Internal control

Enhancement of internal control

Based on the basic policy for a system to ensure the appropriateness of business operation (internal control system) resolved at the Board of Directors, we aim to develop an effective governance system by enhancing efforts toward compliance, information management, risk management, and other activities.

System to ensure the appropriateness of business operation

Pursuant to the provisions of paragraph 5,Article 362 of the Companies Act, METAWATER resolved at the Board of Directors Meeting held on April 24, 2015, the basic policy for development of the system stipulated in item 6,paragraph 4,Article 362 of the Companies Act and each item of paragraphs 1 and 3 of Article 100 of the Ordinance for Enforcement of the Companies Act.
Pursuant to the Companies Act and Ordinance for Enforcement of the Companies Act, METAWATER shall stipulate the basic policy for development of a system to ensure the appropriateness of business operation of its business as well as that of the corporate group comprising of its subsidiaries (hereinafter"the METAWATER Group").

System to ensure that execution of duties by Directors and employees of the Company complies with laws and regulations and the Articles of Incorporation

  • The Company ensures management transparency and soundness through the following corporate governance system:
    • To clarify management responsibilities and quickly respond to changes in the management environment, the term of office for Directors shall expire at the close of the Ordinary General Meeting of Shareholders related to the previous business year and ending within one year after their appointment.
    • Outside directors with appropriate qualifications will be appointed to strengthen management oversight and audit functions as well as to secure the appropriateness of the managerial decision-making process related to the execution of important business.
  • The Company ensures that all executives and employees of the Company are fully aware of the management philosophy and the Employees' Code of Conduct.
  • The Company establishes and promotes the compliance system as follows:
    • Establishment of the Compliance Rules and installation of the CSR Committee as a deliberative body.
    • Establishment of a compliance program by clarifying roles and responsibilities for internal rules, monitoring, audits, and education regarding the respective laws and regulations based on approval of the CSR Committee, implementation of the compliance program based on annual plans, and reporting of the results to the CSR Committee.
    • Participation of directors and auditors in training related to laws and regulations necessary to execute their duties.
    • Implementation of appropriate action based on the operating policy by facilitating prevention and early detection of violations of laws and regulations, the Articles of Incorporation, and internal rules, by creating an internal reporting system that makes it easier for employees and others to report to compliance divisions and outside lawyers through routes independent of ordinary business lines.
  • The Company establishes the basic policy and rules to respond to antisocial forces and takes organizational action to eliminate antisocial forces and groups that threaten the order or safety of civil society.
  • The Company establishes the internal audit division under direct control of the President and conducts effective internal audits.

System to store and manage information related to execution of duties of Directors

The Company establishes document management rules, securely stores and manages records of the execution of important business of the Company, and ensures that directors and auditors have access to the details of the records.

Regulations and other systems related to management of risk of losses

  • The Company shall establish the Risk Management Rules and develop an appropriate risk management system for risks that may affect its management.
  • The Company shall establish a system for emergency response by appointing a director in charge of crisis management and developing the emergency response guidelines in preparation for the occurrence of an emergency situation, including major disasters, accidents, and misconduct.

System to ensure effective execution of duties by directors

  • The Company shall define functions and duties of standing directors based on the resolution of the Board of Directors and clarify authorities and responsibilities for decision-making on business execution through the Rules of the Board of Directors and Official Competence Rules.
  • The Company shall develop a management plan for the current year and mid-term, confirm its progress regularly, and evaluate and review the plan.

System to ensure the reliability of financial reporting

To ensure appropriateness of statements on finance and accounting and other information stipulated in the Financial Instruments and Exchange Act, the Company shall develop internal control over financial reporting, take appropriate action for evaluation and reporting, and report the results of evaluations to the Board of Directors.

System to ensure the appropriateness of Group business operation

  • The Company shall designate subsidiaries' budgets, business performance, financial conditions, management issues, and other important information as items requiring periodic reporting to the Company according to the size and importance of the subsidiaries based on the Rules for Management of Affiliated Companies, and require the Company's approval for important management matters.
  • The Company shall appoint its executives and employees as subsidiaries' directors as needed as part of efforts to thoroughly enforce its management policy and strategies, as well as to control and direct subsidiaries' management.
  • To ensure the effectiveness of subsidiary audits, the Company shall appoint its executives and employees as subsidiaries' auditors as needed while its internal audit division shall conduct internal audits according to the size and importance of the subsidiaries through cooperation with the Company's auditors.
  • To raise awareness of the Group's executives and employees toward compliance with laws and regulations, the Company shall establish the Compliance Rules and the Employees' Code of Conduct. In addition, the Company shall implement Compliance Education and provide advice and guidance. The Company's internal reporting system shall be available to subsidiaries' executives and employees.
  • To appropriately manage risks for the entire Group, the Company shall establish Risk Management Rules and develop a risk management system according to the size and importance of subsidiaries.
  • To ensure the appropriateness and efficiency of subsidiaries' businesses, the Company shall establish the affiliate company management division and create a system to ensure timely consultation, information sharing, guidance, communication, and support between the Company and subsidiaries based on the Rules for Management of Affiliated Companies.

