SBI Holdings, Inc.

The Group has established a cross-organizational framework consisting of the Group CSIRT and the information security officers of each company, but there is a risk that vulnerabilities at outsourced third parties, including external contractors, or new attack methods could result in the leakage or damage of personal information and confidential information. Should this risk materialize, it could lead to claims for damages from customers, administrative sanctions from regulatory authorities, and a decline in the reputation of the Group as a whole, potentially having a material impact on the Group's business results and financial condition. Although the Group continuously improves its countermeasures with reference to international standards such as ISO/IEC 27001, it recognizes that complete prevention is difficult.

The Group operates a wide range of financial businesses including securities, banking, insurance, and crypto asset exchange services, and is subject to extensive laws and regulations such as the Financial Instruments and Exchange Act, the Banking Act, the Insurance Business Act, and the Payment Services Act. Should there be enforcement or amendment of laws and regulations, or differences of opinion with regulatory authorities, there is a risk of receiving administrative sanctions such as business improvement orders, business suspension orders, or revocation of registration, which would directly impede business operations. In particular, the risk of business suspension in the event that the capital adequacy ratio falls below regulatory requirements (securities: 120%, banking: 4.0%) could have a significant impact on financial condition.

The earnings of the Securities-Related Business are highly dependent on stock prices and stock market trading volume, and trading volume tends to decline when stock prices fall. In addition, the Banking Business faces risks of bond price declines due to sharp interest rate increases and the need for additional credit loss provisions, while in the Investment Business, changes in the fair value of held investment securities are recognized in profit or loss each quarter under IFRS, meaning that market fluctuations are directly reflected in business results. These market risks are significantly influenced by external factors beyond the Group's control.

As the Group primarily uses the internet as its sales channel and provides financial services such as securities, banking, and insurance online, stable system operation is fundamental to business continuity. Should a system failure occur due to hardware or software malfunction, human error, communication failure, natural disaster, or other causes, this could result in erroneous or delayed transaction processing, service outages, and liability for damages, as well as a decline in trust in the Group as a whole. Although the Group has implemented measures such as 24-hour, 365-day monitoring, redundant core systems, and backups at multiple locations, it recognizes that complete prevention is difficult.

While the Group's basic policy is to expand its business scope through active M&A, this involves risks such as difficulty integrating acquired companies, failure to achieve expected synergies, impairment of intangible assets including goodwill, and the departure of key personnel from acquired companies. In the case of overseas acquisitions, foreign exchange risk, local regulatory risk, and country risk are added, and there is a possibility that necessary approvals from regulatory authorities may not be obtained within the required timeframe. The materialization of these risks could impact the Group's business results and financial condition.

The Group holds a large amount of investment securities, including investments in affiliated companies, and there is a risk of valuation losses arising from deteriorating credit market conditions or sharp increases in interest rates. In addition, loans to operating companies and others may require additional bad debt losses or credit loss provisions due to deterioration in the borrower's business performance, and there is also a risk of additional credit loss provisions related to real estate market conditions. In the Consumer Finance Business, there remains a possibility that provisions for claims for reimbursement of excess interest payments may be insufficient.

The Group raises operating funds through equity financing, borrowings from financial institutions, and issuance of corporate bonds, but there is a risk that deterioration in global financial markets, rising interest rates, or credit rating downgrades could make it difficult to raise funds on favorable terms. In the Banking Business as well, liquidity risk could materialize due to sluggish growth in the retail banking deposit base, changes in the bond market, or instability in foreign currency funding. A rating downgrade could also adversely affect short-term fund procurement in the interbank market and the terms of derivative transactions.

The structure whereby compliance violations, scandals, or customer service issues at a single company bearing the "SBI" brand directly affect the reputation of the Group as a whole means that the actions or misconduct of officers and employees, joint venture partners, or alliance partners could also lead to unfavorable media coverage of the Group. In addition, fraudulent acts impersonating the Group's trade name or representative director have occurred, and there is a risk of reputational damage even in cases where the Group is not at fault. A decline in customers or entrusted assets, as well as adverse effects on fundraising and personnel recruitment, could impact the Group's business results and financial condition.

The Group operates as a registered crypto asset exchange business operator, and fluctuations in crypto asset prices and trading volume directly affect earnings, in addition to the risk of loss of crypto assets due to unauthorized access to electronic wallets. The business environment may change significantly due to the enactment or revision of laws and self-regulatory rules, and there is also credit risk arising from the inability to respond to sudden price fluctuations affecting customers in margin trading. The materialization of these risks could lead to the occurrence of substantial obligations to compensate customers or administrative sanctions.

The Group's management is dependent on the leadership of key persons, including Representative Director Yoshitaka Kitao, and if the current management team is unable to continue operating the business, this could impact the Group's business results and financial condition. The annual securities report explicitly states that corrective measures in response to the loss of a key person may not take effect immediately, or may not be effective at all, making the effectiveness of succession planning a challenge. The stability of the management structure overseeing the Group's diverse range of businesses is an important factor for investors to consider.