Internal Control System

Sony Financial Holdings' Board of Directors has stipulated a Basic Policy on Establishing an Internal Control System in compliance with the Companies Act of Japan to ensure the appropriateness of company business activities. In line with this policy, Sony Financial Holdings has established and operates an appropriate internal control system.
Sony Financial Holdings has also introduced an Internal Control and Financial Reporting System in accordance with the Financial Instruments and Exchange Law of Japan, with the aim of strengthening internal control governing financial reporting. As a listed company, Sony Financial Holdings has put in place and operates the necessary organizational system and operational rules for disclosing proper financial information.

Internal Control Report

Sony Financial Holdings filed internal control reports with Ministry of Finance.

Internal Control Report (Summary) (Filed on June 27, 2011)(PDF 28KB)
Internal Control Report (Summary) (Filed on June 28, 2010)(PDF 24KB)
Internal Control Report (Summary) (Filed on June 24, 2009)(PDF 19KB)

Basic Policy on Establishing an Internal Control System

1. System to ensure that the execution of duties by directors and employees is legally compliant and in accordance with the Articles of Incorporation
   1. The Board of Directors has established a code of conduct as a basic policy for compliance and made this code clear to Sony Financial Holdings' executives, employees and subsidiaries.
   2. The Board of Directors has created a compliance manual that provides specific compliance guidelines and a compliance program that defines specific plans.
   3. The Board of Directors has created a compliance supervisory department to promote its compliance program. The compliance supervisory department regularly reports to the Board of Directors on the progress of the compliance program.
   4. The Board of Directors has formulated the Basic Group Policy on Eradicating Criminal Influences. This policy describes the firm stance the group takes to counter anti-social influences and build the structure necessary to fulfill this policy.
   5. The Board of Directors has established an internal hotline system and informed Sony Financial Holdings' executives, employees and subsidiaries about the system. This system allows employees or others who become aware of business policies, operations or other activities that contravene (or are in danger of contravening) laws and regulations to report directly to a hotline desk. The system prohibits any action from being taken against employees or others who provide such notification.
   6. The Board of Directors has established an internal audit supervisory department, which is independent from other operating departments. The internal audit supervisory department liaises and cooperates with the statutory auditors and the accounting auditor; monitors and verifies, from an independent and objective viewpoint, the implementation and operational status of the internal control system; and reports regularly to the Board of Directors the status of internal audits.
   7. The Board of Directors has formulated internal audit regulations, which define the basic policy regarding internal audits, and informs Sony Financial Holdings' executives and employees and subsidiaries of these.
2. System for preserving and managing information related to the execution of duties by directors
   Sony Financial Holdings has established record-keeping regulations to ensure that documents pertaining to the execution of duties by directors, such as records of decisions at Board of Directors and Executive Committee meetings, are appropriately preserved and managed in accordance with these regulations and laws.
3. Systems on regulations related to risk management
   1. The Board of Directors has formulated the fundamental principles for risk management activities as a basic policy for group risk management and informs Sony Financial Holdings' executives, employees and subsidiaries of these.
   2. The Board of Directors has established a risk management supervisory department to manage risks appropriately for Sony Financial Holdings and its subsidiaries, in accordance with each entity's scale, characteristics and type of business. This department reports regularly to the Board of Directors on the status of risk management.
   3. The Board of Directors evaluates the capital adequacy of subsidiaries to ensure that their levels of capitalization are sufficient in light of the risks the Sony Financial Holdings Group directly faces and to implement appropriate capital allocations. If necessary, the Board of Directors takes measures designed to strengthen capital bases.
   4. The Board of Directors formulates contingency plans to build a system that enables the Sony Financial Holdings Group to respond rapidly to a crisis and take measures to minimize the impact of these risks. The Board of Directors makes these plans known to Sony Financial Holdings' executives, employees and subsidiaries.
4. Systems to ensure the efficient execution of duties by directors
   1. The Board of Directors formulates approval regulations, organizational and task-sharing regulations and other internal provisions, and creates an appropriate structure for the efficient execution of duties.
   2. The Board of Directors formulates business plan control regulations, which are employed to control non-consolidated and consolidated medium-term business plans and annual business plans.
   3. The department in charge of business planning reports regularly to the Board of Directors regarding the progress of group-wide plans.
5. System to ensure the appropriateness of operations by Sony Financial Holdings and the corporate group, including Sony Financial Holdings' parent company and subsidiaries
   1. In addition to exercising shareholder rights as a financial holding company, Sony Financial Holdings ensures the appropriateness of its subsidiaries' operations by exercising management control in accordance with the management control agreements made between Sony Financial Holdings and its subsidiaries.
   2. Sony Financial Holdings deliberates and examines the appropriateness and compliance of group-wide transactions, alliances or new business by subsidiaries that have the potential to significantly impact the management of the group before the commencement of those transactions. Such issues are resolved at or reported to the Board of Directors.
   3. Sony Financial Holdings' Audit Department takes responsibility for ensuring that subsidiaries have appropriate internal control systems in place and monitors and verifies the results of internal and third-party audits of subsidiaries.
   4. Sony Financial Holdings and its subsidiaries submit management information about the group as needed to Sony Financial Holdings' parent company and interact with the parent company's internal audit supervisory department.
6. Items pertaining to employees who are requested to assist statutory auditors in their duties
   If directors receive requests from statutory auditors for employees to be allocated to assist them in their duties, the directors assign such personnel without delay.
7. Independence from directors of employees assigned as mentioned directly above
   Statutory auditors must agree to the appointment, removal and evaluations of employees assigned to assist them in their duties.
8. System for directors and employees to report to statutory auditors, and other reporting system
   1. If directors or employees are requested to provide business reports to statutory auditors, they do so without delay.
   2. If directors or employees receive notification via the internal hotline system, they report immediately to the statutory auditors.
9. Other systems to ensure the effectiveness of audits by statutory auditors
   Representative directors endeavor to forge and deepen relationships with statutory auditors based on mutual understanding and trust by fostering the environment that is necessary for audits by statutory auditors.

