompt Inspection, etc. of Big Four Firms
  Under these circumstances, with respect to the Big Four firms (KPMG AZSA & Co., Deloitte Touche Tohmatsu, Ernst & Young ShinNihon and ChuoAoyama Pricewaterhouse Coopers), CPAAOB published a document entitled ''Measures to Conduct Prompt Inspections, etc. targeting the Big Four Firms'' on October 25, 2005 in the interest of the public and for the purpose of investor protection, in consideration of the recent events involving financial audits and the trends in the supervision and oversight of international auditing firms. In view of the quality control of audits, CPAAOB steadily examinend and inspected the quality control reviews performed by JICPA.

3.

 Quality Control of Audits of the Four Largest Japanese Audit Firms
  CPAAOB summarized the results of the inspections of the Big Four firms based on the inspection results, and published it under the title ''Quality Control of Audits of the Four Largest Japanese Audits Firms'' on June 30, 2006. To the extent of these inspections, the CPAAOB found that all of the Big Four firms were insufficient concerning quality control as a firm, specifically in the systematic management of audit engagements that ensures quality control of audits. In particular, deficiencies were identified in the overall management of audit engagements, independence, acceptance of new clients and client retention, performance of audit work, working papers, internal review of engagements, management of the quality control system, joint audits, and systematic audits, etc. Concerning the quality control of individual audit engagements, deficiencies were identified regarding compliance with generally accepted audit standards (''GAAS'').

4.

 Recommendations based on Results of Inspection of Big Four Firms
  As systematic management of audit engagements that ensures quality control of audits were found to be insufficient at the Big Four firms based on the inspection results, CPAAOB recommended the Commissioner of the Financial Services Agency that they be instructed to improve their operations.

5.

 Conclusion
  CPAAOB will implement follow-up inspections to review the progress of improvements by the Big Four firms. CPAAOB will also inspect medium-sized audit firms as necessary after having examined the quality control review report of JICPA, while heeding their characteristics according to the size and other factors, in consideration of international trends and the recent events involving financial audits.
Furthermore, as more than a year has passed since recommendations were made to JICPA for improvements in quality control reviews in February 2005, CPAAOB will verify the status of improvements.

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Basic Policy and Plan for Financial Inspections in Program Year 2006


The Financial Services Agency (FSA) recently (July 27) released to the public a document entitled ''Basic Policy and Plan for Financial Inspections in Program Year1 (PY) 2006,'' which reveals its inspection implementation policies for PY2006 and the scheduled number of inspections. An overview of the Basic Policy and Plan for Financial Inspections is as follows.
The FSA is aiming to realize an internationally reputable financial system with a high level of user satisfaction in accordance with the Program for Further Financial Reform. The FSA is striving to familiarize financial institutions with the Financial Inspection Rating System (FIRST), in addition to conducting inspections focusing on dialogues between financial institutions and inspectors by such means as implementing the Financial Inspection Basic Policy (FIBP).
In these circumstances, the FSA will endeavor to conduct inspections both properly and effectively in PY2006 based on the following basic policies, to ensure that financial institutions run their business operations in a sound and appropriate manner, while paying attention to changes in the environment currently surrounding them, such as the need to strictly enforce customer protection and the implementation of New Basel Capital Accord (the new capital adequacy framework).

1) Strict Enforcement of User Protection
In conjunction with the enactment of the Financial Instruments and Exchange Law, the FSA will examine financial institutions' efforts to protect customers with a focus on customer protection management systems, etc., in order to strictly enforce user protection in financial transactions. In inspections, the FSA will continue to actively use information received by the Counseling Office for Financial Services Users established in July 2005, as well as information received by the Inspection Information Desk.
2) Examination of Diversification of Risks and Sophistication of Risk Management
The FSA will conduct proper inspections with respect to the diversification of risks due to the widening range of asset management and operations of financial institutions and the sophistication of risk management by financial institutions.
3) Examination in View of Globalization of and Structural Changes in Financial Services
The FSA will properly respond to the globalization of and structural changes in financial services, increased outsourcing of operations and new market entrants.
4) Examination of Small Business Financing
In order to help revive small and medium-sized enterprise (SME) businesses and revitalize regional economies through the enhancement of financial functions, the FSA will promote inspections in tune with the actual business status, etc. of SMEs, including examining the SME business revitalization efforts of regional financial institutions (RFIs), in consideration of the extent to which financial institutions have identified the actual state of SMEs.
The FSA will continue to thoroughly examine RFIs in regards to their SME business revitalization efforts in consideration of The Supplement to the Financial Inspection Manual, etc.

