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Internal Control

Establishing an Internal Control System

SBI Holdings believes that in order to enhance its corporate governance, it is crucial to create an internal control system and to conduct business through a sound internal control system. With respect to developing the internal control system, the Representative Director ensures every executive and employee thoroughly apprehends that compliance with the law and adherence to ethical behaviors are the cornerstones of realizing the SBI Group's corporate management philosophy and vision.

To identify compliance problems and issues, the Board of Directors has determined a director in charge of compliance while establishing the Legal and Compliance Dept. to serve as the compliance division under the direct control of the aforementioned director. Moreover, SBI Holdings has installed a whistle-blowing system that enables directors and employees to directly report to the Statutory Auditors and the internal audit division an organization independent from both operations management and administrative divisions, upon perceiving any violation of the laws, regulations, the Articles of Incorporation, or other compliance-related material facts within SBI Holdings. The Company has established a system that fully prioritizes compliance through mutual supervision among multiple departments so that all processes of its business activities are ensured to thoroughly comply with the laws, as well as contracts and rules. In addition, SBI Holdings periodically conducts compliance trainings via e-learning and other means to raise awareness and advance knowledge of compliance-related matters of its executives and employees (including temporary employees).

Furthermore, in cooperation with the SBI Group companies' compliance personnel, the director in charge of compliance and the compliance department regularly holds meetings to exchange information throughout the Group.

"IV. Matters Related to the Internal Control System" of the Corporate Governance Report
Compliance

Auditor's audit

The Statutory Auditors are responsible for ensuring an effective corporate governance structure worthy of public trust by auditing the execution of duties by Directors as organs that are independent from executive organs. The SBI Holdings' Board of Statutory Auditors is composed of four Statutory Auditors, of whom two are Outside Statutory Auditors.
One out of the two Statutory Auditors who are not Outside Statutory Auditors is a Standing Statutory Auditor and has many years' experience of accounting operations and knowledge of finance and accounting in the capacity of a certified public accountant, while the other has experience of working for many years at financial institutions and has extensive knowledge of the financial sector in general. Meanwhile, one of the Outside Statutory Auditors is a Standing Statutory Auditor and has many years of experience working for financial institutions and the financial authorities and has extensive knowledge of the financial sector in general, and the other has vast experience and expertise as a certified public accountant and tax accountant and has a considerable degree of acumen in finance and accounting.

As for the actual auditing procedures, by conforming to the Statutory Auditors' Audit Standards determined by the Board of Statutory Auditors, the Statutory Auditors attend Board meetings and other important meetings, view important approval documents and others, while exchanging opinions as appropriate with Representative Directors and Directors. In addition, they conduct their audits of the Company's internal control system in accordance with Audit Practice Standards for Internal Control Systems.

The Board of Statutory Auditors work closely with the internal audit division through regular information exchanges, as well as receive summaries on the annual audit plans and quarterly and full-year auditing results, discuss major auditing considerations with the accounting audits while conducting information sharing and exchange of opinions where necessary on managerial problems and issues.

Thus, SBI Holdings obtains the appropriateness of its corporate governance by organically combining various audits performed by the Statutory Auditors, the internal audit division and the accounting audits. In the fiscal year ended March 2021, SBI Holdings held 15 Board of Statutory Auditors' meetings.

Internal audit and accounting audits

The Company has an internal audit division which is an organization that is independent from both business operation management and administration divisions. The internal audit division comprehensively and objectively evaluates the appropriateness of internal control systems which includes legal compliance, the appropriateness of business operations and the appropriate operation of internal controls and proposes improvements for and follows up any issues identified as a result of the audit. The internal audit division obtains assistance from Executive Officers and outside experts if necessary, when conducting audits.

The audit results are reported to the Representative Directors and the Board of Directors without delay after completion of individual audits and are also reported regularly to the Statutory Auditors.

