Japan Financial Services Agency publishes FY7 securities report review findings and examples to address disclosure shortcomings

The Japan Financial Services Agency published points to note when preparing and filing securities reports and internal control reports, alongside a set of example disclosures intended to help issuers respond to deficiencies identified through its FY7 review. The materials highlight both recurring and newly observed issues, with particular emphasis on sustainability-related disclosure, corporate governance and cross-shareholdings, disclosure of important contracts, and internal control reporting. The FY7 review covered items affected by legal and regulatory amendments that took effect in April 2024, including disclosure of important contracts and enhanced “shareholding status” disclosure on the purpose of holding cross-shareholdings, as well as revised requirements for internal control reports. A Priority Theme Review focused on sustainability initiatives and corporate governance, supported by a questionnaire-based survey on the appropriate provision of information ahead of general shareholders meetings. Key issues included missing or unclear explanations of sustainability governance, risk and opportunity identification and management processes, strategies, metrics and targets, and human-capital policies, metrics, targets and results. Governance-related issues included incomplete disclosure on board and committee meeting frequency, deliberations and attendance, unclear arrangements for internal audit reporting directly to the board, insufficiently specific cross-shareholding purposes, inconsistencies between disclosed and actual board verification practices, and unclear rationale and post-change holding or sale policies when reclassifying holdings to a net investment purpose. For important contracts, shortcomings included inadequate disclosure on board consideration and decision-making processes and on the impact of shareholder governance agreements, as well as failure to state when descriptions are omitted under transitional measures for contracts entered into before 1 April 2024. Internal control reporting issues included missing or unclear reasons for decisions on the scope of evaluation of internal control over financial reporting. Companies are directed to use the attachments, including the example disclosures, when preparing securities reports for fiscal years ending on or after 31 March 2026, with details of the review programme for those filings to be announced later.