The FSC Imposed Warnings, Fines and Other Necessary Administrative Sanctions on 10 Securities Firms which Have Deficiencies in the Use of Co-location Host Services
2021-03-04
The Financial Supervisory Commission (FSC) has approved sanctions on Concord Securities Co., Ltd., SinoPac Securities Co., Ltd., Cathay Securities Co., Ltd., Masterlink Securities Co., Ltd., Fubon Securities Co., Ltd., JihSun Securities Co., Ltd., Hua Nan Securities Co., Ltd., Capital Securities Co., Ltd., KGI Securities Co., Ltd. and Yuanta Securities Co., Ltd. (hereinafter referred to as Concord, SinoPac, Cathay, Masterlink, Fubon, JihSun, Hua Nan, Capital, KGI and Yuanta, respectively) for violating securities management laws and regulations.
In order to strengthen the management of the use of co-location host services by securities firms, the FSC supervised the Taiwan Stock Exchange (TWSE) and the Taipei Exchange (TPEx) to conduct a special inspection on all securities firms using co-location host services. It was found that the above 10 securities firms have not been implementing information security operations for their customized system services for specific people, as well as having deficiencies for other information security operations. These firms are verified to be failure to implement the internal control system and in violation of paragraph 2, Article 2 of the Regulations Governing Securities Firms. The FSC therefore imposed administrative sanctions such as warning, correction and fine on the 10 securities firms above according to the seriousness of the deficiencies, requested the sanctioned securities firms to improve their relevant operating procedures in accordance with the opinions of the TWSE and the TPEx, and incorporate the improvement measures into their internal control systems for implementation. The internal auditors are also requested to strengthen the audit on these firms.
1. Date of disciplinary action: March 4, 2021
2. Objects of disciplinary action: Concord, SinoPac, Cathay, Masterlink, Fubon, JihSun, Hua Nan, Capital, KGI and Yuanta.
3. Legal basis for the disciplinary action: Article 65, paragraph 1, Article 66 and subparagraph 4, paragraph 1, Article 178-1 of the Securities and Exchange Act, and paragraph 2, Article 2 of the Regulations Governing Securities Firms.
4. Facts of law violation:
(1) Concord Securities provides co-location host services to specific persons, and has the deficiencies of not completely keeping the records of investors’ entrusted transaction time, being unable to control the program of the trading host and the quantity, and that the information vendor can connect to the trading host from the remote end; SinoPac Securities provides co-location host services to specific persons, and has the deficiencies of not completely keeping the records of investors’ entrusted transaction time, and that the information vendor can login from the remote end for development and maintenance; Cathay Securities provides co-location host services to specific persons, and has the deficiencies of placing the transaction software developed by the customer on the system of co-location host services, and not keeping the records of investors’ entrusted transactions. The three securities firms above obviously did not properly implement their internal control system, and are verified to have violated paragraph 2, Article 2 of the Regulations Governing Securities Firms; they are given a warning in accordance with paragraph 1, Article 66 of the of the Securities and Exchange Act, and fined NT$1.44 million in accordance with subparagraph 4, paragraph 1, Article 178-1 of the Securities and Exchange Act.
(2) Masterlink Securities has the deficiencies of providing tailor-made system services from its co-location host for specific persons, not establishing a firewall for the connection of the co-location host to the stock exchange, and providing the account with the highest authority level of the host to the outsourcing maintenance vendor; it is obvious that the internal control system is not properly implemented, and the deficiencies are verified to have violated paragraph 2, Article 2 of the Regulations Governing Securities Firms. However, after the spot check, the company has kept the records of investors’ entrusted transactions processed by the co-location host system in accordance with the regulations, and the violation is less serious than those of three securities firms mentioned above. Therefore, a request for correction is issued in accordance with Article 65 of the Securities and Exchange Act, and a fine of NT$720,000 is imposed in accordance with subparagraph 4, paragraph 1, Article 178-1 of the Securities and Exchange Act.