Matters related to employees who assist the Company's auditors in their duties

  • If auditors request appointment of employees to assist their duties, the Company shall appoint assistants to auditors and strive to reflect the opinions of the Audit & Supervisory Board Members in the decision.
  • In assisting the duties of auditors, the said employees shall follow the directions and instructions of the auditors and shall not be subject to the directions and instructions of the Board of Directors or directors.

System for the Group's executives and employees to report to the Company's auditors

The Company shall establish rules related to reporting to auditors by the Group's executives and employees and define the following matters for the development of a system to enable auditors to smoothly and appropriately collect information necessary to execute their duties.

  • Establish specific methods to enable collection of information related to business execution of the Group's executives and employees, including securing opportunities for auditors to participate in important meetings related to decision-making on business execution and periodic reporting and circulation of important documents to auditors.
  • The Group's executives and employees shall immediately report to the Company's auditors by methods stipulated in the applicable rules when detecting facts that are in violation of laws and regulations, the Articles of Incorporation or other rules, or facts that may cause significant damage to the Company or subsidiaries.
  • Prohibit disadvantageous treatment of the Group's executives and employees for the reason of having reported to the Company's auditors, and protect the persons who make such reports.

System to ensure effective audits by the Company's auditors

  • To ensure transparency and soundness of management, the Company shall appoint outside auditors with professional knowledge and experience necessary to conduct audits.
  • The Company shall ensure the effectiveness of audits by enhancing cooperation in the audit functions of auditors, the internal audit division, and accounting auditors.
  • The Company shall set a budget for expenses requested by auditors in advance as necessary to execute their duties and when auditors request expenses beyond the budget for consultation and investigation with lawyers, certified public accountants, and other professionals, the Company shall respond to the request, except when it is shown that the expenses are not necessary for the execution of auditor duties.

Operational status of the system to ensure the appropriateness of business operation

Overview of key operational status for the current term shall be as provided below.

① Compliance system

  • The Company has established the corporate mission and the METAWATER Group's Corporate Charter of Conduct, and is ensuring that all executives and employees of the Group are fully aware of them. In addition, to comply with laws and regulations, as well as internal rules, the Company has established the compliance program based on the METAWATER Group's Compliance Rules, implemented education based on annual plans, and reported the results to the CSR Committee.
  • The Company has developed an internal reporting system (helpline system), received reports and inquiries from the Group's employees and other persons, and taken appropriate action at the responsible division based on the operating policy.

② Risk management

  • Based on the METAWATER Group Risk Management Rules the Company identifies, analyses, and evaluates the Group's risks and reports the results to the CSR Committee
  • In preparation for emergency situations such as crisis and disasters, the Company develops the Business Continuity Plan (BCP) based on the METAWATER Group Business Continuity Management (BCM) Rules, regularly holds the BCM Promotion Working Group, makes improvements, and conducts training.

③ Ensuring the efficiency of execution of director duties

  • Based on the Rules of the Board of Directors and Official Competence Rules, the Company clarifies rules for decision-making, including matters to be resolved by the Board of Directors.
  • Based on the Basic Policy on Corporate Governance (established on November 27, 2015), the Company implements matters stipulated in the policy, including analysis and evaluation of the effectiveness of the Board of Directors, to increase transparency, soundness, and efficiency of management.

④ Internal control over financial reporting

  • Based on the Rules for Internal Control over Financial Reporting, the Company's internal audit division evaluates the development and operation of overall internal control systems of the Company and its consolidated subsidiaries and reports the results to the Board of Directors.

⑤ Group company management

  • Based on matters to be approved as stipulated in the METAWATER Group Rules for Management of Affiliated Companies, the Company makes necessary approval on subsidiaries' proposals. In addition, the Company receives reports from subsidiaries on their financial conditions, management issues, and other important information based on the rules.
  • Based on the Internal Audit Rules, the Company's internal audit division conducts internal audits on subsidiaries.

⑥ Ensuring the effectiveness of auditors' audit

  • Auditors receive reports on information necessary for audits from executives and employees of the Company and its affiliated companies as required, and participate in important meetings related to decision-making on business execution. In addition, the internal audit division and accounting auditors maintain close communication with auditors, including periodic information sharing, in order to improve the effectiveness of audits.
  • The Company assigns employees who assist auditors for the Board of Auditors and each auditor to appropriately execute their duties. In addition, the Company budgets expenses that are deemed necessary for the execution of duties through consultation with auditors.