MUFG; Risk Management | Mitsubishi UFJ Financial Group

Basic Policy

Since the 2008 financial crisis, financial institutions have been compelled to adopt more comprehensive and sophisticated risk management systems. This risk management function has also grown in importance for MUFG as a global bank with subsidiaries spanning the commercial, trust and investment banking sectors.
MUFG aims to strengthen its Group risk management through the diffusion of a risk culture that strengthens the structure of Group business management as well as integrated risk management. Our goal is effective risk governance that is consistent across regions, subsidiaries and the holding company.
Furthermore, the Risk Appetite Framework provides guidelines for effective risk management that backs our business strategy and financial plan while supporting efforts to avoid unexpected losses and enhance risk return management.

MUFG formed Risk Committee under the Board of Directors.
With an outside director as Chairperson, the Committee mainly examines important matters associated with groupwide risk management in general, risks that may exert a significant impact on the Group’s business management and risks that have recently emerged or are currently growing and submits its recommendations to the Board of Directors to enhance its efficient Group risk management.
The Committee confirmed and discussed such matters as the status of risk appetite (allocated capital, etc.) in the course of business planning, the content of scenarios used in stress tests and the results of such tests and the assumed impact of the emergence of geopolitical risks and MUFG’s response as their main activity.
In addition, the Group CRO reports to the Board of Directors periodically regarding the status of risks and the Group’s initiatives in various risk areas, and the Board of Directors review and monitor effectiveness of risk management.

Also, with regards to subcategory of operational risk, other C-Suites are reporting to the Board of Directors respectively in terms of risk related matters within each responsible area. For instance, Group CLO is responsible for managing legal risk, and Group CLO reports matters related to legal risk to the Board of Directors.

Furthermore, we are improving the Group’s risk management through several efforts such as conducting Crisis Management Training periodically with involving Managements, and holding seminars and training sessions for the Members of the Board of Directors by inviting external experts.

Risk Appetite Framework

The Risk Appetite Framework aims to clarify MUFG's risk appetite (types and amount of risk that it is willing to accept) as it works to achieve its business strategy and financial plan. The framework is designed to increase management transparency and generate more profit opportunities in an environment where risk is properly controlled.

Risk Appetite Framework Management Process

In the formulation and execution of its business strategy and financial plan, MUFG will set the appropriate level of risk appetite and proceed to monitor and analyze risk volume.
The process of setting and managing risk appetite is set out below. In order to effectively implement the Risk Appetite Framework, risk evaluation and verification procedures (capital allocation system, stress tests, Top Risk management) will be applied at every stage of the management planning process.
Furthermore, even after the plan is formulated, we are ready to take immediate actions in emergency situations through monitoring of the set risk appetite.

Enterprise Risk Management

MUFG makes every effort to recognize the risk that emerges in the course of business execution, assessing them according to uniform criteria.
Enterprise risk management is then conducted while maintaining business stability and striving to maximize shareholder value. Enterprise risk management is a proactive approach, promoting stable profits commensurate with risk as well as the appropriate allocation of resources.
Enterprise risk management is composed of three main strands: the capital allocation system, stress tests and Top Risk management.

Capital Allocation System

In this framework, latent losses associated with risk are converted to a required capital amount, and capital is then allocated across group companies and between different risk categories according to business strategy and the profit plan. The framework is intended to allow the appropriate distribution of capital throughout the Group as MUFG monitors to preserve financial soundness, evaluate capital adequacy versus risk and judge impact on overall capital strategy.

Stress Tests

・Stress tests for capital adequacy assessment

In formulating its business strategy, MUFG regularly assesses its internal capital adequacy through stress tests based on two perspectives: regulatory capital, based on capital adequacy regulations (Basel III), and its own economic capital, based on internal risk assessment.
Stress tests analyze both the internal and external environment, and use three-year-period preventative scenarios.

・Liquidity stress test

In liquidity stress tests, the impact of MUFG-specific or overall market stress on the balance sheet is assessed so as to implement MUFG's business strategy and financial plan. Various options are examined to respond to short-term fund outflows or long-term structural changes in the balance sheet with a view to ensuring there is no funding shortage.

Top Risk Management

The potential losses that emerge from scenario analysis are classified as risks and then their relative importance is weighed according to degree of impact and probability. The risks that need to be watched most closely over the next year are classified as Top Risks and a risk map is created, thereby ensuring a forward-looking approach to risk management.
At MUFG and its core subsidiaries, management is regularly engaged in discussions aimed at addressing Top Risks to ensure that the understanding of these risks is shared throughout their organizations. By doing so, management is implementing effective countermeasures against Top Risks. (Major Top Risks identified by MUFG are as listed below.)

Enhancing the Effectiveness of Risk Management

The Risk Appetite Statement elucidates the Risk Appetite Framework which embodies MUFG's attempts to achieve an integrated group strategy along with effective risk management. The Risk Appetite Statement contains an overview of the Risk Appetite Framework (basic policy and management process) as well as specific business strategies, financial plans and risk appetite details.
A summary of the Risk Appetite Statement is distributed throughout the Group in an effort to spread the basic philosophy behind the Risk Appetite Framework.
From FY2019, Business Group Risk Appetite Statement has been implemented by each Business Group as a tool for undertaking its operations while having risk ownership.
Through the penetration of risk appetite framework, we will take actions in anticipation of environmental changes both inside and outside of the Group, while the environment continues to be uncertain.

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