Management Systems

Sony Financial Holdings uses the statutory auditor system. It appoints outside directors who work with statutory auditors to supervise management, thereby strengthening corporate governance.
Sony Financial Holdings is a listed company with a listed parent company (Sony Corporation, hereafter Sony, which holds 60% of Sony Financial Holdings' shares). For this reason, Sony Financial Holdings has specified a Policy Concerning the Measures to Protect Minority Shareholders in Transactions with the Controlling Shareholder to protect the interests of minority shareholders.

Corporate Governance Report and Information Pertaining to Controlling Shareholders

Corporate Governance Report (Filed on Nov. 30, 2011)(PDF 173KB)
Information Pertaining to Controlling Shareholders (Released on May. 27, 2011)(PDF 170KB)

Compliance

Basic Stance on Compliance

To ensure the ongoing health and appropriateness of business operations, Sony Financial Holdings must encourage all the executives and employees to deepen their understanding of Sony Financial Holdings' corporate philosophy and the laws and regulations that pertain to its businesses, foster compliance with these laws and regulations and manage its operations in a transparent and appropriate manner based on a strong sense of ethics. Including all these factors in its definition of "compliance", Sony Financial Holdings considers compliance one of its most important management tasks. Accordingly, Sony Financial Holdings has established systems to ensure that all executives and employees are fully aware of their duties and responsibilities under those laws and regulations.
As a financial holding company with insurance and banking subsidiaries, Sony Financial Holdings is responsible for understanding the state of compliance of its group companies and advising these companies on compliance issues as it deems necessary. The first level of compliance-related responsibility lies with individual group companies, which are responsible for establishing systems to raise their level of compliance in line with their specific industry, type of operations and scale of business. Sony Financial Holdings, on the other hand, has the role of maintaining an ongoing understanding of and promoting group companies' compliance from the viewpoint of group management.

Compliance Systems at Sony Financial Holdings and Sony Financial Holdings Group Companies

Internal Hotline System

An internal hotline system is in place to enable executives and employees of Sony Financial Holdings and the Sony Financial Holdings Group companies, as well as temporary employees and the employees of business partners, to report business policies of the Sony Group, Sony Financial Holdings and the Sony Financial Holdings Group or operating or other activities that they are convinced contravene (or are in danger of contravening) laws and regulations or the internal regulations of the Sony Group, Sony Financial Holdings or Sony Financial Holdings Group companies. Informants may notify any of the hotline desks that have been established at each Sony Financial Holdings Group company or the Compliance Hotline at Sony Corporation, which serves as the desk for the Sony Group, as appropriate. Sony Financial Holdings is responsible for taking appropriate measures to protect informants and strictly managing and responding to any information they provide.
Sony Financial Holdings communicates with Sony Corporation regarding appropriate responses to notification received via the Compliance Hotline at Sony Corporation, as well as about notification of issues having the potential to affect Sony Group companies other than those in the Sony Financial Holdings.

Conflicts of Interest Policy (Summary)

Sony Financial Holdings has formulated a Management Policy Concerning Conflicts of Interest and established the structures required by the Banking Act of Japan, the Insurance Business Law of Japan, and the Financial Instruments and Exchange Law of Japan. The policy and structures are designed to ensure that customers' interests are not harmed by SFH Group companies.

