Internal Control Systems

The Internal Control System

The MarketEnterprise Board of Directors has established the “basic policy for internal control systems” and, in accordance with this policy, is constantly evaluating the structure and operation of internal control systems and making necessary improvements. Furthermore, the Board of Directors is frequently revising this policy as needed to reflect changes in the business environment and other factors. Activities will continue in order to establish and operate internal control systems that are even more effective.

(1) System for ensuring that Directors and employees perform their duties in compliance with laws and regulations and the Articles of Incorporation

• ・ The ME10 Guidelines, which are a code of conduct for all Directors and employees, are the foundation of the MarketEnterprise compliance system. There are activities to give everyone an understanding and commitment to these principles and to foster and maintain a corporate culture where people base actions on high ethical standards.

• ・ The executive who supervises the Administrative Department is the Chief Compliance Officer. This executive oversees the establishment and operation of the compliance system, which is one of the highest priorities concerning the management of MarketEnterprise.

• ・ MarketEnterprise has three defensive lines for internal controls: self-management by business divisions, controls implemented by administrative divisions, and confirmations performed by internal audit departments. This framework is used for activities aimed at making compliance and risk management capabilities even stronger.

• ・ MarketEnterprise has internal rules, such as rules for the Board of Directors, standards for business procedures and other guidelines. There are measures for quickly revising rules and guidelines as needed, establishing standards for business activities and ensuring that business operations are properly managed.

• ・ To prevent, detect and correct violations of laws, regulations, the Articles of Incorporation and other rules and regulations at an early stage, MarketEnterprise will promote awareness and use of the internal reporting system.

• ・ To ensure that executives and employees are performing their duties properly, an internal auditor supervised directly by the President performs internal audits based on the Internal Audit Rules. As necessary, the internal auditor exchanges information with the Audit & Supervisory Board Members and the accounting auditor in order to conduct internal audits efficiently.

(2) System for the storage and management of information about the performance of Directors’ duties

• ・ Information about the General Meeting of Shareholders, Board of Directors meetings and other important decision-making activities is stored and managed for the designated number of years by an administrative department in accordance with laws and regulations and document management rules.

• ・ This administrative department responds promptly to requests from Directors and Audit & Supervisory Board Members for access to these documents and other records.

(3) Rules and other systems for the risk management of potential losses for MarketEnterprise

• ・ For risk factors associated with business operations, every department analyzes and identifies potential risk factors involving its activities and then a person in charge of risk management performs comprehensive management of all risk factors.

• ・ MarketEnterprise monitors the activities of the Risk and Compliance Committee and the risk management activities of the Internal Audit Department for the purpose of constantly managing risk. When corrections or improvements are needed, this committee and department submit proposals for actions whenever necessary.

• ・ MarketEnterprise has a business continuity plan and revises this plan as needed. In the event of a crisis that has a serious impact on management, a crisis response headquarters is quickly established in order to minimize damage and other losses and restore operations as soon as possible.

(4) System for ensuring that Directors perform their duties efficiently

• ・ Meetings of the Board of Directors are held once each month and at other times as needed for making decisions quickly. This ensures a system for performing duties of Directors in a timely and proper manner.

• ・ MarketEnterprise has organizational rules, rules for the division of duties, authority delegation rules and other rules that clarify authority and responsibility for performing duties of Directors. These rules are reviewed in an appropriate manner.

• ・ For the oversight of business operations, there are business plans and qualitative and quantitative targets that are to be reached. In addition, the responsibility of each department to contribute to results of operations is clearly defined and there are measures to improve the efficiency of business operations.

• ・ MarketEnterprise has External Directors for the purpose of ensuring the transparency and objectivity of management by providing an external viewpoint regarding decisions.

(5) Details of system for ensuring the suitability of business operations of the corporate group consisting of the Company and its subsidiaries

• ・ The Board of Directors, Audit & Supervisory Board Members and Administration Department supervise the performance of the Directors of subsidiaries in accordance with the Related Company Management Rules.

• ・ Executives and employees, and Audit & Supervisory Board Members of MarketEnterprise also serve in these same positions at major subsidiaries. As a rule, the Board of Directors of each subsidiary meets once each month to maintain a framework for performing duties of Directors and Audit & Supervisory Board Members at subsidiaries in a timely and proper manner.

• ・ Subsidiaries report significant information about management, finances and other subjects to MarketEnterprise and receive the approval of MarketEnterprise for important decisions.

• ・ For subsidiaries too, the MarketEnterprise Administration Department and other units review business processes, help establish information systems and conduct employee training programs.

