Financial Supervisory Commission imposes disciplinary sanction on 3 securities investment trust firms of Fuh Hwa, Capital, and Uni-President in connection with the violation of applicable legal rules governing discretionary investment management of the Bureau of Labor Funds, Ministry of Labor
2021-04-22
The Financial Supervisory Commission (FSC) ruled to impose disciplinary sanction on Fuh Hwa Securities Investment Trust Co., Ltd., Capital Securities Investment Trust Co., Ltd., and Uni-President Securities Investment Trust Co., Ltd. (hereinafter, Fuh Hwa, Capital, and Uni-President) and related personnel in violation of applicable legal rules governing securities investment trust management.
The FSC has conducted investigation on Fuh Hwa, Capital, and Uni-President and related personnel, and discovered that they purchased the shares issued by Far Eastern Department Store with assets of the Bureau of Labor Funds (Fund Bureau) entrusted for discretionary investment under its fiduciary management in 2020. This is an act of defiance of the duty of care as good administrator in due diligence and honesty, and failed to perform the duties under the principle of good faith, which has caused damage to the transactions of the rights and privileges of the clients. The result is loss in discretionary investment and violation of law, and is an act of defiance of the normal operation of discretionary investment.
Disciplinary sanctions imposed by the FSC include the restriction of new fiduciary business, fine, discharge of duties, and discontinuation of business to the above 3 securities investment trust firms and related personnel depending on the severity of the offense. The detail is specified as follows:
I. Time of sanction: 2021.04.22
II. Offenders under the sanction: Fuh Hwa, Capital, and Uni-President.
III. Legal reference of the sanction: Paragraph 1 under Article 7 of the Securities Investment Trust and Consulting Act, Paragraph 1 under Article 57, Paragraph 1 under Article 58 where Article 17 shall be applicable, Paragraphs 2 and 8 under Article 59, Paragraph 1 under Article 71, Subparagraph 3 under Article 103, Article 104, Subparagraph 4 under Article 111 of the same law, and Paragraph 2 under Article 2 of the Regulations Governing Securities Investments Trust Enterprises, and Paragraph 2 under Article 6 and Article 33 of the Regulations Governing the Establishment of Internal Control Systems by Service Enterprises in Securities and Futures Markets.
IV. The fact of offense and the ruling on penalty:
(I) Fuh Hwa Securities Investment Trust
1. The fact of the offense: Fuh Hwa was entrusted by the Bureau of Labor Funds for discretionary investment with the labor pension fund and labor insurance fund, but failed to pay attention under a duty of care in due diligence and performed the duties under the principle of good faith. The Company understands that the agreement on discretionary investment prohibits investments made on the basis of only by telephone contact or other means of inquiry by the personnel of the Bureau of Labor Funds. Yet, the head and investment manager Chiu XX of Discretionary Investment Department, Investment Manager Liu XX worked in cooperation with an unauthorized person and bought the shares issued by Far Eastern Department Store to the instruction of such unauthorized person. The offenders also instructed research staff Chen XX to back them up by presenting a research and analysis report. This is an act of investment decision before compilation of an analysis report, which is a violation of the rules governing investment process. In addition, there is no basis and data in supporting a reasonable analysis for presenting in the report. The aforementioned transaction has obviously caused damage to the rights and privileges of the client.
2. The ruling on the penalty:
(1) To the company:
A. According to Subparagraph 3 under Article 103 of the Securities Investment Trust and Consulting Act, the Company is prohibited from entering into new agreements on discretionary investment with clients for conducting transactions in discretionary investment for 3 months, with a fine amounting to NT$3,000,000 for violation of Subparagraphs 2 and 8 under Article 59 of the same law, and a fine amounting to NT$1,500,000 for violation of Subparagraph 4 under Article 111 of the same law. (Total fine of $4,500,000).
B. According to Article 33 of the Regulations Governing the Establishment of Internal Control Systems by Service Enterprises in Securities and Futures Market, Fuh Hwa was ordered to retain a certified public account, who must not be the independent auditors retained by Fuh Hwa for its audit, to examine its internal control system after corrective action has been taken and issue a review report for presenting to the FSC.
(2) To the personnel: According to Article 104 of the Securities Investment Trust and Consulting Act, Fuh Hwa shall dismiss department head and Investment Manager Chiu XX, Investment Manager Liu XX and Research Staff Chen XX, and suspend Chiu and Liu for engagement in business for 1 year and Chen for 2 months, respectively.
