When a bank or financial instruments business operator that trades derivatives sets up controls for explaining products to clients and for risk management, the supervisory guidelines show what the authorities focus on when they review those controls.

What the guidelines are

The guidelines are manuals that the FSA publishes for its staff who inspect and supervise institutions. They compile the basic approach to inspection and supervision, points to note in administrative procedures, and the items evaluated in supervision1. They show the points of focus and the process the FSA follows when it reviews a financial institution's controls.

For example, the Banking Act and its Ordinance for Enforcement require a bank to take measures to explain products and risks to its clients. The points the authorities look at when they check those controls, including for derivatives transactions, are listed in the guidelines for major banks2. The guidelines for major banks call for taking each bank's circumstances into account and avoiding mechanical, uniform treatment1.

The guidelines for major banks were drawn up in October 2005 and revised in December 20193.

Besides the guidelines, the FSA issues policy documents for particular fields, principles, annual policies, and requests to industry associations. Inspection and supervision use each of them according to its purpose1. The points of focus described here are not the whole of how the authorities look at an institution.

Deep diveHistory of the guidelines

The guidelines trace back to 1998. Ahead of the launch of the Financial Supervisory Agency, the former Ministry of Finance reviewed its circulars and compiled the interpretation of laws, internal procedures, and points of focus on soundness into administrative guidelines for its staff. The comprehensive supervisory guidelines for small, medium-sized and regional financial institutions were drawn up in May 2004, and those for major banks in October 2005. In June 2018 the FSA set out its basic policy on inspection and supervision, under which it would end formulaic checks against checklists and abolish the inspection manual. In December 2019, together with the abolition of the inspection manual, it also revised the guidelines, for example to position integrated off-site and on-site monitoring and to amend overly detailed provisions3. The guidelines for financial instruments business operators were compiled when the Securities and Exchange Act was reorganized into the Financial Instruments and Exchange Act (FIEA), consolidating the guidelines and guidance that had existed for each type of business4.

Types of guidelines

The guidelines are written for each type of institution, and the FSA's "list of supervisory guidelines" shows guidelines for banks, insurance companies, financial instruments business operators, money lenders, trust companies, and other types5. The main guidelines that concern institutions trading derivatives are as follows.

Guidelines Scope Relevance to derivatives
Comprehensive Guidelines for Supervision of Major Banks, etc. Major banks, SBI Shinsei Bank, Aozora Bank, and Japan Post Bank6 Points of focus that bear on banks' derivatives transactions, such as market risk, counterparty credit risk, explanation to clients, and systems
Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc. Financial instruments business operators that conduct Type I or Type II financial instruments business, investment management business, or investment advisory and agency business, and registered financial institutions Market risk management and counterparty risk management in Type I financial instruments business, the appropriateness of business in OTC derivative transactions, and the controls of registered financial institutions for uncleared OTC derivatives
Comprehensive Guidelines for Supervision of Small and Medium-Sized and Regional Financial Institutions Regional banks, second-tier regional banks, shinkin banks, and credit cooperatives7 How regional financial institutions use derivatives is covered in How Regional Banks Use Derivatives

Besides the operators in the table, the guidelines for financial instruments business operators also have in mind persons conducting special business, foreign securities firms, financial instruments intermediary service providers, and securities finance companies8.

How the guidelines are organized

The guidelines for major banks consist of Chapters I to VIII. This section covers Chapters I to III. Chapter IV and after cover bank holding companies, consolidated supervision of banking groups, supervision of foreign bank branches, treatment of new entrants to the banking business, and bank agency business9.

Chapter Content
I Basic approach The basic approach to inspection and supervision, the history of the guidelines, and their positioning
II Points to note in administrative procedures for inspection and supervision How inspection and supervision proceed and the specific methods, handling of complaints, handling of inquiries on legal interpretation, and points to note on administrative guidance and administrative actions
III Evaluation items for supervision Management (III-1), financial soundness, etc. (III-2), and appropriateness of business, etc. (III-3), and others

Financial soundness, etc. includes capital, profitability, and risk management. Appropriateness of business, etc. includes legal and regulatory compliance, explanation to clients, and system risk.

