Establishment of "The Policy on Customer-Oriented
Business Conduct" and its "Action Plan"

Shinsei Bank, Limited (hereinafter, "Shinsei Bank," "the Bank") announced that it has established the "The Policy on Customer-Oriented Business Conduct" (hereinafter, "the Policy") to conduct a business focusing on providing "the best options" to its customers as the top priority, and its "Action Plan" for a solid implementation purpose.

Together with Shinsei Bank, our Group companies, namely, Shinsei Trust & Banking Co., Ltd., Shinsei Securities Co., Ltd., and Shinsei Investment Management Co., Ltd. have also established policies to pursue their customer-oriented business conducts.

The Bank and its Group companies establish the Management Principles; "to become a banking group that is sought out by customers, and contributes to the development of both domestic and international industrial economies, while maintaining stable profitability" and "to become a banking group that strives for highly transparent management and values that is trusted by all stakeholders including customers, investors, and employees".

The Bank has provided many innovative services such as the telephone banking service (Shinsei PowerCall) and Internet banking service (Shinsei PowerDirect), the channel assuring the 24 hours a day access, as well as guarantee and prepayment charge-free housing loan services, seeking to fulfill the target of "creating the new retail banking business that can satisfy the true needs of our customers".

With regard to the asset management consulting services for individual customers, Shinsei Bank is providing services and products based on "Shinsei Bank's Three Asset Management Promises" (hereinafter, "three promises"). Shinsei Bank positions the Policy as our guiding principles to conduct our business through provision of "the best options" to the customers on our top priority based on three promises.

Shinsei Bank's Three Asset Management Promises

  • Firstly, we will ask the purpose and needs of asset management to our customers.
  • Secondly, we will suggest products that meet our customer's purpose and needs.
  • Lastly, we will explain the characteristics of each product together with its risks.

All officers and employees of Shinsei Bank and its Group companies recognize the importance of "pursuing customer-oriented business conduct and contributing to our customers' asset formation," and will contribute sustainable growth and development of our society and economy through achievement of the customer-oriented business conduct.

Implementation of the Policy on Customer-Oriented Business Conduct

Shinsei Bank establishes and hereby announces "the Policy on Customer-Oriented Business Conduct" in order to ensure that all of the Group's operations are focused on our respective customers. The Bank will regularly report on the progress of each item stated in the Policy, and will make revisions upon necessity to further improve our business operations.

The Best Interests of the Customers

Shinsei Bank will remain to be true and fair to our customers in all its operations and contemplate their best interests while maintaining the highest standards of work practices and ethics. What Shinsei Bank considers as "the best interests of our customers" are following four points: 1) being able to provide customers with accesses to the Bank's services in the forms they want, including services through the Bank's branches, call centers, and the Internet and social networking services (SNS); 2) providing clear and easily understandable explanations on the premise of existence of considerable differences in amount of information between the customers and the employees; 3) continuing to make efforts to reduce our handling and transaction fees, while providing customers with adequate reasons and explanations for such charges and fees; and 4) being able to offer our customers the products and services that best suit their individual life stages and needs along with necessary follow-ups and supports to ensure our customers' satisfaction and successful experiences; those should eventually result in the Bank's growth.

Shinsei Bank will continue to be elaborative by prioritizing the "best interests of the customers" through our customer-oriented business conduct and by developing such corporate culture.

Appropriate Management of Conflicts of Interest

Shinsei Bank is aware that the most typical case for the conflict of interests between our customers and the Bank would be a possibility for the Bank to prioritize the Bank's profit over the customers' interests when the Group companies are taking parts in origination and investments of products and services. The Bank will manage the potential conflict of interests through the followings: 1) manage conflicts of interests by adding the screening out procedures in our process of selecting the new products and services; 2) introduce a scheduled and continuous monitoring system to review the products and services those have already been sold or provided in order to confirm that they are not subject to conflicts of interests; 3) make clear and appropriate explanations of any potential conflicts of interest between the Bank and the customers to avoid the customers from having unexpected conflict of interests.