(3) Fubon and JihSun securities firms has the deficiency of not establishing a firewall for the connection of their co-location host to the stock exchange; their internal control system is not properly implemented, and the deficiency is verified to have violated paragraph 2, Article 2 of the Regulations Governing Securities Firms. Therefore, a request for correction is issued in accordance with Article 65 of the Securities and Exchange Act, and a fine of NT$240,000 is imposed in accordance with subparagraph 4, paragraph 1, Article 178-1 of the Securities and Exchange Act.
(4) The four securities firms including Hua Nan, Capital, KGI and Yuanta are verified to have the general operation deficiencies of having firewall access records in their co-location host services, and failing to keep transaction backup records for three years according to the regulations. It is obvious that their internal control system is not properly implemented, and the deficiencies are verified to have violated paragraph 2, Article 2 of the Regulations Governing Securities Firms. Therefore, a request for correction is issued in accordance with Article 65 of the Securities and Exchange Act.
The Securities firms above which receive a warning in accordance with paragraph 1, Article 66 of the Securities and Exchange Act will be restricted in their relevant financial business, including not being able to apply for additional business types or business items, not being able to apply for additional branches, not being able to apply for reinvestment in related businesses, not being able to apply for cash capital increase or raising of corporate bonds, not being able to act as an ETF liquidity provider, and not being able to issue ETNs.
According to the FSC, the TWSE has been providing co-location host services since December 25, 2017 with the purpose of shortening the speed of receiving market information and transmitting entrusted orders by securities firms, so as to meet the needs of securities firms to improve the efficiency of the trading transmission system to be in line with the international standard. Securities firms are important intermediaries in the securities market and should pay special attention to information security management and compliance with laws and regulations when providing the services above to customers, so as to facilitate the smooth operation of the securities market and safeguard the rights and interests of investors. However, in the recent audit, it is found that some securities firms failed to comply with the regulations regarding the use of co-location host services, and some securities firms even failed to implement the control measures that may affect the security of information communication while serving specific customers. In addition to punishing the securities firms that violate the regulations, so that the securities firms can be vigilant and truly follow the co-location host service management measures and relevant regulations of the TWSE and the TPEx, as well as standardizing the internal control system and implementing the internal audit, the FSC has been supervising the TWSE and the TPEx to continuously strengthen the management measures for securities firms to handle co-location host services.
Contact unit: Section Chief Hsu, Securities Firms Division, Securities and Futures Bureau
Tel: 02-2774-7161
If you have any questions, please write to: FSCMAIL
In order to strengthen the management of the use of co-location host services by securities firms, the FSC supervised the Taiwan Stock Exchange (TWSE) and the Taipei Exchange (TPEx) to conduct a special inspection on all securities firms using co-location host services. It was found that the above 10 securities firms have not been implementing information security operations for their customized system services for specific people, as well as having deficiencies for other information security operations. These firms are verified to be failure to implement the internal control system and in violation of paragraph 2, Article 2 of the Regulations Governing Securities Firms. The FSC therefore imposed administrative sanctions such as warning, correction and fine on the 10 securities firms above according to the seriousness of the deficiencies, requested the sanctioned securities firms to improve their relevant operating procedures in accordance with the opinions of the TWSE and the TPEx, and incorporate the improvement measures into their internal control systems for implementation. The internal auditors are also requested to strengthen the audit on these firms.
1. Date of disciplinary action: March 4, 2021
2. Objects of disciplinary action: Concord, SinoPac, Cathay, Masterlink, Fubon, JihSun, Hua Nan, Capital, KGI and Yuanta.
3. Legal basis for the disciplinary action: Article 65, paragraph 1, Article 66 and subparagraph 4, paragraph 1, Article 178-1 of the Securities and Exchange Act, and paragraph 2, Article 2 of the Regulations Governing Securities Firms.