Furthermore, under the Basic Plan for Financial Inspections in PY2006, the FSA is planning to inspect 300 deposit-taking financial institutions, 15 insurance companies, 10 securities companies, etc. and 385 other financial institutions including non-bank money lenders, as well as six other institutions consisting of governmental financial agencies and Japan Post.


1July 2006 - June 2007

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Amendment of Comprehensive Guideline for Supervision of Trust Companies


1. Introduction
The Financial Services Agency (FSA) revised the Comprehensive Guideline for Supervision of Trust Companies, etc., (hereinafter referred to as ''Supervisory Guideline'') on July 19, 2006, to develop a screening system for trust acceptance for the purpose of protecting trustors and beneficiaries and for other such purposes. This article explains the background of and the outline of the revision of the Supervisory Guideline.

2. Background of Revision of Supervisory Guideline
As there has been a steady increase in new market entrants, including trust companies, trust banking agents and trust beneficial interests distributor, etc., since the enforcement of the amended Trust Business Law on December 30, 2004, the FSA revised the Supervisory Guideline on April 28, 2006 (enforcement date: May 1, 2006), in consideration of queries about the Supervisory Guideline and deregulation requests made by the industry. In regards to the screening of trust companies, etc., upon their market entry and the ''development of a screening system for trust acceptance'', which had to be clearly defined as the highlight of supervision after market entry, the latest revision of the Supervisory Guideline was performed based on the decision to reexamine the content to make it more appropriate as the highlight of supervision, in consideration of the approach of the new trust inspection manual to be formulated by the Inspection Bureau as well as the problems and cases identified in the course of inspecting some trust banks.
The Supervisory Guideline was revised and released to the public on July 19 based on the comments received from the general public between June 6 and July 6, and came into force on the same day.

3. Overview of Revision
(1) Highlights of Screening upon New Market Entry
1) Development of Screening System for Trust Acceptance

The FSA explicitly stated that for the purpose of protecting trustors and beneficiaries and for other such purposes, matters to be highlighted when screening asset management trust companies and financial institutions engaged in trust business upon their entry into the market are: whether or not they have developed internal regulations for a screening system for trust acceptance that enables the proper execution of trust operations under laws and regulations and trust agreements; and whether or not they have developed a framework to ensure proper screening of trust acceptance under such regulations. Examples of matters to be stated in such regulations were also provided.
2) Highlights of Supervision after Market Entry
1) Points to Consider in Evaluation of Operational Status

As points to consider when evaluating the operational status of trust companies, financial institutions engaged in trust business, etc. in cases where they are asked to report and improve their operational status, the FSA explicitly stated that it will examine: whether or not they have developed a system to properly execute trust operations, including providing an explanation of the terms and conditions of the agreement to trustors, conducting screening of trust acceptance before concluding an agreement, and managing and investing trust assets after the acceptance of trusteeship; and whether or not they have ensured a proper internal control system for such trust operations.
2) Points to Consider in Evaluation of Status of Fulfillment of Duty of Care
As points to consider when evaluating the extent to which trust companies, financial institutions engaged in trust business, etc. are fulfilling their duty of care of a good manager, the FSA explicitly stated their need to properly perform investigation, screening and management for the acceptance of trusteeship so as to sufficiently fulfill their duty of care as a trustee, and provided examples of points to consider when examining the status of such investigation, etc.

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Inspection Manual for Trust and Banking Companies (Supplement to the Financial Inspection Manual for Trust Services Business)


On July 13, 2006, the Financial Services Agency (FSA) produced a manual to be used by inspectors upon inspecting the trust operations of financial institutions engaged in trust business (trust banks, city banks and regional banks running trust operations, etc.) entitled ''Trust Inspection Manual (the Supplement to the Financial Inspection Manual: for Trust Operations)'' and issued it in the form of an official notice from the Director-General of the Inspection Bureau.
This article provides an overview of the Trust Inspection Manual.

1. Overview of Trust Inspection Manual
(1) Purpose of Producing Trust Inspection Manual
The FSA has steadily developed the inspection framework by producing financial inspection manuals, etc., since 1999. As part of such efforts, the FSA has recently produced an inspection manual for trust operations of financial institutions engaged in trust business.
The role of trust operations of financial institutions engaged in trust business is becoming increasingly important, considering the advances in financial technologies and market trends, as exemplified by the increasing number of cases in which trusts are utilized as a vehicle of asset liquidation and securitization in recent years. The FSA believes it was the right time to produce the Trust Inspection Manual at this point.