The guidelines for financial instruments business operators are organized differently because there are many types of business. Chapters I and II cover the general approach to operators and the points to note in procedures, and the evaluation items are divided into the common part in Chapter III and the chapters for each type of business, IV to VII. Chapter IV covers Type I financial instruments business, Chapter V Type II financial instruments business, Chapter VI investment management business, and Chapter VII investment advisory and agency business. Chapter VIII and after contain the guidelines for registered financial institutions and others, written by applying the earlier parts with the necessary changes. The guidelines expect the common part to be read first, then Chapters IV to VII that are specific to the operator concerned10. For a Type I financial instruments business operator that handles derivatives, the main parts to read, besides the common part in Chapter III, are IV-2 on financial soundness, etc. and IV-3-3 on the appropriateness of business in OTC derivatives business10.

Most evaluation items are written as a set of three parts. "Significance" states the position of the risk or business, "main points of focus" lists the points the authorities check in the form "does the firm do X?", and "supervisory methods and responses" describes how the authorities obtain information and how they respond when they find a problem. The chapter on market risk management (III-2-3-3 in the guidelines for major banks) is an example of this set11.

The chapter and item numbers follow the versions of both the guidelines for major banks and those for financial instruments business operators whose cover is dated October 2026 (Reiwa 8), obtained on 3 October 2026.

A map of points of focus for derivatives

The points of focus for derivatives transactions are divided into chapters by theme in the guidelines. The table below shows the main chapters, examples of points of focus, and the pages with details.

Theme Where in the guidelines Examples of points of focus Pages with details
Market risk Major banks III-2-3-3; financial instruments business operators IV-2-3 For major banks, whether both the trading book and the banking book are within the scope of management11 Value at Risk (VaR), Stress Testing, Limit Frameworks
Counterparty credit risk Major banks III-2-3-2-1-2 (10) and (11); financial instruments business operators IV-2-4 For major banks, whether the firm manages exposures by counterparty and by type and checks the effectiveness of collateral12 What Is Counterparty Credit Risk?, Risk Reduction through Netting and Collateral, Mandatory Clearing
Margin for uncleared OTC derivatives Major banks III-2-3-2-1-2 (12); financial instruments business operators IV-2-4 (4); registered financial institutions VIII-1-2 Whether the firm endeavors to put controls in place for the exchange of variation margin and so on. For initial margin, whether it endeavors to put controls in place for the exchange of margin and so on, for persons covered by the provisions of the Cabinet Office order13 Margin Requirements for Uncleared Derivatives
Explanation to clients and suitability Major banks III-3-3-1; financial instruments business operators III-2-3-2 and IV-3-3-2 Whether controls exist to explain the content and risks of derivatives transactions and the handling of early termination to clients14 Suitability and the Duty to Explain
Internal control and the risk management framework Major banks III-2-3-1 Whether the board of directors has set a risk management policy. Whether the internal audit function is organized to work well The Three Lines Model, Responding to Audits and Examinations, Daily Risk Management Operations
Risk data aggregation and reporting Major banks III-2-3-6 For banks selected or designated as systemically important, supervision pays attention to putting in place, and improving, controls that can aggregate and report risk information quickly across the group15
System risk Major banks III-3-7-1; financial instruments business operators III-2-8 Whether management has put controls in place, given that a failure or a cyberattack could affect the financial system as a whole16 Front-to-Back System Architecture
Capital and the trading book Major banks III-2-1-2-3 Whether the scope of transactions subject to the market risk rules and the way they are managed are set out in documents, and whether operation is checked by internal audit and other means17 Risk-Weighted Assets (RWA), The Basel Framework and Derivatives

The guidelines for major banks have further examples that do not fit in the table. In market risk, they cover choosing the observation period and holding period for VaR and verifying the results. They also cover using methods such as stress testing in light of the limits of statistical methods. For interest rate risk in the banking book, they cover defining core deposits internally in an appropriate way and verifying the definition. These are examples from III-2-3-3 of the guidelines for major banks; of these, VaR and core deposits do not appear in IV-2-3 of the guidelines for financial instruments business operators11. In counterparty credit risk, examples are stress tests that include a decline in market liquidity and, for centrally cleared transactions, management of the risks specific to dealing with a central counterparty. Both are points of focus in the guidelines for major banks12. In internal control, the guidelines for major banks give two examples: checking the effectiveness of internal control by an external audit at least once a year, and, in integrated risk management, whether the procedures for allocating and reviewing risk capital are appropriate18.