• ・ The MarketEnterprise internal auditor audits the business operations of subsidiaries and, if necessary, provides instructions and other directives for compliance with laws, regulations and the Articles of Incorporation.

(6) Matters concerning requests by Audit & Supervisory Board Members for employees to assist with their duties and independence of these employees from Directors

• ・ When Audit & Supervisory Board Members need assistance to perform their duties, they will receive the necessary number of people.

• ・ To guarantee the independence from the Directors of employees who are to assist Audit & Supervisory Board Members, the prior approval of these members is required for assignments, transfers and other actions involving these employees.

・　Audit & Supervisory Board Members have the right to give instructions to employees while they are assigned to assist with the duties of these members. Directors may not give instructions or orders to these employees.

(7) System for reports from Directors or employees to Audit & Supervisory Board Members and for other reporting to Audit & Supervisory Board Members

• ・ The Directors must create an environment that allows Audit & Supervisory Board Members to attend important meetings for the purpose of monitoring the process used by the Board of Directors and other meetings to reach important decisions and to determine how business operations are conducted.

• ・ When a Director or an employee becomes aware of an incident that has resulted in, or may result in, a significant loss for MarketEnterprise, this information must be reported immediately to an Audit & Supervisory Board Member.

• ・ Directors must submit timely and proper reports concerning the status of management to Audit & Supervisory Board Members.

• ・ Rules clearly state that there will be no negative consequences for an individual who submits a report to an Audit & Supervisory Board Member because of the report and all Directors and employees are notified of this rule.

• ・ An Audit & Supervisory Board Member can request a Director to explain the reason for a performance evaluation or other matter concerning an individual who has submitted a report to an Audit & Supervisory Board Member.

(8) Other systems for ensuring that audits by the Audit & Supervisory Board Members are performed effectively

• ・ Directors and employees cooperate in order to enable audits to be performed effectively in accordance with the audit plan established every year by the Audit & Supervisory Board.

• ・ Directors establish an environment that allows Audit & Supervisory Board Members talk to the accounting auditor and the internal auditors and a system and environment that facilitate exchanges of opinions at any time and the confirmation of the status of audits.

• ・ Audit & Supervisory Board Members can share information with Directors and employees about business activities and performance, administrative systems, and other subjects involving the operation of businesses. In addition, Audit & Supervisory Board Members can ask for a direct report concerning items required for decisions by these members.

• ・ A budget must be established when requested by Audit & Supervisory Board Members to cover expenses required to perform their duties. In addition, if there is a need for an emergency audit or other audit other than audits in the initial audit plan, expenses must be paid promptly for expenses required to perform these audits.

(9) System for ensuring the reliability of financial reporting

• ・ To ensure the reliability of financial reporting, based on instructions from the Representative Director, a framework has been established for overall control activities and control activities for all business processes as well as for strengthening these activities. The objective is to ensure that internal controls function effectively in accordance with the Financial Instruments and Exchange Act.

• ・ Internal rules have been established for accounting, there is a Chief Financial Officer, and there are measures for enhancing the system for ensuring that financial reporting is done properly.
  

• ・ The Chief Financial Officer (CFO) supervises the internal control system for the MarketEnterprise Group’s financial reports. The CFO uses discussions with the independent auditor in order to determine major financial items to audit and business processes that require extra attention regarding internal controls for financial reports. The CFO is also responsible for designing a risk assessment process for these business processes and overseeing the implementation of these risk assessments.

(10) Basic stance regarding prevention of transactions with anti-social forces and current status

• ・ MarketEnterprise has established rules for the elimination of anti-social forces. These rules include the stance of absolutely refusing as an organization to respond to any demands from anti-social forces and to never provide cash or any other economic benefit to anti-social forces.

• ・ To achieve the elimination of anti-social forces, MarketEnterprise holds compliance education classes and conducts activities on a regular basis for making everyone aware of these rules and guidelines.

• ・ MarketEnterprise collects information about anti-social forces from the police, attorneys, crime-fighting associations and other specialized external organizations and makes this information available throughout the company. In addition, prospective new customers undergo a preliminary checking process by using information from external research organizations. Also, customers are given a memorandum containing the provision that a business contract will be terminated if MarketEnterprise determines that a transaction counterparty is an anti-social force.

Basic Views on Eliminating Anti-Social Forces

MarketEnterprise raises awareness of crisis management regarding anti-social forces and other groups that pose a threat to social order and business activities. MarketEnterprise absolutely refuses as an organization to respond to any demands from anti-social forces. In addition, MarketEnterprise works with the police, attorneys and specialized external organizations to collect and manage information concerning anti-social forces and to strengthen the internal management system.