(2) Background to Publication of Trust Inspection Manual
In April 2006, a study group including experts and professionals in the private sector was established within the Inspection Bureau of the FSA. The study group began looking into preparing the Trust Inspection Manual from a specialized and technical viewpoint, and held discussions from various angles.
A draft of the Trust Inspection Manual was put together based on its studies, and opinions were sought broadly from the general public. The draft was examined based on the opinions and comments received, and the final draft of the Trust Inspection Manual was compiled and issued in the form of an official notice from the Director-General of the Inspection Bureau.
The Trust Inspection Manual will be applied to inspections conducted in Program Year 2006 (July 2006) and thereafter.

(3) Application of Trust Inspection Manual
Banking operations and trust operations will be clearly distinguished from each other in inspections targeted at financial institutions engaged in trust business: inspections will based on the Trust Inspection Manual in relation to trust operations and problems unique to financial institutions engaged in trust business, and on Financial Inspection Manuals in relation to banking operations.
Moreover, as trust products handled by financial institutions engaged in trust business vary widely and are diverse in features, the Trust Inspection Manual explicitly states that when applying the Manual, inspectors should give due consideration to the features of trust products, in addition to the size and characteristics of the financial institution, so that it would not be implemented in a mechanical/monotonous manner.

2. Focus of Each Checklist
(1) Trust Operations Management Systems Checklist

The Trust Operations Management Systems Checklist consists of four check items relating to internal control systems for properly managing trust operations in general: I. Management in General; II. Compliance with Laws and Regulations; III. Risk Management; and IV. Internal Audit.

Check items in I. Management in General include: (1) whether or not management policies for trust operations have been clearly defined; (2) whether or not management policies for trust operations address the fulfillment of the duty of care of a good manager, duty of loyalty, duty of segregated custody, etc.; and (3) whether or not management policies for trust operations address the development of a system to prevent conflict of interest.
Check items in II. Compliance with Laws and Regulations, III. Risk Management and IV. Internal Audit include whether or not staff with sufficient knowledge and experience of trust business are assigned.

(2) Management Systems for Trust Acceptance Checklist
When concluding a trust agreement, a financial institution engaged in trust business needs to accept trust with a proper explanation of the terms and conditions of the agreement, etc.
Accordingly, this checklist is designed to examine the development status of the management system for trust acceptance and the fulfillment status of its functions, and consists of such check items as: (1) whether or not the financial institution identifies the attributes of the trustor (knowledge, objectives, experience, asset position, etc.) and confirms that there are no problems in the individual solicitation activities in view of suitability; (2) whether or not the financial institution is fulfilling its duty to provide an explanation as a trustee such as providing an explanation of risks to trustors as obliged by laws and regulations and information on matters required for making an investment decision; and (3) whether or not the financial institution is performing any acts prohibited by laws and regulations in relation to the trust acceptance under a trust agreement, such as making false statements and making assertions in view of trustor protection.

(3) Screening Systems for Trust Acceptance Checklist
It is important that a financial institution engaged in trust business ensures a system to only accept trusts that enable the execution of operations concerning trust business under laws and regulations and trust agreements by properly screening the trustor's objectives, trust assets, etc., before concluding a trust agreement, in view of: (1) whether or not the duty of care of a good manager and other such duties as a trustee can be fulfilled; (2) whether or not the responsibilities as a legal owner can be fulfilled; and (3) whether or not it would result in taking part in illegal acts, etc., by the trustor.
Accordingly, it is necessary to conduct appropriate screening for trust acceptance by developing a system to properly screen new products, new schemes, etc., in advance and conduct screening for acceptance.
For this purpose, this checklist is designed to examine the development status of the screening system for trust acceptance and the fulfillment status of its functions, and consists of such check items as: (1) whether or not the terms and conditions or the scheme of the trust agreement are aimed at evasion of laws or prohibited by laws and regulations such as money laundering; (2) whether or not the financial institution confirms and examines in detail the terms and conditions of the trust agreement are not based on the trustor's inappropriate objectives (such as concealment of losses, avoidance of disclosure and tax avoidance); (3) whether or not the financial institution confirms and examines off-balance-sheet liquidation transactions are acceptable as off-balance sheet items in accounting terms; (4) whether or not the financial institution confirms and examines the appropriateness of the entrusted amount (amount of trust) so that it does not contribute to the trustor's fraudulent accounting procedures or undermine the beneficiary's interests as a result of overvaluation of trust assets by overestimating the proceeds from trust assets when accepting trust in a liquidation scheme; and (5) whether or not there is a system to confirm the existence of any violations of building-related laws and regulations in cases where the trust asset is real estate, and if there are violations, examine whether it is possible to fulfill the owner's responsibility as a trustee by such means as identifying the actual situation, etc., and restoring it to a legal state within a reasonable restoration period.

