4. Processing Risk Settlement Risk 5. System Risk SMFG  2011 47 At SMBC, safety measures are strengthened according to risk  assessment based on the Financial Services Agency’s  Financial  Inspection Manual , and the  Security Guidelines  published by the  Center for Financial Industry Information Systems (FISC).  SMFG recognizes that reliable computer systems are essential  for the effective implementation of management strategy in view  of the IT revolution. We strive to minimize system risk by drafting  regulations and specific management standards, including a security  policy. We also have contingency plans with the goal of minimizing  losses in the event of a system failure. The development of such a  system risk management system ensures that the Group as a whole  is undertaking adequate risk management.  System risk is the possibility of a loss arising from the failure, mal- function, or unauthorized use of computer systems.  In the administrative regulations, SMBC has also defined specific  rules for processing risk management. The rules allocate processing  risk management tasks among six types of departments: operations  planning departments, compliance departments, operations depart- ments, transaction execution departments (primarily front-office  departments, branches, and branch service offices), internal audit  departments, and the customer support departments. In addi- tion, there is a specialized group within the Operations Planning  Department to strengthen administrative procedures throughout the  Group. In the administrative regulations of SMBC, in line with  SMFG’s Groupwide basic policies for risk management, the basic  administrative regulations are defined as “comprehending the  risks and costs of administration and transaction processing, and  managing them accordingly,” and “seeking to raise the quality of  administration to deliver high-quality service to customers.” Adding  new policies or making major revisions to existing ones for process- ing risk management requires the approval of both the Management  Committee and the Board of Directors. SMFG recognizes that all operations entail processing risk.  We are, therefore, working to raise the level of sophistication of  our management of processing risk across the whole Group by  ensuring that each branch conducts its own regular investigations  of processing risk; minimizing losses in the event of processing  errors or negligence by drafting exhaustive contingency plans; and  carrying out thorough quantification of the risk under management.  Processing risk is the possibility of losses arising from negligent  processing by employees, accidents, or unauthorized activities.  Computer-related trouble at financial institutions now has great  potential to impact society, with system risk diversifying owing to  advances in IT and expansion of business fields. To prevent any  computer system breakdowns, we have taken numerous measures,  including constant maintenance of our computer system to ensure  steady and uninterrupted operation, duplication of various systems  and infrastructures, and the establishment of a disaster-prevention  system consisting of computer centers in eastern and western  Japan. And to maintain the confidentiality of customer information  and prevent information leaks, sensitive information is encrypted,  unauthorized external access is blocked, and all known counter- measures to secure data are implemented. There are also contin- gency plans and training sessions held as necessary to ensure full  preparedness in the event of an emergency. To maintain security,  countermeasures are revised as new technologies and usage pat- terns emerge. Settlement risk is the possibility of a loss arising from a transaction  that cannot be settled as planned. Because this risk comprises ele- ments of several types of risk, including credit, liquidity, processing,  and system risk, it requires interdisciplinary management. At SMBC, the Operations Planning Department is responsible  for coordinating the management of settlement risk with the Credit &  Investment Planning Department, which oversees credit risk, and the  Corporate Risk Management Department, which oversees liquidity  risk.