Reliance Securities Co., Ltd. And its Employees Sanctioned for Violation of Applicable Laws
1.Date the punishment was imposed: September 24th, 2019
2.Recipient of the punishment: RELIANCE SECURITIES CO., LTD. (hereinafter referred to as “Reliance Securities”), Liao ○○, Chiang ○○, Chang ○○, Lo ○○, Chen ○○, and Lei ○○
3.Legal basis of the punishment: Article 56(If any director, supervisor, or employee of a securities firm is found to have committed any act which violates this Act or another related act or regulation, and if such violation may affect the normal operation of the said securities firm, the Competent Authority, in addition to ordering the said securities firm to suspend business operation of such person for not more than one year or discharge such person at any time, may also impose sanctions in accordance with Article 66 depending on the severity of the violation.), the subparagraphs 2 (Where a securities firm has violated this Act or any order issued hereunder, in addition to being subject to the punishment provided under this Act, the Competent Authority may, depending on the severity of the offense, impose any of the following sanctions, and furthermore may order the securities firm to correct the violation within a prescribed period:2. ordering the securities firm to remove its directors, supervisors, or managerial officers from their office.)& 5(5.other necessary measures.) of Article 66 and the subparagraph 4, Paragraph 1 of Article 178-1 (If a securities firm, an enterprise as set forth in Article 18, paragraph 1, a securities dealers association, a stock exchange, or an over-the-counter securities market commits any of the following violations, the violating entity or association may be punished with an administrative fine of not less than NT$240,000 and not more than NT$4.8 million, and the Competent Authority may order it to comply within a prescribed time period; if it fails to comply within the specified period, consecutive fines may be imposed:4.A securities firm or an enterprise as set forth in Article 18, paragraph 1 fails to strictly implement its internal control system.)of the Securities and Exchange Act, Paragraph 4 of Article 7(A public company shall see to it that its subsidiaries adopt and implement the procedures for the acquisition or disposal of assets in compliance with these Regulations.) of the Regulations Governing the Acquisition and Disposal of Assets by Public Companies, Paragraph 2 of Article 2 (The operation of securities firm shall be in accordance with laws and regulations, articles of incorporation, and the internal control system referred to in the preceding paragraph.)of the Regulations Governing Securities Firms, Paragraph 1 of Article 30 ( Articles 38 through 41 of the Regulations Governing the Establishment of Internal Control Systems by Public Companies shall apply mutatis mutandis to a service enterprise'' supervision and management over its subsidiaries.)and Article 33 (Under any of the following circumstances, the competent authority may order a service enterprise to make improvements within a prescribed time limit, or where necessary, to engage a CPA to conduct a special audit of its internal control system and obtain an audit report and submit it to the competent authority for recordation: 1.Failure to document its internal control system. 2.Failure to appoint qualified personnel as full-time internal auditors or to appoint them in an appropriate number. 3.Failure to file a report within a prescribed time limit on, or fail to scrupulously execute, its annual audit plan. 4.Failure to file a report within a prescribed time limit on the actual execution of its annual audit plan. 5.Failure to file a report within the prescribed time limit on the correction of any deficiency or irregularity of the internal control system identified in an audit. 6.Failure to duly conduct self-assessment of its internal control system or to prepare a Statement on Internal Control. 7.Serious instance of failure to correct a deficiency of the internal control system pursuant to the internal control recommendations issued by a CPA. 8.Serious instance of false external financial reporting or violating a law, regulation, or bylaw. 9.Any material fraud or suspicion of fraud. 10.Other condition where the competent authority deems a special audit to be necessary.) of the Regulations Governing the Establishment of Internal Control Systems by Service Enterprises in Securities and Futures Markets, FSC’s order under Jin-Guan-Zhen-Quan-Zi No. 1070320901 dated June 1st, 2018, and Paragraph 3 of Article 18 (Persons referred to in the preceding paragraph also may not engage in any conduct prohibited by securities laws and regulations when conducting their duties.) of the Regulations Governing Responsible Persons and Associated Persons of Securities Firms.