Transparency of Expense and Fee Structures

When providing products and services, Shinsei Bank receives the fees, such as handling charges, and commissions (hereinafter, "the fees") from customers which are sometimes separately charged to the customers from the price, or sometimes included in the price. There also are the fees those are not charged to the customers but the Bank receives from the other companies as a solicitation agent, such as consideration for insurance products sales. The fees which the Bank receives from our customers are totally calculated based on the amount of product development, the operational cost such as production of brochures and their postal expense, personnel expense, training expense and the infrastructure expense such as IT system development and maintenance cost. The Bank will provide logical explanations regarding the fees of the financial products the customers have purchased, with clear and easily understandable means.

Providing Important Information in Easily Understandable Ways

Shinsei Bank will provide the clear and supple explanations enough to allow our customers to choose our financial products on their own judgements.

(1)The Bank will attempt to understand the customers' level of financial literacy and experiences and will explain about the potential losses and risks, and terms and conditions to avoid misleading our customers, especially when proposing or selling complicated and high-risk financial products.

(2)The Bank will make full and simple explanations on reasons why the Bank is suggesting the specific products and services, and that the proposed products and services really match the customer needs. Moreover, the Bank will present products considering diversified perspectives including our customers' future cash flows, family situation, ideal future life-style, and financial stability of life after retirement.

(3)We will provide the adequate amount of information on both positive and negative possibilities to our customers when selling or suggesting complicated financial products such as packaged products created by combining multiple financial products and services, making sure of appropriateness for each customer to purchase the products.

(4)In case there are similar financial products and services, the Bank will make possible arrangements to facilitate our customers to make appropriate comparisons and decisions.

Providing Services Suitable for Each Customer

Shinsei Bank will make the best possible development of our products grasping our customers' situation of assets, transaction experiences, financial literacy, investment purpose and needs in total, and will conduct appropriate proposals and sales. The Bank will treat the aged or the customers who needs the special cares upon the maintenance of their asset liquidity especially in careful manner, and will make conservative decisions prior to proposing or selling the financial products. The Bank may even stop providing services or products of complicated or high-risk products.

Frameworks for Appropriate Motivation of Employees

Shinsei Bank will develop our performance evaluation system for branches and employees as well as relevant compensation systems designed to enable them to pursue the best interests of the customers. The Bank will include and consider the employees' appropriate management of conflicts of interest as noted in the above section, "Appropriate Management of Conflicts of Interest," and the positive attitude to fulfill the Bank's three promises to provide financial products and services that are best suited to the customer, as part of our axes of evaluation. Furthermore, the Bank will include the both quantitative and qualitative factors in employees' performance evaluation system, such as increase in deposit assets which could be the result of employee's depth of relationship between their customers and the level of customer satisfaction. The Bank will also conduct the employee trainings to enhance their financial literacy and expertise while improving and strictly maintaining the appropriate governance system.

Implementation Status of the FY2017 Action Plan

In June 2017, we established the Policy on Customer-Oriented Business Conduct (the "Policy") and the Action Plan which was designed to ensure the implementation of the Policy. The following is the description of our situation as of March 31, 2018, which we are disclosing as the Implementation Status of the FY2017 Action Plan.

In addition, we will review the Action Plan and announce the FY2018 Action Plan.

1.Implementation of the Policy on Customer-Oriented Business Conduct

[Action Plan]

  • We will organize structures to periodically confirm and check the implementation status of the Action Plan that corresponds to each item in the Policy.
  • We will compile the results of our confirmation and check and release them on our website or through other means as the "Implementation Status of the Policy."
  • We will consider revising not only the Action Plan but also the Policy as needed.

[Implementation status in FY2017]

We periodically confirm and check the implementation status of the Action Plan that corresponds to the Policy. We hereby disclose the situation as of March 31, 2018 as the Implementation Status of the FY2017 Action Plan.

2.Best Interests of Customers

[Action Plan]

  • We will further enhance our efforts in expanding and improving financial products and services to meet our customers’ needs. We will make special efforts in improving the range of long-term, diversified, and asset-building type financial products and services for customers in the asset building stage.
  • Investment trusts that contribute to customers’ long-term asset building due to the lower level of application fees and trust fees have mainly been offered through the internet channel, however, we will increase offering them through our branches and call centers, as well.