(4) Trust Asset Management Systems Checklist
Financial institutions engaged in trust business are required to manage trust assets by exercising care of a good manager, including the segregated custody of trust assets and the protection of trustors' rights without fail.
For this purpose, this checklist is designed to examine the development status of the trust asset management system and the fulfillment status of its functions, and consists of such check items as: (1) whether or not the financial institution engaged in trust business has a system for segregated custody of trust assets to clearly distinguish between the accepted trust assets and its own assets and other trust assets and properly determine the respective beneficiaries of the trust assets; (2) whether or not the financial institution properly performs cross-checks with covenants and delivery settlement in cases where trust assets are invested in securities according to the orders of the person who has the right to give investment orders such as the trustor; (3) whether or not the financial institution promptly collects accurate information on allotment to shareholders, mergers, demergers and other corporation actions, etc., that give rise to changes in the value of shares and corporate bonds, and properly protects the rights so that the trust assets would not incur losses; (4) whether or not the financial institution observes the clauses of the trust agreement regarding the management of trust assets in the form of real estate such as land and buildings, and if a real estate with such problems as environmental risks are accepted, whether or not it takes such measures as monitoring aimed at identifying changes in the situation regarding the problems and solving the problems in light of owner responsibility and trustee responsibility.

(5) Trust Asset Investment Management Systems Checklist
A financial institution engaged in trust business needs to invest trust assets in consideration of the duty of care, duty of loyalty, etc.
Accordingly, this checklist is designed to examine the development status of the trust asset investment management system and the fulfillment status of its functions, and consists of such check items as: (1) whether or not there is a system to observe the trust agreement and operational guidelines, etc., which provide for asset allocation, diversified investment, etc., in order to fulfill the duty of care; (2) whether or not the financial institution has developed a system to execute trading under the best terms for the customer based on the disclosed indicative price and trade terms in cases where trust assets are invested in securities; (3) whether or not there is a system to explain the trust asset investment policies, etc., and report the investment results to the trustor appropriately; and (4) whether or not there is a system to prevent transactions which give rise to conflict of interest in view of the duty of loyalty to the beneficiary.
In particular, (4) is the most important item in trust asset investment management. Financial institutions engaged in trust business operate in a business environment where various activities are prone to give rise to conflict of interest as they invest both their own assets and trust assets. Therefore, it is necessary for the financial institutions to prevent activities that give rise to conflict of interest so that they do not pursue their own interests or interests of a third party, etc., at the expense of the interests of trust accounts.
Furthermore, check items aimed at ensuring the soundness of bank accounts are established in the risk management system item of V. Trustees' Assets (bank accounts). As financial institutions engaged in trust business handle deposits, etc., it is important to execute business operations in such a manner that protects both beneficiaries and depositors when running trust operations.

(6) Checklist for Side-business Risk Management Systems
Financial institutions engaged in trust business can engage in side businesses referred to in each item of paragraph 1, Article 1 of the Law Concerning Trust Operations of Financial Institutions, etc. It is necessary to engage in operations with full awareness of the characteristics of the operational risks and system risks arising from such side businesses, as well as the laws and regulations, etc., that must be observed in relation to side businesses.
Accordingly, this checklist is designed to examine the development status of the side-business risk management system and the fulfillment status of its functions, and the consists of check items regarding whether or not a system has been developed to ensure the appropriateness of will executor services, transfer agent services, real-estate-related services and pension plan management services among side-businesses which can be operated by financial institutions engaged in trust business.