4. Facts of law violation:
(1) Concord Securities provides co-location host services to specific persons, and has the deficiencies of not completely keeping the records of investors’ entrusted transaction time, being unable to control the program of the trading host and the quantity, and that the information vendor can connect to the trading host from the remote end; SinoPac Securities provides co-location host services to specific persons, and has the deficiencies of not completely keeping the records of investors’ entrusted transaction time, and that the information vendor can login from the remote end for development and maintenance; Cathay Securities provides co-location host services to specific persons, and has the deficiencies of placing the transaction software developed by the customer on the system of co-location host services, and not keeping the records of investors’ entrusted transactions. The three securities firms above obviously did not properly implement their internal control system, and are verified to have violated paragraph 2, Article 2 of the Regulations Governing Securities Firms; they are given a warning in accordance with paragraph 1, Article 66 of the of the Securities and Exchange Act, and fined NT$1.44 million in accordance with subparagraph 4, paragraph 1, Article 178-1 of the Securities and Exchange Act.
(2) Masterlink Securities has the deficiencies of providing tailor-made system services from its co-location host for specific persons, not establishing a firewall for the connection of the co-location host to the stock exchange, and providing the account with the highest authority level of the host to the outsourcing maintenance vendor; it is obvious that the internal control system is not properly implemented, and the deficiencies are verified to have violated paragraph 2, Article 2 of the Regulations Governing Securities Firms. However, after the spot check, the company has kept the records of investors’ entrusted transactions processed by the co-location host system in accordance with the regulations, and the violation is less serious than those of three securities firms mentioned above. Therefore, a request for correction is issued in accordance with Article 65 of the Securities and Exchange Act, and a fine of NT$720,000 is imposed in accordance with subparagraph 4, paragraph 1, Article 178-1 of the Securities and Exchange Act.
(3) Fubon and JihSun securities firms has the deficiency of not establishing a firewall for the connection of their co-location host to the stock exchange; their internal control system is not properly implemented, and the deficiency is verified to have violated paragraph 2, Article 2 of the Regulations Governing Securities Firms. Therefore, a request for correction is issued in accordance with Article 65 of the Securities and Exchange Act, and a fine of NT$240,000 is imposed in accordance with subparagraph 4, paragraph 1, Article 178-1 of the Securities and Exchange Act.
(4) The four securities firms including Hua Nan, Capital, KGI and Yuanta are verified to have the general operation deficiencies of having firewall access records in their co-location host services, and failing to keep transaction backup records for three years according to the regulations. It is obvious that their internal control system is not properly implemented, and the deficiencies are verified to have violated paragraph 2, Article 2 of the Regulations Governing Securities Firms. Therefore, a request for correction is issued in accordance with Article 65 of the Securities and Exchange Act.
The Securities firms above which receive a warning in accordance with paragraph 1, Article 66 of the Securities and Exchange Act will be restricted in their relevant financial business, including not being able to apply for additional business types or business items, not being able to apply for additional branches, not being able to apply for reinvestment in related businesses, not being able to apply for cash capital increase or raising of corporate bonds, not being able to act as an ETF liquidity provider, and not being able to issue ETNs.
According to the FSC, the TWSE has been providing co-location host services since December 25, 2017 with the purpose of shortening the speed of receiving market information and transmitting entrusted orders by securities firms, so as to meet the needs of securities firms to improve the efficiency of the trading transmission system to be in line with the international standard. Securities firms are important intermediaries in the securities market and should pay special attention to information security management and compliance with laws and regulations when providing the services above to customers, so as to facilitate the smooth operation of the securities market and safeguard the rights and interests of investors. However, in the recent audit, it is found that some securities firms failed to comply with the regulations regarding the use of co-location host services, and some securities firms even failed to implement the control measures that may affect the security of information communication while serving specific customers. In addition to punishing the securities firms that violate the regulations, so that the securities firms can be vigilant and truly follow the co-location host service management measures and relevant regulations of the TWSE and the TPEx, as well as standardizing the internal control system and implementing the internal audit, the FSC has been supervising the TWSE and the TPEx to continuously strengthen the management measures for securities firms to handle co-location host services.
Contact unit: Section Chief Hsu, Securities Firms Division, Securities and Futures Bureau
Tel: 02-2774-7161
If you have any questions, please write to: FSCMAIL
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Update：
2021-03-22