[Implementation status in FY2017]

  1. (1)In January 2018, we began offering the following three funds that are low cost and suitable as long-term, stable investment options, to coincide with the launch of the installment-type NISA.
  • Nomura TSUMITATE Japan Equity Fund
  • Nomura TSUMITATE Foreign Equity Fund
  • Nomura 6 Asset Equal Balance Fund

We had offered installment-type investment trusts before the introduction of the installment-type NISA. For reference, Table 1 shows the changes in the number of customers and the balance in installment-type investment trusts with those as of March 31, 2015 as being 1.0.

Table 1: Number of customers and investment amount
in saving-type investment trusts
Table 1: Number of customers and investment amount in saving-type investment trusts

Table 2 shows the number of customers who began investing in installment-type investment trusts for the first time. The number has been gradually increasing from the first half of FY2014 (which is shown as 1.0). In the second half of FY2017, it stood at approximately 2.27 times that of the first half of FY2014.

Table 2: Number of customers who began investing
in installment-type investment trusts
Table 2: Number of customers who began investing in installment-type investment trusts

With respect to providing financial products and services to customers in the asset-building stage, Table 3 shows the ratio of sales amount of monthly distribution-type investment trusts to the total sales amount of investment trusts. We have been reminding our customers that monthly distribution-type investment trusts do not enjoy the benefit of compound interest and are not necessarily suitable for long-term asset building. As a result, their share in total sales has been declining since the first half of FY2016.

Table 3: Breakdown of sales of monthly distribution-type
investment trusts and other products
Table 3: Breakdown of sales of monthly distribution-type investment trusts and other products
  1. (2)We started offering 20 no-load investment trust funds (16 funds in the Funds-i series and four funds in the Funds-i Focus series) through our branches and call centers (June 2017). We had previously offered these products through the internet only.
  2. (3)We started offering GS Global Big Data Investment Strategy as a diversified investment product investing in global equities (June 2017).
  3. (4)To cater to the needs of customers whose fixed-term deposits were maturing, we introduced World Corporate Hybrid Securities Fund 1712 (Limited Open) (November 2017).
  4. (5)In addition to investment trusts, we introduced the following products and services to cater to the diverse customer needs:
  • As indexes for structured bonds, we added "WTI (crude oil)" and "Turkish lira exchange rate" (August and September 2017).
  • We launched "THEO + Shinsei Bank," an asset management service using robo advisors for individual customers, as a long-term, diversified, and saving-type financial product (November 2017).
  • We also began operating as an administrative financial institution for MYDC-a defined contribution pension service for individuals-as a long-term, diversified, and saving-type financial product (December 2017).
  • We launched Shinsei Power Trust-cash in trust offering performance-based distributions managed and invested by Shinsei Trust & Banking of the Shinsei Bank Group as a fiduciary institution (December 2017).

3.Appropriate Management of Conflicts of Interests

[Action Plan]

  • When selecting financial products and services, a committee consisting of headquarters in charge of individual customers and divisions responsible for compliance and risk management will confirm and check whether any conflict of interests exists.
  • The committee will also continue monitoring financial products and services after their introduction.
  • When we propose financial products and services that potentially have conflict of interest risk, we will make this clear to our customers and provide appropriate explanations to them.

[Implementation status in FY2017]

  1. (1)The Committee met 14 times between June 23, 2017 and March 31, 2018 and confirmed and checked whether any conflict of interests existed for 29 new financial products and services.
  2. (2)The financial products and services raising a concern about a conflict of interest include the financial product brokering service for bonds issued by Shinsei Bank and cash in trust invested and managed by Shinsei Trust as a fiduciary institution. In these cases, we will endeavor to provide appropriate explanations.

Table 4 below shows changes in the ratio of sales amount of investment trusts commissioned by Shinsei Investment Management (SIM)-a Shinsei Bank Group member company-to the total sales amount of investment trusts, although it does not fall under conflicts of interests. Although the ratio exceeded 40% in the second half of FY2015, it has been declining in recent years. In the second half of FY2017, the ratio stood at approximately 16.8%.

