AEON Financial Service Co.,Ltd.

In critical IT projects such as DX promotion and core system renewal, if release delays, insufficient functionality, or quality deterioration occur, this may impact business performance and financial condition due to investment cost overruns and other factors. As a countermeasure, multilayered monitoring of development plans, processes, and quality is implemented, and a unified development structure is maintained with mutual checks and balances with vendors. Progress on critical projects is reported monthly to the Internal Control Promotion Committee.

If IT systems, including the company's own systems and those of third parties, stop, are disrupted, or malfunction due to defects, natural disasters, human error, or other causes, this may impact business performance and financial condition. Measures are taken including building and strengthening monitoring systems, distributing and adding redundancy to systems and data, and formulating and training on recovery plans, with pre-transaction screening conducted for outsourcing partners.

The threat of cyberattacks facing financial institutions is intensifying, including attacks utilizing AI technology and methods that route through third parties, and if service outages, data damage, or information leaks occur, this may impact business performance and financial condition. In addition to implementing technical measures, CSIRTs (Computer Security Incident Response Teams) have been established at major group companies, and responses are handled through unified training with group companies and industry associations, as well as strengthened cooperation with external experts.

If violations of laws and regulations related to anti-money laundering and countering the financing of terrorism (AML/CFT) occur, this may result in legal sanctions and adverse effects on brand image and customer trust. During the fiscal year under review, a business improvement order was issued by the Financial Services Agency regarding AML/CFT at a group company's banking business, and efforts are underway to address this through review of business flows, comprehensive verification by external experts, and training of officers and employees.

Many of the services provided by the Group are based on licenses and permits under laws and regulations, and if there are inadequate responses to changes in or new laws and regulations, or if administrative sanctions are imposed due to violations, this may impact business performance and financial condition through restrictions on business activities. The company monitors trends in amendments to relevant laws and regulations in each country, identifies compliance risks, strictly manages deadlines, and conducts regular training for officers and employees.

As personal credit business such as credit cards, installment sales, and housing loans accounts for a large proportion of business, if customer credit conditions change due to significant deterioration in economic conditions or turmoil in financial markets, and credit-related expenses exceed expectations, this may impact business performance and financial condition. Changes in the external economic environment and credit conditions by product and region are reflected in screening criteria in a timely manner, and repayment status monitoring and credit line reviews are conducted even after transactions begin.

Financial crimes such as phishing scams are becoming more sophisticated and elaborate, and unauthorized use increased during the fiscal year under review. If an appropriate response cannot be made, this may lead to decline in trust and reputation, as well as additional response costs and compensation costs for affected customers, impacting business performance and financial condition. Measures implemented include the introduction of secure one-time passwords using emojis, the formation of a specialized security enhancement team, and strengthened monitoring and proactive shutdown of phishing sites.

In domestic operations, there is an interest rate repricing gap related to long-term financial products such as housing loans, and in the banking and insurance businesses, securities investments including foreign securities, bonds, and equities are conducted, so significant fluctuations in interest rates, foreign exchange, and stock prices may impact business performance and financial condition. There is also foreign exchange fluctuation risk associated with business expansion in various Asian countries. Measures taken include reducing the interest rate repricing gap through the use of long-term funds such as corporate bonds, measuring risk volume using Value at Risk, managing risk limits, and regularly monitoring impact levels.

In overseas expansion primarily in the Asian region, if disruptions to trade and investment due to war or diplomatic tensions, or financial crises, political instability, or social unrest materialize, the customer environment, business operations, and economic environment in the relevant country or region may change significantly, potentially impacting business performance and financial condition. The company conducts market research and analysis at both macro and micro levels, gathers information through collaboration with AEON Group companies and local Japanese companies, and has established a system to consider responses through the Internal Control Promotion Committee and other bodies when signs of situational change are recognized.

Although funding is raised through deposits, borrowings, corporate bonds, commercial paper, receivables securitization, and other means, if there are sudden fluctuations in financial market conditions or economic trends, or a decline in creditworthiness or credit ratings, this may impede fund procurement. Measures taken include timely fund management through continuous cash flow monitoring, diversification of funding methods, and adjustment of the balance between short-term and long-term funding, while in the banking business, risk is controlled by setting the ratio of liquid asset holdings and funding gap limits.