3. Conclusion
The Trust Inspection Manual is regarded fundamentally as a handbook to be used by inspectors when inspecting the trust operations of financial institutions engaged in trust business. Financial institutions engaged in trust business are expected to make full use of their creativity and ingenuity in consideration of this Manual, etc., based on the principle of self-responsibility, voluntarily prepare internal regulations and supplementary operational rules according to their size, characteristics and nature of their respective operations, ensure soundness and adequacy of their operations and strive to protect trustors and beneficiaries.
Moreover, it is hoped that sharing the check items in the Trust Inspection Manual with financial institutions engaged in trust business will lead to more efficient and effective inspections through the two-way dialogues between financial institutions and inspectors during inspections, and help improve the transparency of financial administration.

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Revision of Inspection Manual for Insurance Companies


1.

 Introduction

Recently, the Financial Services Agency (FSA) has radically revised the ''Inspection Manual for Insurance Companies'' prepared in June 2000 (hereinafter referred to as ''Insurance Inspection Manual'') in order to turn it into an inspection handbook that is more in tune with the actual state of insurance companies. Upon revising the Insurance Inspection Manual, the FSA publicly released the draft and invited the general public to submit opinions, and after making necessary corrections, issued and published it in the form of an official notice from the Director-General of the Inspection Bureau on June 30, 2006. (For the sake of convenience, the Insurance Inspection Manual prior to the revision will be referred to as ''the old Manual'' and the revised version as ''the revised Manual''.)
This article provides a brief explanation of the revised Manual.

2.

 Overview of Revised Manual
In the revised Manual, ''internal control system'' and ''compliance system'' are regarded as focuses common to all insurance companies. In consideration of the operations of insurance companies, items to be checked during inspection are sorted by dividing the items into ''insurance solicitation'', ''customer protection, etc.'', ''financial soundness and actuarial calculations'', ''product development'', ''insurance underwriting risks'', ''asset management risks'' and ''operational risks, etc.'' While the revised Manual is written on an operation-by-operation basis unlike the old Manual, various risks subject to verification under the old Manual continue to be treated as check items.
The revision is thoroughgoing, taking into account the formulation of the ''Comprehensive Guideline for Supervision of Insurance Companies'', the amendment of laws and regulations relating to insurance business and changes in the socioeconomic climate.
The revised Manual will be applied to inspections conducted from inspection year 2006 onwards (July 2006 and thereafter). All insurance companies are within the scope of application, including overseas branches of insurance companies, Japanese branches of foreign insurance companies and specific corporations.

3.

 Content of Each Checklist
(1) Checklist for Internal Control System

As management discipline needs to function effectively and internal control needs to be exercised properly at insurance companies, the FSA prepared a checklist for the internal control system of insurance companies.
''Internal control system'' addresses the role of the board of directors, etc., risk management, internal audit, external audit, and the role of actuaries. For example, the role of directors and the board of directors is to confirm that: (1) corporate ethical standards have been established and a system to secure such standards in concrete terms has been developed; (2) management policies and management plans have been formulated and are made common knowledge; (3) information required for governance is obtained/shared, examined, analyzed and discussed; (4) basic policies have been formulated to establish a framework required for ensuring operational adequacy, etc.; (5) decisions are made regarding the execution of operations, and the execution of operations is supervised; (6) the duty of care of a good manager and the duty of loyalty are fulfilled; (7) divisions in charge of compliance, risk management and internal audits are properly assessed; and (8) an information disclosure framework has been established.

(2) Checklist for Compliance System
This a checklist for confirming the extent to which the compliance system is developed and established in consideration of the importance of insurance companies' compliance with laws and regulations, etc. in all aspects of their operations, based on the view that it is necessary to develop and establish a compliance system on a company-wide scale. ''Compliance system'' is regarded as a focus common to all insurance companies, as is ''internal control system''.
This checklist consists of such items as the extent to which the compliance system is developed/established, response to scandals, scope of business, identification, report of suspicious transactions, etc.

(3) Checklist for Insurance Solicitation Management System
The FSA prepared a checklist for insurance solicitation management systems, due to the need to develop and establish appropriate insurance solicitation management systems for the purpose of protecting customers upon the solicitation and conclusion of insurance contracts.

Adequacy of insurance solicitation will be verified on the basis of check items that are distinguished between life insurance policies and non-life insurance policies, as well as newly-established items that are common to life and non-life insurance policies in light of the increase in ''third-sector'' products and the spread of cross-selling.