The internal audit division is composed of a general manager and members who have specialist knowledge of audits (internal audits, accounting audits, internal control, etc.), and it conducts audit procedures with reference to general internal audit standards, etc.

Mutual cooperation between internal audits, auditor's audits and accounting audits and relationship between these audits and the internal audit division

After the completion of each individual audit, the results are regularly reported to and opinions are exchanged with the Board of Statutory Auditors separately from the Board of Directors. In addition, organic collaboration is carried out by incorporating the requests of the Board of Statutory Auditors into the selection of audit themes and the scope of the audit.

In terms of the relationship with the accounting auditor, the internal audit division exchanges information centered around internal control over financial reporting as appropriate.

To understand the risks and information of the audited parties, opinions are exchanged as appropriate with the Internal Control Division and related materials and information are obtained in each audit.

<Outline of Internal Control System>

Internal Control Report

Basic framework for the internal control over financial reporting

Yoshitaka Kitao, Representative Director of SBI Holdings and Hideyuki Katsuchi, Executive Officer in charge of Accounting and Finance of SBI Holdings are responsible for the maintenance and operation of the internal control of financial reporting of SBI Holdings. We maintain and operate internal control over financial reporting in accordance with the basic framework for internal control indicated in "Standards for evaluation and audit of internal control over financial reporting and revision of implementation standards for evaluation and audit of internal control over financial reporting (Opinion)" published by the Business Accounting Council.

Internal control seeks to achieve its objectives to a reasonable extent by organically connecting each basic element of internal control and functioning as one. Therefore, internal control over financial reporting may not be able to completely prevent or identify misstatements in financial reporting.

Valuation scope, reference date, and valuation procedures

The assessment of internal control over financial reporting was based on a reference date of March 31, 2021, the last day of the fiscal year ended March 2021, and the assessment was made in accordance with the assessment standards for internal control over financial reporting generally accepted as fair and appropriate .

In this assessment, operational processes to be targeted for evaluation were selected based on the results of the evaluation of internal controls that have a significant impact on consolidated financial reporting as a whole (company-wide internal controls).
The evaluation of the operational processes are conducted by analyzing the selected operational processes, identifying key control points that have a significant impact on the reliability of financial reporting, and assessing the maintenance and operation status of these key control points.

The necessary range of the assessment of internal control over financial reporting was determined for SBI Holdings and its consolidated subsidiaries and equity method affiliates from the perspective of the materiality of the impact on the reliability of financial reporting.
The importance of the impact on the reliability of financial reporting is determined by considering the materiality of the monetary and qualitative impacts. Thus, based on the results of the company-wide internal control assessment for SBI Holdings and its 58 consolidated subsidiaries, etc. (including one equity method affiliate), the scope of assessment for internal control over operational processes were rationally determined. Consolidated subsidiaries and equity method affiliates with insignificant monetary or qualitative impact are not included in the scope of assessment of company-wide internal control.

As for the scope of assessment for internal control over operational processes, we selected business sites that reached approximately two-thirds of consolidated total assets in the descending order as important business sites by combining the total assets of each business site (after consolidation adjustments).
At the selected key business sites, in consideration of each business's specific properties, the operational processes leading to account headings, which are related to the company's business objectives, such as "revenues," "cost of sales," "trade and other receivables," "deposits," "margin transaction assets," "operating investment securities," "margin transaction liabilities," "deposits from customers," "guarantee deposits," "customer deposits " etc., were covered.
Furthermore, not only the selected important business sites, but also other sites are included in the scope of evaluation, with consideration of the impact on financial reporting of operational processes related to businesses or operations that have a high possibility of material misstatement, significant account items that involve estimates, projections or transactions with significant risk. We add these operational processes to the evaluation targets as operational processes with high materiality, taking into account their impact on financial reporting.

Information on evaluation results

Following the evaluation above, SBI Holdings determined that its internal control over financial reporting was effective as of the fiscal year ended March 2021.

Additional information

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Special note

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