(Provisional Translation)

April 23, 2004
Financial Services Agency
The Government of Japan

Administrative Actions on the NikkoCiti Trust and Banking Corporation

1. According to the incident report from the NikkoCiti Trust and Banking Corporation [hereinafter referred to as ''the Bank''], inspection result by the Financial Services Agency [hereinafter referred to as the ''FSA''] of the Bank [noticed on March 2004] and the Bank's subsequent report to the FSA in response to the FSA's Reporting Order based on Article 24 (1) of the Banking Law and other related trust laws, it is confirmed that there exist serious violations of laws and problems concerning the management's commitment and internal control with regard to compliance in the areas of operating and control of the trust business.

[1]	From 1997 to 2003, the Bank received some funds of investment profits from managing fiduciary properties in off-the-book accounts owned by the Bank and did not book timely proceeds received in beneficiaries' accounts of the trust. The Bank repeated the transactions and acts of making disbursements for other purposes and transferred those proceeds to other beneficiaries, and also booked the proceeds to the Bank's account from off-the-book accounts internally. In these operations, the Bank managed the fiduciary properties as if they had been the Bank's own assets. This violates Article 22 of the Trust Law. Also, during the above period, the Bank did not keep records of the calculations separately between different fiduciary properties. This violates the duty of segregation of books, records, and assets on the fiduciary properties under Article 28 of the Trust Law.
[2]	Apart from the above, it is confirmed that the Bank did not properly reconcile the investment profits from the fiduciary properties and accounts, and left many trust accounts unreconciled. It created such receipts as were left unidentified and caused delays in proper booking to the beneficiary accounts or miscalculations on the investment performance in the variable life insurance products. These constitute violations of Article 20 of the Trust Law which stipulates the duty that trustees should exercise sufficient caution when managing fiduciary properties.
[3]	The misconducts of the Bank resulting in the violations in 1. and 2. above have caused actual losses and impacts on beneficiaries' interests.
[4]	As regards the background of the above-mentioned violations, it is confirmed that the stance of the management was to put emphasis on the expansion of fiduciary properties, but that internal controls including operational and systems management with regard to the trust business have not been properly established in the Bank. Both the management and employees' expertise and experience were not sufficient to properly control the trust business. Moreover, the departments of legal issues and compliance did not function well. A compliance function has not been properly instituted, and the understanding of and compliance with the law and other regulations have not been sufficient, either.
[5]	Moreover, the internal checking and audit functions did not work properly. The failures of control, settlement and clearing for the fiduciary properties and inappropriate operations were left unaddressed for a long time in the Bank. There exists a difficult organizational structure for the Bank to find misconduct at an early stage.
[6]	In addition, with regard to the actions by the Bank after finding the incident at this juncture, the management in the Bank did not take proper action and did not act swiftly to reveal factors behind. The necessary measures were not taken by the Bank to review and resolve issues in the operational and internal controls, which were the backgrounds of many failures and incidents when operating the fiduciary properties.
[7]	In addition to the above-mentioned failures and violations of laws regarding the trust business based on trust agreements with beneficiaries, serious distortions of the Bank's financial statements and disclosure resulted from mistakes in book keeping between banking and trust accounts. As a background of this case, it is confirmed that there was effectively no operational and internal control for finding and correcting those mistakes in advance and that internal audit did not work properly.

2. With the findings above, the FSA today took the following administrative actions to the Bank based on Article 26 (1) and Article 27 of the Banking Law and other related trust laws.

[1]	Suspension Order based on Article 27 of the Banking Law and the related law for trust business in financial institutions The FSA suspend the Bank from engaging in business deals with new customers for control, settlement and clearing of fiduciary properties based on Article 27 of the Banking Law. Simply maintaining the existing accounts and beginning new deals with existing customers shall continue to be allowed. The suspension shall become effective as of April 30, 2004. After November 1, 2004, the FSA may review the suspension order in light of the progress made by the Bank with respect to the implementation of the Corrective Action and Business Improvement Plan ordered to be submitted by the FSA as stipulated in [2] below, when the Bank requests to the FSA for resumption of the business suspended.
[2]	Business Improvement Order based on Article 26 (1) of the Banking Law and the related laws for trust business in financial institutions
	A] To secure social trust and install fair and proper operations, the FSA ordered the Bank to enhance the compliance functions [including the enhancement of human resources and organizational aspects] with due emphasis on the following points:   1] to clearly show sincere commitment of the management on compliance with laws and other related regulations and to clarify who should be responsible for trust business in the Bank 2] to strengthen the functions of the legal and compliance departments 3] to take measures to make sure that relevant laws and regulations are properly understood and followed by the management and employees 4] to establish systems where swift reporting and communication will be made when a misconduct takes place and is found B] To establish proper control, settlement and clearing of the fiduciary properties and related substitutions of those operations for the trust of beneficiaries, the FSA ordered the Bank to enhance internal controls [including the enhancement of human resources and organizational aspects] with due emphasis on the following points:   1] to make a thorough review of the current management strategy in the Bank in accordance with the extent of the development of IT system and human resources 2] to rebuild the control systems of operations and processing in response to 1] above and to clarify the people in charge 3] to familiarize the management and employees with the operations and controls for trust business 4] to enhance and strengthen the internal control and monitoring functions in the Bank 5] to build and enhance the internal audit system, and to execute the follow-up of internal audit and to strengthen its follow-up system
[3]	The Bank must submit the Business Improvement Plan to the FSA by May 24, 2004 and implement it promptly.
[4]	The Bank must report its progress in the implementation of the plan to the FSA on a quarterly basis until its completion.