(4) Checklist for Management System for Customer Protection, etc.
Insurance contracts need to be managed in an appropriate and speedy manner in view of protecting customers' interests, etc. Moreover, a system to make appropriate judgments and promptly perform clerical processes must be developed to perform work associated with the payment of claims, which is one of the most fundamental and important functions that form the foundation of the operations of insurance companies. In addition, an appropriate management system must be developed and established to deal with customer complaints, etc. and handle customer information. For this reason, the FSA prepared a checklist for management systems for customer protection, etc.
''Management system for customer protection, etc.'' is a new item group created as part of the latest revision, and consists of such items as an insurance contract management system, claims payment management system, complaints handling system and customer information management system.
Among the above, the checklist addresses the development of a claims payment management system for the purpose of fulfilling the payment of claims in an appropriate manner, in order to protect policyholders, etc. For example, there are check items regarding the extent to which the claims payment management system is developed/established, including the establishment of a claims payment management division, as well as check items relating to the role of the claims payment management division.

(5) Checklist for Financial Soundness and Actuarial Calculations Management System
As the management of financial soundness and actuarial calculations is indispensable for insurance companies to fulfill their responsibilities without fail and to protect policyholders, etc., the FSA prepared a checklist for confirming such a management system.
The checklist addresses the appropriateness of liability reserves, etc. set aside and the adequacy of the solvency margin ratio. Furthermore, the FSA has created a new check item related to the execution of management analysis, considering the importance of conducting stress tests and management analyses such as future cash flow analysis, due to the need for insurance companies to identify the impact of accrual of future liabilities on their financial soundness and to take additional managerial or financial action as necessary.

(6) Checklist for Product Development Management System
Upon product development, insurance companies are required to develop a management system that looks into risk, financial, solicitation, legal and all other aspects based on the principle of self responsibility, in consideration of laws and regulations such as the Insurance Business Law. For insurance products, a more flexible approach is being taken in fields where there are limited problems in terms of protection of policyholders, etc., as exemplified by the gradual shift towards a notification system. Accordingly, it is becoming increasingly important to enhance insurance companies' product development management systems. With this in mind, the FSA has created a specific checklist for insurance product development management systems and product-release follow ups.

(7) Checklist for Insurance Underwriting Risk Management System
As insurance underwriting has a substantial impact on the management of insurance companies in the long run, the FSA has created a checklist for insurance underwriting risk management systems.
Insurance products are peculiar in that the premium is determined when an insurance contract is concluded and security is assured thereafter based on future income and expenditure projections. They are exposed to the risk of the economic climate, incidence of insured events, etc. changing in ways not predicted at the time the premium was decided. The FSA has created this item group in consideration of the importance of managing such risks that are unique to insurance companies.

(8) Checklist for Asset Management Risk Management System
As it is important to engage in asset management in consideration of the whereabouts of risks associated with asset management, the characteristics of liabilities, etc., the FSA has created a checklist for asset management risk management systems.
Market risk management systems, credit risk management systems and real estate risk management systems are brought together under asset management risk management systems. The Credit Risk Assessment Manual is treated as an accompanying document for reference, in consideration of the operations of insurance companies and to ensure user-friendliness for inspectors.

(9) Checklist for Management System for Operational Risks, etc.
The FSA has created a checklist for the management system of operational risks, etc., in consideration of the importance of managing operational risks, information system risks, etc. that exist in all operations.
In addition to check items relating to operational risk management systems, information system risk management systems and liquidity risk management systems, the FSA has created a new check item for crisis management systems, and created an item group named management systems for operational risks, etc. as a whole.

(10) Accompanying Reference Materials
The revised Manual treats the On-Site Business Operation Checklist and Credit Risk Assessment Manual as accompanying reference materials, in order to make it user-friendly for inspectors. The On-Site Business Operation Checklist shows examples to be utilized by inspectors when conducting a site investigation at business establishments, etc. of insurance companies, life insurance agents and non-life insurance agencies.

4.

 Conclusion
The Insurance Inspection Manual is regarded purely as a handbook to be used by inspectors when inspecting insurance companies. Each insurance company is expected to voluntarily prepare a more detailed manual according to its size and characteristics, ensure soundness and appropriateness of the insurance company's operations and protect customers by fully demonstrating its creativity and ingenuity in accordance with the Insurance Inspection Manual, etc. based on the principle of self-responsibility.
The FSA believes that the development of the Insurance Inspection Manual will contribute to further improvements in its functions to inspect insurance companies. Sharing the check items in the Insurance Inspection Manual with insurance companies should lead to more efficient and effective inspections based on enhanced dialog between insurance companies and inspectors during inspections, and should also help improve the transparency of financial administration.
 

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