Where the guidelines sit within Japan's regulation as a whole is covered in Japan's Derivatives Regulation at a Glance.

Practical impact: which guidelines to consult

When consulting the guidelines in practice, first confirm which guidelines apply to the firm. A bank within the scope of major banks, etc. falls under the guidelines for major banks, and a firm that conducts financial instruments business falls under the guidelines for financial instruments business operators.

Type of firm Guidelines to consult
A bank within the scope of the guidelines for major banks that does not conduct financial instruments business as a registered financial institution The guidelines for major banks only
A bank within the scope of the guidelines for major banks that also conducts financial instruments business as a registered financial institution Both the guidelines for major banks and those for financial instruments business operators
A firm outside the scope of the guidelines for major banks that conducts financial instruments business The guidelines for financial instruments business operators
Any other firm The guidelines for its type of institution, found in the FSA's list of supervisory guidelines

A registered financial institution is covered by the guidelines for financial instruments business operators. For the same bank, both the points of focus in the guidelines for major banks and those in the guidelines for financial instruments business operators, as a registered financial institution, are relevant. On the specific points of focus for margin on uncleared OTC derivatives, the guidelines for major banks refer the reader to the corresponding part of the guidelines for financial instruments business operators19. Because the guidelines refer to each other in this way, check the referenced guidelines too when you consult a point of focus.

Consider a hypothetical example in which a bank within the scope of the guidelines for major banks also conducts financial instruments business as a registered financial institution. Bank Q reviews its controls for margin on uncleared OTC derivatives. Because Bank Q is also a registered financial institution, both sets of guidelines are relevant, and it checks the corresponding part of the guidelines for financial instruments business operators that the guidelines for major banks refer to.

If Bank Q does not conduct financial instruments business as a registered financial institution, it is not one, so it consults only the guidelines for major banks.

The guidelines for financial instruments business operators do not require every evaluation item uniformly, and they do not treat a firm's approach as inappropriate if it is not literal but poses no problem from the standpoint of investor protection. Having the form in place is not always enough, so look at the purpose of an item and not only its wording20. The guidelines are revised, so when you cite them, confirm the effective date and state the version.

The flow of inspection and supervision

In the guidelines for major banks (October 2026), the FSA's inspection and supervision rest on analysis and interviews, and an on-site inspection is one of the methods for grasping the facts. The process starts from analysis of materials such as management, financial, and risk figures and from interviews with parties inside and outside the bank. After seeing whether there are problems with current soundness and appropriateness, the authorities decide whether an on-site inspection is needed21. An on-site inspection is no longer carried out at fixed intervals as before but is positioned as one of the monitoring methods. For an institution that has not been inspected on site for a long time, however, the guidelines say that problems the authorities find hard to foresee may have become relatively more likely22.

The table below is an example of the flow when a problem is found, as set out in the guidelines for major banks. The guidelines for financial instruments business operators also set out a flow that runs from collecting reports to following up on improvement measures to administrative actions, but their legal basis is the FIEA23.

Stage Content
Grasping the facts Choose an efficient and effective method from interviews, requests for voluntary submission of materials, questionnaires, and reports ordered and on-site inspections under the Banking Act24
Response to inspection results After delivering the notice of inspection results, ask, as a rule within one week, for a report within one month on the facts behind the findings, the analysis of causes, and improvement measures25
Verifying the report If the problem is not serious and voluntary improvement can be expected, follow the improvement measures through voluntary interviews. Ask for regular reports where necessary26
Administrative action The authorities consider a business improvement order and may further consider a business suspension order or revocation of the license26

A business improvement order is considered, for example, where there is a serious problem in the soundness or appropriateness of business, or where voluntary efforts will not bring improvement. Where there is, for example, a serious violation of laws and regulations or an act that harms the public interest, a business suspension order on that ground is considered. Where such violations or acts are found in large numbers and continuing the business is judged inappropriate, revocation of the license is considered26.