(II) Capital Securities Investment Trust
1.The fact of the offense: Capital was entrusted by the Bureau of Labor Funds for discretionary investment with the labor pension fund and labor insurance fund, but failed to pay attention under a duty of care in due diligence and performed the duties under the principle of good faith. The Company understands that the agreement on discretionary investment prohibits investment made on the basis of only by telephone contact or other means of inquiry by the personnel of the Bureau of Labor Funds. Yet, the head and investment manager Hsieh XX of Discretionary Investment Department worked in cooperation with an unauthorized person, and, and gave instruction to Investment Manager Lin XX, which is authorized to conduct investment transaction, to buy the shares issued by Far Eastern Department Store to the instruction of such unauthorized person. The offenders also cited the research report compiled by research staff Tang XX to back them up. This is an act of investment decision before compilation of an analysis report, which is a violation of the rules governing investment process. In addition, there is no basis and data in supporting a reasonable analysis for presenting in the report. The aforementioned transaction has obviously caused damage to the rights and privileges of the client.
2. The ruling on penalty:
(1) To the Company:
A. According to Subparagraph 3 under Article 103 of the Securities Investment Trust and Consulting Act, the Company is prohibited from entering into new agreements on discretionary investment with clients for conducting transactions in discretionary investment for 3 months, with a fine amounting to NT$3,000,000 for violation of Subparagraphs 2 and 8 under Article 59 of the same law, and a fine amounting to NT$1,500,000 for violation of Subparagraph 4 under Article 111 of the same law. (Total fine of $4,500,000).
B. According to Article 33 of the Regulations Governing the Establishment of Internal Control Systems by Service Enterprises in Securities and Futures Market, Capital was ordered to retain a certified public account, who must not be the independent auditors retained by Capital for its audit, to examine its internal control system after corrective action has been taken and issue a review report for presenting to the FSC.
C. In the examination conducted by the FSC on Capital in its engagement in discretionary investment business in a special audit in 2019, the FSC discovered that the fund manger of the company was allegedly involved in using the account and fund of a third party to trade on a particular stock, which is a conflict of interest. The FSC has warned the company on 2020.04.21 and imposed a fine of $1,200,000, and dismissal of the fund manager. Yet, Capital has again acted in defiance of the discipline in investment and found defective in internal control in very short time. The Board of Capital is urged to review if the Chairman and the President are competent for their jobs, or their responsibilities in supervision, and report the finding to the FSC.
(2) To the personnel: According to Article 104 of the Securities Investment Trust and Consulting Act, Capital shall dismiss department head and Investment Manager Hsieh XX, Investment Manager Lin XX and Research Staff Tang XX, and suspend Hsieh and Lin for engagement in business for 3 months and Tang for 1 month, respectively.
(III) Uni-President Securities Investment Trust
1. The fact of the offense: Uni-President was entrusted by the Bureau of Labor Funds for discretionary investment with the labor pension fund and labor insurance fund, but failed to pay attention under a duty of care in due diligence and performed the duties under the principle of good faith. The Company understands that the agreement on discretionary investment prohibits investment made on the basis of only by telephone contact or other means of inquiry by the personnel of the Bureau of Labor Funds. Yet, the head and investment manager Chueh XX of Discretionary Investment Department worked in cooperation with an unauthorized person, gave instruction to investment manager Sun XX to visit the personnel of Far Eastern Department Store, and further instructed research staff Yu XX to issue an analysis report. This is an act of investment decision before the compilation of an analysis report, and of defiance of the standard procedure of investment. In addition, there is no basis and data in supporting a reasonable analysis for presenting in the report. Sun XX then worked in cooperation with Chueh XX and use the discretionary investment account of the Bureau of Labor Funds to the instruction of Chueh, and at the consent of Chueh XX and Investment Manager Kuo XX to continue placing orders for buying the shares issued by Far Eastern Department Store and sold the shares being bought within 3 trading days. The aforementioned transaction has obviously caused damage to the rights and privileges of the client.
2. The ruling on penalty:
(1) To the Company:
A. According to Subparagraph 3 under Article 103 of the Securities Investment Trust and Consulting Act, the Company is prohibited from entering into new agreements on discretionary investment with clients for conducting transactions in discretionary investment for 3 months, with a fine amounting to NT$3,000,000 for violation of Subparagraphs 2 and 8 under Article 59 of the same law, and a fine amounting to NT$1,500,000 for violation of Subparagraph 4 under Article 111 of the same law. (Total fine of $4,500,000).
B. According to Article 33 of the Regulations Governing the Establishment of Internal Control Systems by Service Enterprises in Securities and Futures Market, Uni-President was ordered to retain a certified public account, who must not be the independent auditors retained by Uni-President for its audit, to examine its internal control system after corrective action has been taken and issue a review report for presenting to the FSC.