Table 4: Ratio of sales amount of investment trusts commissioned
by Shinsei Investment Trust (SIM)
Table 4: Ratio of sales amount of investment trusts commissioned by Shinsei Investment Trust (SIM)

4.Transparency of Expense and Fee Structures

[Action Plan]

  • We will improve the explanations we provide on the expense and fee structure of our financial products and services in our leaflets, brochures, website, and other instruments, to ensure that they are easy to understand and that our customers can examine and compare them with those of other financial products and services without difficulty.
  • We will provide our employees with training to ensure that customers receive explanations on the expense and fee structure of financial products and services that are even easier to understand than before.

[Implementation status in FY2017]

  1. (1)We are endeavoring to make improvements to provide easy-to-understand explanations on the expense and fee structure of financial products and services in our advertisements, listening to our customers’ voices.
    One of the recent examples is the improvements we have been trying to make to the descriptions on our website of NISA Plus-a program which does not charge investment trust application fees under certain conditions.
  2. (2)We have provided education programs for our employees taking advantage of opportunities such as training sessions we provide when introducing new financial products and services so that our employees can provide easy-to-understand explanations to our customers using pre-contract documents and prospectuses.

5.Providing Important Information in Easily Understandable Ways

[Action Plan]

  • We will review whether information and explanations are provided to our customers appropriately and raise the level of our employees’ skills by conducting reviews and giving training to employees where necessary.
  • We will conduct customer surveys and so on to check whether the reason for selecting a certain financial product or service is accurately explained to customers and whether a financial product or service selected matches customers’ needs.
  • In addition to providing explanations according to customers’ knowledge, experience, financial situation, and purpose of investment, we will provide explanations that are easier-to-understand and more appropriate when discussing financial products and services that package two or more financial products and services.
  • When proposing financial products and services to customers, if there are similar types of financial products and services, we will provide explanations that will enable customers to compare them and make decisions in an appropriate manner.

[Implementation status in FY2017]

  1. (1)We conducted monitoring activities to check whether we provided customers with necessary information to make investment decisions according to their knowledge and experience and easy-to-understand explanations on the financial products and services selected for them. We provided feedback to our employees using the results of our monitoring to help them improve their skills.
  2. (2)We conducted customer satisfaction surveys to check if the reason for selecting a certain financial product or service was accurately explained to them and if the selected product or service matched customers' needs. All responses provided by customers were communicated to the branches that served the customers as feedback to improve our service provision.
  3. (3)When offering a packaged product, for instance, when we offer customers a premium interest rate for a fixed-term yen deposit if they also invest in an investment product, we clearly state in our brochure that customers may apply for and use each product individually, and that if they choose to invest in a fixed-term yen deposit only, the interest rates quoted in our branches will apply. We are making efforts to provide appropriate explanations on this point to ensure that our customers understand it.
  4. (4)Because we handle a number of investment trusts indexed to the Nikkei Average, we provide explanations on similar types of financial products and services that would highlight the differences among these funds concerning matters such as application and trust fees.

6.Providing Services Suitable for Each Customer

[Action Plan]

  • We are endeavoring to select financial products and services we introduce to our customers based on their knowledge, experience, financial situation, and investment purpose and to provide explanations that are easy to understand. To check if this process is appropriately implemented, we will continue our monitoring activities.
  • We are paying sufficient attention in examining whether it is appropriate to recommend complex or high-risk financial products to our customers, especially to older customers. We will continue monitoring whether we are introducing to our customers financial products and services that are suitable to their individual needs and circumstances.

[Implementation status in FY2017]

  1. (1)We conducted monitoring activities to check if the financial products and services recommended based on customers’ knowledge, experience, financial situation, and investment purpose were appropriate and if there was any problem from the viewpoint of economic rationale. The results of our monitoring activities were communicated to our employees as feedback to help them improve their skills.
  2. (2)For transactions with older customers, we will continue monitoring whether we are providing appropriate information and if customers are having any problem understanding the information provided.

7.Frameworks for Appropriate Motivation of Employees

[Action Plan]

  • In evaluating the performance of branches and employees, we place emphasis on balancing the preservation and growth of customers’ assets, customer satisfaction, and compliance, while providing products and services that are suitable to each customer. We will review our practices as needed based on the Policy.
  • We will conduct customer satisfaction surveys to encourage our employees to act to fulfill the goal of pursuing the best interests of customers.
  • We will continue examining and implementing training programs to improve our employees’ consulting abilities.