For financial instruments business operators, the legal basis is the FIEA, and the administrative actions include business improvement orders and business suspension orders. When the Securities and Exchange Surveillance Commission recommends administrative action or the like, the FSA's supervisory bureau considers ordering reports or taking administrative action23.

In deciding the content of an action, the authorities look at the seriousness and malice of the conduct. Examples include the degree of harm to the public interest, the degree of harm to users, the duration and repetition, whether it was intentional or negligent, whether it was organized or a personal decision, and whether there was concealment. They also look at whether the management and operational controls behind the conduct were appropriate27.

Following revisions of the guidelines

The guidelines are published on the FSA's website, and an effective date is shown for each version. To follow revisions, use the following materials.

  • The FSA's "list of supervisory guidelines" gives the effective date of each guideline and its text (HTML and PDF versions). As of 3 October 2026, both the guidelines for major banks and those for financial instruments business operators had an effective date of 1 October, Reiwa 8 (2026), and their full English texts are on the same page5.
  • The FSA's "Laws, guidelines, etc." page has a section headed "press releases on partial revisions of supervisory guidelines, etc.", which holds a list (Excel) of revisions of the guidelines. As of that date, the list was marked as of 30 June, Reiwa 8 (2026)28.
  • Guidelines that have been abolished are collected on the "abolished supervisory guidelines and administrative guidelines" page, which the "Laws, guidelines, etc." page links to28.

When citing the guidelines, write the year and month on the cover and the date obtained in the citing document.

How to implement the points of focus in a firm's systems and operations is covered in Responding to Audits and Examinations.

This page does not cover the text of the guidelines for small, medium-sized and regional financial institutions or the content of future revisions.

Notes

  1. Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), I-3(1) (a manual for staff), (2) (relationship with other documents), (4) (avoiding mechanical, uniform treatment) (in Japanese). ↩ ↩2 ↩3

  2. Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), III-3-3-1-1(1) (the explanation measures under Article 12-2(2) of the Banking Act and Article 13-7 of the Ordinance for Enforcement of the Banking Act) and (2) (credit transactions, etc. include derivatives transactions, and the guidelines set out points of focus) (in Japanese). ↩

  3. Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), I-2(1) (administrative guidelines of the former Ministry of Finance, 1998), (2) (drawn up in May 2004 for small, medium-sized and regional financial institutions and in October 2005 for major banks), (3) (the basic policy on inspection and supervision of June 2018, abolition of the inspection manual, revision of the guidelines in December 2019) (in Japanese). ↩ ↩2

  4. Financial Services Agency, "金融商品取引業者等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc.) (October 2026), I-2-1 (reorganization of the Securities and Exchange Act into the FIEA, effective 30 September 2007, consolidation of the earlier guidelines and guidance by type of business, abolition of the former "Comprehensive Guidelines for Supervision of Securities Companies" and others) (in Japanese). ↩

  5. Financial Services Agency, "監督指針一覧" (list of supervisory guidelines) (checked 3 October 2026), which gives the effective date and text of each guideline and the links to the English versions (the list page is in Japanese). The English versions are PDF files: Comprehensive Guidelines for Supervision of Major Banks, etc. (https://www.fsa.go.jp/common/law/guide/en_city.pdf) and the guidelines for financial instruments business operators (https://www.fsa.go.jp/common/law/guide/kinyushohin_eng.pdf). ↩ ↩2

  6. Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), I-2(2), note 2 (in Japanese). ↩

  7. Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), I-2(2), note 1 (in Japanese). ↩

  8. Financial Services Agency, "金融商品取引業者等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc.) (October 2026), I-2-2(1) (in Japanese). ↩

  9. Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), table of contents, Chapters I to VIII (in Japanese). The English names of the chapters in the table are translations of the meaning, not official names. ↩

  10. Financial Services Agency, "金融商品取引業者等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc.) (October 2026), I-2-2(1) (the structure from Chapter I to Chapter VIII and after, and the order of reading) and the table of contents. Financial soundness, etc. of Type I financial instruments business is IV-2, and the appropriateness of business in OTC derivatives business is IV-3-3 (in Japanese). The English names of the chapters are translations of the meaning, not official names. ↩ ↩2