C. In the examination conducted by the FSC on Uni-President in its engagement in discretionary investment business in a special audit in 2019, the FSC discovered that the fund manger of the company was allegedly involved in using the account and fund of a third party to trade on particular stock, which is a conflict of interest. The FSC warned the Company, imposed a fine of $1,800,000, and dismissed the fund manager on 2020.06.23, and ordered the nd related personnel of the company to discontinue business operation within specific period. Yet, Uni-President has again acted in defiance of the discipline in investment and found defective in internal control in very short time. The Board of Uni-President is urged to review if the Chairman and the President are competent for their jobs, or their responsibilities in supervision, and report the finding to FSC.
(2) To the personnel: According to Article 104 of the Securities Investment Trust and Consulting Act, Uni-President shall dismiss department head and Investment Manager Chueh XX, Investment Manager Sun XX and Kuo XX, and Research Staff Yu XX, and suspend Hsieh and Lin for engagement in business for 1 year, 3 months and 1 month, respectively.
Pursuant to Subparagraph 3 under Article 103 of the Securities and Investment Trust Act, the 3 securities investment trust firms shall also be restricted in the engagement in the following business further to the punishment of the FSC on stopping new business on trust service:
I. No application (declaration) for offering securities investment trust funds for investment in securities of foreign countries in 1 year unless substantial corrective action has been taken to rectify the offense.
II. No application for acting as the general agent of offshore funds, and run the futures trust business in 2 years.
III. No application for investment in domestic and foreign business operations or establish branches, and participation in investment in manager companies of securities investment trust fund in Mainland China.
IV. Others: such as the application for undertaking discretionary investment of government funds will be affected (prohibited for participation in bidding in 5 years), before the FSC recognized the rectification of the defects of the aforementioned report on special audits, the FSC will return or prohibit the application (declaration) for offering or addition of securities investment trust funds.
The FSC emphasized that investment trust firms are specially approved financial institutions subject to intensive monitoring as its function is the management of public assets. The business operation of which shall be established on a trust worthy corporate culture and high standard of code of conduct. In addition, the boards of directors of these firms shall be responsible for carving a trust worthy corporate culture and establishing a perfect system of code of conduct in order to earn the trust of the investors. It is necessary for protecting and maintaining the rights and privileges of the public.
The FSC reiterated that honesty is foremost important in the business of asset management where a duty of care as reasonable person in due diligence will be necessary. This is particularly the case when the fund involved the labor fund, which is a matter of the rights and privileges of the large population of labor after retirement. Special care should be taken. It is explicitly stated in applicable legal rules governing the operation of investment trust firms in running discretionary accounts that both the firms and their personnel shall not engage in any transactions and business that may cause damage to the rights and privileges of the clients when using the fiduciary assets in securities trade, and shall enter into a discretionary service agreement with the clients to specify the authority and restriction of related investment decision-making. The acceptance or cooperation with unauthorized persons in using the discretionary accounts to engage in transaction that will cause damage to the rights and privileges of the clients will not be tolerated. For the firms and individuals acting in defiance of these rules and regulations shall be subject to severe punishment without reserve to avoid the acts of a handful of practitioners in the business affecting the trust of the investors in assets management of the country. The FSC shall also continue to bolster the mechanisms for the avoidance of the conflict of interest, internal control system of investment trust firms, and the awareness of the practitioners in the business in law compliance and code of conduct for assurance of the proper pursuit of corporate governance and maintaining a professional image of the asset management firms.
Contact: Securities and Futures Bureau, Securities Investment Trust and Consulting Division, Section Manager Lin
Telephone: 02-2774-7311
Should you have query, please write to: FSCMAIL
The FSC has conducted investigation on Fuh Hwa, Capital, and Uni-President and related personnel, and discovered that they purchased the shares issued by Far Eastern Department Store with assets of the Bureau of Labor Funds (Fund Bureau) entrusted for discretionary investment under its fiduciary management in 2020. This is an act of defiance of the duty of care as good administrator in due diligence and honesty, and failed to perform the duties under the principle of good faith, which has caused damage to the transactions of the rights and privileges of the clients. The result is loss in discretionary investment and violation of law, and is an act of defiance of the normal operation of discretionary investment.