[Implementation status in FY2017]

  1. (1)We added the results of anonymous surveys as an evaluation item of branches in the FY2017 performance evaluation for the purpose of comparing our practices with those of our competitors.
  2. (2)We have included the results of customer satisfaction surveys as an evaluation item of branches in the FY2018 performance evaluation to encourage our employees to act to fulfil the purpose of pursuing the best interests of customers.
  3. (3)We will continue providing training programs such as a refresher program on the Policy on Customer-Oriented Business Conduct at appropriate times, for instance, at the time of personnel transfer.

Action Plan Based on "the Policy"

Shinsei Bank has formulated the following action plan in order to implement the "Policy on Customer-Oriented Business conduct." Specific measures will be examined and implemented according to this action plan.

  FY2018
(Foreword) Shinsei Bank has prepared the following action plan for FY2018 to implement its Policy on Customer-Oriented Business Conduct. Building on the efforts we made in the last year, we will continue examining and implementing specific measures based on this action plan.
Implementation of the Policy on Customer-Oriented Business Conduct
  • We will organize structures to periodically confirm and check the implementation status of the Action Plan that corresponds to each item in the Policy.
  • We will compile the results of our confirmation and check and release them on our website or through other means as the Implementation Status of the Action Plan.
  • We will consider revising not only the Action Plan but also the Policy as needed.
Best Interests of Customers
  • We will further enhance our efforts in expanding and improving financial products and services to meet our customers’ needs. We will make special efforts to improve the range of long-term, diversified, and asset-building type financial products and services for customers in the asset building stage.
  • We are working on the optimization of our branch network as part of our productivity reform initiatives under the Third Medium-Term Management Plan. To ensure that this move will not significantly reduce the convenience of our customers, we will consider providing services through a wide range of channels including not only our branches, call centers, and online platforms, but also through social networking services.
  • With an awareness of the disparity between Shinsei Bank and our customers concerning financial information, we will develop tools and structures that help us actively provide diverse information to our customers.
Appropriate Management of Conflicts of Interests
  • When selecting financial products and services, a committee consisting of headquarters in charge of individual customers and divisions responsible for compliance and risk management will continue confirming and checking whether any conflict of interests exists.
  • The committee will also continue monitoring financial products and services after their introduction.
  • When we propose financial products and services that potentially have a risk of conflict of interest, we will endeavor to make this clear to our customers and to provide appropriate explanations to them.
Transparency of Expense and Fee Structures
  • We will continue working on improving the explanations we provide on the expense and fee structure of our financial products and services in our leaflets, brochures, website, and other instruments, to ensure that they are easy to understand and that our customers can examine and compare it with other financial products and services without difficulty.
  • We will continue our efforts to maintain and improve our employees' knowledge and communication skills concerning the expense and fee structure of our financial products and services by providing them with training and so on to ensure that each customer receives explanations that are easy to understand according to their knowledge and experience.
Providing Important Information in Easily Understandable Ways
  • We will continue our efforts to maintain and improve our employees’ knowledge and communication skills by providing them with training and so on to ensure that they can provide customers with information necessary for them to make investment decisions and easy-to-understand explanations on the selected financial products and services according to the knowledge and experience of customers.
  • We will check whether the reason for selecting a certain financial product or service is accurately explained to customers and whether a financial product or service that matches customers' needs is selected by conducting customer surveys and so on.
Providing Services Suitable for Each Customer
  • We will continue to monitor our service provision to check if financial products and services proposed based on our customers’ knowledge, experience, financial situation, and investment purpose are appropriate and if there is any problem from the viewpoint of economic rationale.
    We will continue to monitor whether it is appropriate to recommend complex or high-risk financial products to our customers and if we are introducing to older customers financial products and services that are suitable to their needs and circumstances.
Frameworks for Appropriate Motivation of Employees
  • In evaluating the performance of branches and employees, we place emphasis on balancing the preservation and growth of customers’ assets, customer satisfaction, and compliance, while providing financial products and services that are suitable to each customer.
  • We will conduct customer satisfaction surveys to encourage our employees to act to fulfill the goal of pursuing the best interests of customers.
  • We will continue implementing training programs to improve our employees' consulting abilities.