  11. Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), III-2-3-3-1 to 3 (significance, main points of focus, supervisory methods and responses). The examples of points of focus are from III-2-3-3-2(1)③ (trading book and banking book), (2)③ (interest rate risk in the banking book and the internal definition of core deposits), ④ (VaR), and ⑤ (limits of statistical methods, stress testing). Market risk management controls in the guidelines for financial instruments business operators are in IV-2-3 (in Japanese). ↩ ↩2 ↩3

  12. Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), III-2-3-2-1-2(10)① to ④ and (11)①. In the guidelines for financial instruments business operators, IV-2-4(3)② (confirming the legal validity of bilateral netting agreements) and ① (confirming collateral) (in Japanese). ↩ ↩2

  13. Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), III-2-3-2-1-2(12), and "金融商品取引業者等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc.) (October 2026), IV-2-4(4) and VIII-1-2. The points of focus on initial margin apply to persons covered by the provisions of the Cabinet Office order. Both guidelines are in Japanese. ↩

  14. Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), III-3-3-1 (controls for explanation to clients on credit transactions, etc., including derivatives transactions). Financial Services Agency, "金融商品取引業者等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc.) (October 2026), III-2-3-2 (controls for solicitation and explanation) and IV-3-3-2 (controls for solicitation and explanation in OTC derivatives business) (in Japanese). ↩

  15. Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), III-2-3-6-2. The items are based on the Basel Committee on Banking Supervision's "Principles for effective risk data aggregation and risk reporting" (January 2013), and the guidelines say that the time by which compliance is required falls a set period after selection by the Financial Stability Board (in Japanese). ↩

  16. Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), III-3-7-1-1 (significance) and III-3-7-1-2(1). System risk in the guidelines for financial instruments business operators is at III-2-8 (in Japanese). ↩

  17. Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), III-2-1-2-3. The text is written differently for institutions that have introduced the new rules and those that have not (in Japanese). ↩

  18. Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), III-2-3-1-3(1)(5)(6) and III-2-3-1-4(4) (in Japanese). ↩

  19. Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), III-2-3-2-1-2(12), at the end. The reference is to Financial Services Agency, "金融商品取引業者等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc.), IV-2-4(4) (in Japanese). ↩

  20. Financial Services Agency, "金融商品取引業者等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc.) (October 2026), I-2-1, the paragraph near the end (not all evaluation items are required uniformly; a firm is not treated as inappropriate for lacking a literal response if there is no problem from the standpoint of investor protection and the like; having the form in place is not always enough) (in Japanese). ↩

  21. Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), II-1-2(1) (in Japanese). ↩

  22. Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), II-1-2(2)①ロ, the last paragraph (in Japanese). ↩

  23. Financial Services Agency, "金融商品取引業者等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc.) (October 2026), II-5-1(1)① and ④ (response to inspection results, recommendation by the Securities and Exchange Surveillance Commission), (2) (ordering reports), and II-5-2 (administrative actions under Articles 51 to 52-2(1) of the FIEA). The report on the response to inspection results is under Article 56-2(1) of the FIEA (in Japanese). ↩ ↩2

  24. Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), II-1-2(2)② (イ to ニ). The reporting order is under Article 24 of the Banking Act and the on-site inspection under Article 25 (the Banking Act, which I-1(1) of the guidelines calls "the Act") (in Japanese). ↩

  25. Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), II-1-2(2)②ニ, second half (in Japanese). ↩

  26. Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), II-5-1-1(1) to (6). The business improvement order is under Article 26(1) of the Banking Act, the business suspension order under Articles 26(1) and 27, and revocation of the license under Article 27 (in Japanese). ↩ ↩2 ↩3

  27. Financial Services Agency, "主要行等向けの総合的な監督指針" (Comprehensive Guidelines for Supervision of Major Banks, etc.) (October 2026), ① and ② placed after (3) to (6) of II-5-1-1. II-5-2(1) and (2) of the guidelines for financial instruments business operators are organized in the same way (in Japanese). ↩

  28. Financial Services Agency, "法令・指針等" (Laws, guidelines, etc.) (checked 3 October 2026), the section "press releases on partial revisions of supervisory guidelines, etc." and the link to "abolished supervisory guidelines and administrative guidelines" (in Japanese). ↩ ↩2