IwaiCosmo Holdings, Inc.

The Group, whose principal business is financial instruments trading, is highly susceptible to domestic and overseas economic conditions, and its earnings can fluctuate significantly depending on trends in stock, interest rate, and foreign exchange markets. In a downturn in market conditions, earnings may decrease, potentially affecting the Group's operating results and financial position. Market fluctuations are an external factor and represent a risk that is difficult for the Group to control.

The Group is subject to extensive regulation, including the Financial Instruments and Exchange Act, financial instruments exchange rules, and the self-regulatory rules of the Japan Securities Dealers Association, and changes in regulation may affect business operations. In particular, if it becomes difficult to maintain the capital adequacy ratio (120% or higher) required of financial instruments business operators, there is a risk that the authorities may order a suspension of business or revocation of registration. Regulatory tightening or the introduction of new regulations may also result in increased costs or business constraints.

If the Group's financial condition deteriorates, it may become difficult to raise funds, or the Group may be forced to raise funds at higher interest rates. An increase in funding costs or an inability to raise funds would have a direct adverse effect on the Group's operating results and financial position. Liquidity risk tends to materialize during periods of financial market turmoil, and attention must also be paid to fluctuations in funding needs specific to the securities business.

If a counterparty defaults on its obligations, including settlement obligations, or if the creditworthiness of an issuer of securities held by the Group deteriorates significantly, the Group may incur losses due to principal impairment, delayed interest payments, or similar factors. The materialization of credit risk directly results in losses affecting operating results and financial position. Continuous monitoring of the financial condition of counterparties and issuers is important.

If information systems are halted or interrupted due to physical disruptions such as fire, earthquake, or power outage, program failures, or unauthorized external access, customer services may be disrupted. Since systems form the foundation of trade execution in the securities business, the impact of any failure extends to operating results and financial position. Stable system operation is a critical issue directly linked to maintaining customer trust.

If losses arise from accidents or misconduct by officers or employees, or from inaccurate administrative processing, the Group's social credibility may be damaged, potentially affecting its operating results and financial position. The securities business requires a high degree of administrative accuracy, and human error or internal misconduct can lead directly to harm to customers. Developing and operating internal controls remains an ongoing challenge.

Although the Group has implemented strict security measures, if customers' personal information or the Group's information is leaked due to computer virus infection, unauthorized access, or intentional or negligent acts within the company, this could result in liability for damages and a loss of social credibility. The leakage of personal information is a risk that fundamentally undermines the relationship of trust with customers, and as a financial institution, particularly high management standards are required. As cyberattacks become more sophisticated and diverse, continuous strengthening of security is necessary.

In response to risks such as natural disasters, system failures, and the spread of pathogenic infectious diseases, the Group has developed a Business Continuity Plan (BCP) to minimize impact on stakeholders. However, should these risks actually materialize, they may affect the Group's operating results and financial position. Despite the development of a BCP, the risk remains that business continuity could be disrupted in the event of a large-scale disaster or unforeseen spread of infectious disease.

Although the Group strives to prevent disputes through a customer-first business approach and an emphasis on compliance, if trouble arises for any reason, it could develop into litigation and result in liability for damages, among other consequences. The occurrence of litigation entails not only a direct financial burden but also the potential erosion of the customer base through a decline in social credibility. Given the nature of the financial instruments business, differences of opinion with customers can easily arise, requiring continuous compliance management.