[1]. Basic Policy

[2]. Transactions to be Managed

1. Sony Financial Holdings has established a structure and take all necessary action to prevent customers' interests from being harmed by the transactions outlined below ("transactions to be managed").
1. Transactions that put the Sony Financial Holdings Group's interest first in circumstances where there is a conflict of interest between the Sony Financial Holdings Group and customers
2. Transactions that profit from customer information
3. Transactions that profit from competing interests between customers
4. Other transactions in which it is evident that the interests of customers may be harmed by Sony Financial Holdings Group companies
2. For the purposes of the Management Policy Concerning Conflicts of Interest, "customers" whose interest should be protected are customers of the following businesses that Sony Financial Holdings Group companies engage in.
1. Sony Life Insurance Co., Ltd.
   Life insurance business, business of registered financial institutions, and other businesses that can be conducted by Sony Life under relevant laws and regulations.
2. Sony Life Insurance (Philippines) Corporation
   Life insurance business and other business that can be conducted by Sony Life Insurance (Philippines) Corporation under relevant local laws and regulations.
3. Sony Assurance Inc.
   Non-life insurance business and other business that can be conducted by Sony Assurance under relevant laws and regulations.
4. Sony Bank Inc.
   Banking business (including bank agency business by banking agents), business of registered financial institutions, and other business that can be conducted by Sony Bank under relevant laws and regulations.
5. Sony Bank Securities Inc.
   Trading of financial instruments and other businesses that can be conducted by Sony Bank Securities under relevant laws and regulations.
6. AEGON Sony Life Insurance Co., Ltd.
   Life insurance business and other business that can be conducted by AEGON Sony Life under relevant laws and regulations.
7. SA Reinsurance Ltd.
   Reinsurance business and other business that can be conducted by SA Reinsurance under relevant local laws and regulations.

[3]. Structure for Management of Conflicts of Interest

1. Structure
   Sony Financial Holdings has established a structure to manage conflicts of interest in the Sony Financial Holdings Group by making the director who is head of the Corporate Control Department responsible for oversight of managing conflicts of interest, and the Corporate Control Department the business unit responsible for the managing conflicts of interest.
2. Action
   The director responsible for oversight of managing conflicts of interest shall order Sony Financial Holdings Group companies to take the actions outlined below when the director deems them necessary on the basis of reports from Sony Financial Holdings Group companies, customer complaints, or other sources:
1. Block the flow of information between divisions where a conflict of interest may arise
2. Suspend the transaction concerned, or change the terms and conditions or method of the transaction
3. Disclose the conflict of interest, or the potential for a conflict of interest, to customers
4. Take any other action deemed necessary by the business unit responsible for the managing conflicts of interest
3. Record-keeping
   The division responsible for managing conflicts of interest shall maintain records as outlined below and retain them for five years.
1. Records that specify transactions to be managed
2. Records associated with actions taken to appropriately protect customers

As of November 1, 2011

Basic Policy on Eradicating Anti-social Influences

Sony Financial Holdings has formulated a Management Policy Concerning Conflicts of Interest and established the structures required by the Banking Act of Japan, the Insurance Business Law of Japan, and the Financial Instruments and Exchange Law of Japan. The policy and structures are designed to ensure that customers' interests are not harmed by Sony Financial Holdings Group companies.

Structures for Eradicating Anti-social Influences

Basic Group Policy on Eradicating Anti-social Influences

1. The Sony Financial Holdings Group recognizes the importance of strictly avoiding any association with anti-social elements from the perspectives of social responsibility, compliance, and corporate defense. It has therefore implemented frameworks to shut out anti-social influences.
2. The Sony Financial Holdings Group strictly rejects unfounded demands by anti-social influences. Furthermore, the Group has put in place a framework for acting firmly, on an organizational basis, against those who make unfounded demands.
3. The Sony Financial Holdings Group works closely with the police and external specialist entities, even during ordinary times, to ensure appropriate assistance and cooperation should it be threatened by anti-social influences.

Risk Management

One of Sony Financial Holdings' roles as a financial holding company is to further enhance and integrate group-wide risk management by centralizing the Sony Financial Holdings Group's management resources.

Basic Policy on Group Risk Management

• As a financial holding company, Sony Financial Holdings enhances the corporate value of the group by aligning risk management with group-wide strategic objectives and management policies, while tailoring operating subsidiaries' risk management to the types of risk inherent in their respective lines of business.
• Sony Financial Holdings adopts all necessary supplemental measures to ensure effective risk management, after confirming each operating subsidiary has independently and responsibly established its own risk management structure to achieve its own management objectives.
• Sony Financial Holdings takes steps to eliminate excessive concentration of risk in specific areas, establish appropriate controls over intra-group transactions and control the ripple effect of risk within the group.