Disciplinary sanctions imposed by the FSC include the restriction of new fiduciary business, fine, discharge of duties, and discontinuation of business to the above 3 securities investment trust firms and related personnel depending on the severity of the offense. The detail is specified as follows:
I. Time of sanction: 2021.04.22
II. Offenders under the sanction: Fuh Hwa, Capital, and Uni-President.
III. Legal reference of the sanction: Paragraph 1 under Article 7 of the Securities Investment Trust and Consulting Act, Paragraph 1 under Article 57, Paragraph 1 under Article 58 where Article 17 shall be applicable, Paragraphs 2 and 8 under Article 59, Paragraph 1 under Article 71, Subparagraph 3 under Article 103, Article 104, Subparagraph 4 under Article 111 of the same law, and Paragraph 2 under Article 2 of the Regulations Governing Securities Investments Trust Enterprises, and Paragraph 2 under Article 6 and Article 33 of the Regulations Governing the Establishment of Internal Control Systems by Service Enterprises in Securities and Futures Markets.
IV. The fact of offense and the ruling on penalty:
(I) Fuh Hwa Securities Investment Trust
1. The fact of the offense: Fuh Hwa was entrusted by the Bureau of Labor Funds for discretionary investment with the labor pension fund and labor insurance fund, but failed to pay attention under a duty of care in due diligence and performed the duties under the principle of good faith. The Company understands that the agreement on discretionary investment prohibits investments made on the basis of only by telephone contact or other means of inquiry by the personnel of the Bureau of Labor Funds. Yet, the head and investment manager Chiu XX of Discretionary Investment Department, Investment Manager Liu XX worked in cooperation with an unauthorized person and bought the shares issued by Far Eastern Department Store to the instruction of such unauthorized person. The offenders also instructed research staff Chen XX to back them up by presenting a research and analysis report. This is an act of investment decision before compilation of an analysis report, which is a violation of the rules governing investment process. In addition, there is no basis and data in supporting a reasonable analysis for presenting in the report. The aforementioned transaction has obviously caused damage to the rights and privileges of the client.
2. The ruling on the penalty:
(1) To the company:
A. According to Subparagraph 3 under Article 103 of the Securities Investment Trust and Consulting Act, the Company is prohibited from entering into new agreements on discretionary investment with clients for conducting transactions in discretionary investment for 3 months, with a fine amounting to NT$3,000,000 for violation of Subparagraphs 2 and 8 under Article 59 of the same law, and a fine amounting to NT$1,500,000 for violation of Subparagraph 4 under Article 111 of the same law. (Total fine of $4,500,000).
B. According to Article 33 of the Regulations Governing the Establishment of Internal Control Systems by Service Enterprises in Securities and Futures Market, Fuh Hwa was ordered to retain a certified public account, who must not be the independent auditors retained by Fuh Hwa for its audit, to examine its internal control system after corrective action has been taken and issue a review report for presenting to the FSC.
(2) To the personnel: According to Article 104 of the Securities Investment Trust and Consulting Act, Fuh Hwa shall dismiss department head and Investment Manager Chiu XX, Investment Manager Liu XX and Research Staff Chen XX, and suspend Chiu and Liu for engagement in business for 1 year and Chen for 2 months, respectively.
(II) Capital Securities Investment Trust
1.The fact of the offense: Capital was entrusted by the Bureau of Labor Funds for discretionary investment with the labor pension fund and labor insurance fund, but failed to pay attention under a duty of care in due diligence and performed the duties under the principle of good faith. The Company understands that the agreement on discretionary investment prohibits investment made on the basis of only by telephone contact or other means of inquiry by the personnel of the Bureau of Labor Funds. Yet, the head and investment manager Hsieh XX of Discretionary Investment Department worked in cooperation with an unauthorized person, and, and gave instruction to Investment Manager Lin XX, which is authorized to conduct investment transaction, to buy the shares issued by Far Eastern Department Store to the instruction of such unauthorized person. The offenders also cited the research report compiled by research staff Tang XX to back them up. This is an act of investment decision before compilation of an analysis report, which is a violation of the rules governing investment process. In addition, there is no basis and data in supporting a reasonable analysis for presenting in the report. The aforementioned transaction has obviously caused damage to the rights and privileges of the client.
2. The ruling on penalty:
(1) To the Company:
A. According to Subparagraph 3 under Article 103 of the Securities Investment Trust and Consulting Act, the Company is prohibited from entering into new agreements on discretionary investment with clients for conducting transactions in discretionary investment for 3 months, with a fine amounting to NT$3,000,000 for violation of Subparagraphs 2 and 8 under Article 59 of the same law, and a fine amounting to NT$1,500,000 for violation of Subparagraph 4 under Article 111 of the same law. (Total fine of $4,500,000).