4.Facts of the violation and reasons:
i.Reliance Securities’ defective management of its subsidiary: Reliance Securities failed to urge its subsidiary, Reliance Securities Venture Capital Co., Ltd. (hereinafter referred to as “Reliance Venture Investment”) to establish the internal control system, enact and implement the regulations governing acquisition or disposition of assets, or make an investment in accordance with Reliance Securities’ internal rules and related laws & regulations. Further, Reliance Securities was found defective in its 2018 audit report on Reliance Venture Investment and failing to access the financial information of Reliance Venture Investment on a monthly basis, and its compliance unit failed to urge Reliance Venture Investment to contact the unit to review the instruments including share transfer agreement.
ii.Reliance Securities delayed in reporting FSC that the three companies including Reliance Venture Investment ○○○○ suffered material loss.
iii.Proprietary Trading Dept. of Reliance Securities took the operating procedure for analysis on trading, and control over loss, of the investment in marketable securities as a mere formality.
iv.As the president of Reliance Securities, Liao ○○ was found defective in supervising Reliance Securities and its subsidiary, Reliance Venture Investment. As the compliance officer of Reliance Securities, Chiang ○○ failed to urge that Reliance Venture Investment should have the share transfer agreement reviewed by the compliance unit of Reliance Securities. Chang ○○ was found defective in his audit report on the subsidiary, Reliance Venture Investment. When Lo ○○ served as the supervisor of Proprietary Trading Dept. of Reliance Securities, Proprietary Trading Dept. took the preparation of trading analysis report as a mere formality and the supervisor was held defective in the management of the department. When Chen ○○ served as the supervisor of Proprietary Trading Dept. of Reliance Securities, Proprietary Trading Dept. took the trading analysis and control over loss as a mere formality and the supervisor was held defective in the management of the department. Lei ○○ took the preparation of trading analysis report as a mere formality and the report prepared by him failed to specify the risk assessment pursuant to the internal rules.
5.The disciplinary action:
i.For the part of the company: According to the subparagraph 2 of Article 66 of the Securities and Exchange Act, Reliance Securities is ordered to remove Lin ○○, who was the director and Chairman of Board, and Wu ○○, who was the director, at the time when the misconduct was committed, from office. For Reliance Securities’ failure to urge the subsidiary, Reliance Venture Investment, to establish the internal control system, Reliance Securities is fined NT$2,400,000 in accordance with the subparagraph 4, Paragraph 1 of Article 178 of the Securities and Exchange Act. In the meantime, according to Article 33 of the Regulations Governing the Establishment of Internal Control Systems by Service Enterprises in Securities and Futures Markets and the subparagraph 5 of Article 66 of the Securities and Exchange Act, Reliance Securities is ordered to appoint a CPA other than the independent auditor to issue a special audit report on Reliance Securities’ internal control systems, such as management of its subsidiary and proprietary trading of securities. Meanwhile, before the CPA issues his review comments on the design and validity of the internal control systems, Reliance Securities is not allowed to increase its investment in subsidiaries or funding or endorsements/guarantees to subsidiaries, and also no increase in the investment by the subsidiaries, Reliance Venture Investment and Reliance Securities Venture Management Co. Ltd. is allowed. Reliance Securities shall propose the specific corrective action plan and schedule with respect to the deficiencies and suggestions disclosed in the CPA’s special audit report, and submit the same to a shareholders’ meeting for discussion and ratification. Then, the same shall be reported to FSC upon evaluation by TWSE. The independent directors shall strictly supervise the business carried out by the company pursuant to laws.
ii.For the part of staff: Reliance Securities is ordered to suspend Liao ○○ and Chang ○○ from performing their job duties for six months, Chiang ○○ for four months, Chen ○○ for two months, and Lo ○○ and Lei ○○ for one month.
Visitor： 612 Update： 2019-11-04