Sony Financial Holdings and the Sony Financial Holdings Group Risk Management Structure

Sony Financial Holdings' Board of Directors formulates fundamental principles for risk management and communicates them to directors, employees, and throughout the Sony Financial Holdings Group. The Board also identifies the types of risks specific to subsidiaries' scale, business, and other attributes and establishes structures designed to manage them effectively. Sony Financial Holdings' Executive Committee, which is appointed by the Board of Directors, executes routine tasks pertaining to group risk management; specifically, while subsidiaries each assess, monitor, and manage their risks on their own, the Corporate Control Department, which is responsible for Sony Financial Holdings' risk management, controls risks through monitoring and holding Risk Management Meetings with subsidiaries' risk management divisions. The Corporate Control Department also reports its findings on the state of risk management regularly to Sony Financial Holdings' Board of Directors and Executive Committee.

Type and Definitions of Risk Managed by Sony Financial Holdings and Subsidiaries

The types and definitions of risk that Sony Financial Holdings and its subsidiaries must manage are as follows:

Definitions

Each Group company establishes its own framework for managing risk as appropriate for its scale and the attributes and type of its business, and optimizes its frameworks for the types of risks faced according to internal definitions.
As the operating and business environment changes, subsidiaries' risk management departments review the risk types and definitions set forth below, amending them as appropriate for new conditions.

Internal Audits

Sony Financial Holdings performs internal audits through its Audit Department. Reporting directly to the director in charge of internal audits (president and representative director), this department operates outside the other lines of operational reporting and, from an independent and objective standpoint, conducts internal audits to check and evaluate the appropriateness of work processes and risk management. Sony Financial Holdings subsidiaries each have their own internal audit divisions to perform internal audits designed to match their specific industry, the scale of their businesses, and the types of risk they face. Sony Financial Holdings' Audit Department monitors the results of both internal and external audits of group companies with the aim of ensuring the soundness of management of operations. When necessary, Sony Financial Holdings' Audit Department provides advice and proposals to subsidiaries' internal audit divisions. Sony Financial Holdings' Audit Department regularly reports the results of its monitoring activities to the director in charge and the Board of Directors. Should the director in charge perceive it necessary, as a result of the monitoring, Sony Financial Holdings' Audit Department may directly audit subsidiaries within the scope of governing laws and regulations. The Audit Department also cooperates with Sony Financial Holdings' statutory auditors and external auditors, such as the independent auditor.

Relationship with Parent Company, Sony Corporation

Capital and Personnel Relationships

Sony Financial Holdings is a financial holding company established as a corporate spin-off from Sony on April 1, 2004. On October 11, 2007, Sony Financial Holdings' shares were listed on the First Section of the Tokyo Stock Exchange Group, Inc., with the initial public offering conducted in Japan and overseas, after which Sony's shareholding became 60%. As a result of this capital relationship, Sony Financial Holdings may be subject to the influence of Sony, irrespective of the intentions and interests of other shareholders with regard to all matters requiring shareholder approval. These matters include the appointment and dismissal of Sony Financial Holdings directors and statutory auditors, mergers and other organizational restructuring, material asset and business transfers, amendments to the Articles of Incorporation, and the payment of dividends.
In order to receive general management advice concerning the Sony Financial Holdings Group and strengthen the audit system, Sony Financial Holdings has appointed directors and statutory auditors from outside the Sony Financial Holdings Group. However, two of these Sony Financial Holdings directors and one statutory auditor serve concurrently as directors, corporate executive officers or corporate executives of Sony. Moreover, one statutory auditor of Sony Assurance and Sony Bank serves concurrently as an employee of Sony.

Ensuring Independence in Business Activities and Using the "Sony" Trade Name and Trademark

The Sony Financial Holdings Group is developing business activities based on a management policy and management strategy that are independent from Sony, from the standpoint of protecting policyholders and depositors. At the same time, group companies have entered into royalty agreements with Sony for the use of the "Sony" trade name and trademark for the purpose of raising each company's profile and trustworthiness. However, these agreements can be rescinded by Sony under certain conditions such as Sony's share of voting rights in Sony Financial Holdings falling below a majority, or Sony Financial Holdings' percentage ownership of the voting rights of Sony Financial Holdings Group companies dropping. Furthermore, Sony Financial Holdings Group companies pay royalty fees to Sony based on these agreements.