7. Enhancing internal-control frameworks

While promoting group business and global development, SMBC Group was facing potential business risks that were becoming ever more diverse and complicated. In order to ensure sustained strong business activities despite such risks, the Group recognized the need to have stronger control of compliance and risk management, and accordingly worked to enhance internal control systems.

SMBC Group began to prepare appropriate internal control systems for conducting business globally on a group-wide basis in 2017 when SMFG introduced the CxO system and other measures in April. Subsequently, the Group recognized that, as G-SIBs, it should improve the systems especially from a global point of view in response to financial regulations and standards which became more stringent over time.

The above recognition was related to the fact that SMBC’s New York Branch’s program was found to be insufficient by the Federal Reserve Bank of New York in light of the Bank Secrecy Act (BSA) and related U.S. anti-money laundering (AML) laws and regulations. SMBC entered into a written agreement with the Reserve Bank in April 2019 to improve the program.

SMFG took this issue seriously, and strove to establish internal control systems suitable for a G-SIB, particularly for compliance, risk management, and internal auditing. One of the efforts was ensuring global application of the Three Lines of Defense.