B. According to Article 33 of the Regulations Governing the Establishment of Internal Control Systems by Service Enterprises in Securities and Futures Market, Capital was ordered to retain a certified public account, who must not be the independent auditors retained by Capital for its audit, to examine its internal control system after corrective action has been taken and issue a review report for presenting to the FSC.
C. In the examination conducted by the FSC on Capital in its engagement in discretionary investment business in a special audit in 2019, the FSC discovered that the fund manger of the company was allegedly involved in using the account and fund of a third party to trade on a particular stock, which is a conflict of interest. The FSC has warned the company on 2020.04.21 and imposed a fine of $1,200,000, and dismissal of the fund manager. Yet, Capital has again acted in defiance of the discipline in investment and found defective in internal control in very short time. The Board of Capital is urged to review if the Chairman and the President are competent for their jobs, or their responsibilities in supervision, and report the finding to the FSC.
(2) To the personnel: According to Article 104 of the Securities Investment Trust and Consulting Act, Capital shall dismiss department head and Investment Manager Hsieh XX, Investment Manager Lin XX and Research Staff Tang XX, and suspend Hsieh and Lin for engagement in business for 3 months and Tang for 1 month, respectively.
(III) Uni-President Securities Investment Trust
1. The fact of the offense: Uni-President was entrusted by the Bureau of Labor Funds for discretionary investment with the labor pension fund and labor insurance fund, but failed to pay attention under a duty of care in due diligence and performed the duties under the principle of good faith. The Company understands that the agreement on discretionary investment prohibits investment made on the basis of only by telephone contact or other means of inquiry by the personnel of the Bureau of Labor Funds. Yet, the head and investment manager Chueh XX of Discretionary Investment Department worked in cooperation with an unauthorized person, gave instruction to investment manager Sun XX to visit the personnel of Far Eastern Department Store, and further instructed research staff Yu XX to issue an analysis report. This is an act of investment decision before the compilation of an analysis report, and of defiance of the standard procedure of investment. In addition, there is no basis and data in supporting a reasonable analysis for presenting in the report. Sun XX then worked in cooperation with Chueh XX and use the discretionary investment account of the Bureau of Labor Funds to the instruction of Chueh, and at the consent of Chueh XX and Investment Manager Kuo XX to continue placing orders for buying the shares issued by Far Eastern Department Store and sold the shares being bought within 3 trading days. The aforementioned transaction has obviously caused damage to the rights and privileges of the client.
2. The ruling on penalty:
(1) To the Company:
A. According to Subparagraph 3 under Article 103 of the Securities Investment Trust and Consulting Act, the Company is prohibited from entering into new agreements on discretionary investment with clients for conducting transactions in discretionary investment for 3 months, with a fine amounting to NT$3,000,000 for violation of Subparagraphs 2 and 8 under Article 59 of the same law, and a fine amounting to NT$1,500,000 for violation of Subparagraph 4 under Article 111 of the same law. (Total fine of $4,500,000).
B. According to Article 33 of the Regulations Governing the Establishment of Internal Control Systems by Service Enterprises in Securities and Futures Market, Uni-President was ordered to retain a certified public account, who must not be the independent auditors retained by Uni-President for its audit, to examine its internal control system after corrective action has been taken and issue a review report for presenting to the FSC.
C. In the examination conducted by the FSC on Uni-President in its engagement in discretionary investment business in a special audit in 2019, the FSC discovered that the fund manger of the company was allegedly involved in using the account and fund of a third party to trade on particular stock, which is a conflict of interest. The FSC warned the Company, imposed a fine of $1,800,000, and dismissed the fund manager on 2020.06.23, and ordered the nd related personnel of the company to discontinue business operation within specific period. Yet, Uni-President has again acted in defiance of the discipline in investment and found defective in internal control in very short time. The Board of Uni-President is urged to review if the Chairman and the President are competent for their jobs, or their responsibilities in supervision, and report the finding to FSC.
(2) To the personnel: According to Article 104 of the Securities Investment Trust and Consulting Act, Uni-President shall dismiss department head and Investment Manager Chueh XX, Investment Manager Sun XX and Kuo XX, and Research Staff Yu XX, and suspend Hsieh and Lin for engagement in business for 1 year, 3 months and 1 month, respectively.
Pursuant to Subparagraph 3 under Article 103 of the Securities and Investment Trust Act, the 3 securities investment trust firms shall also be restricted in the engagement in the following business further to the punishment of the FSC on stopping new business on trust service:
I. No application (declaration) for offering securities investment trust funds for investment in securities of foreign countries in 1 year unless substantial corrective action has been taken to rectify the offense.
II. No application for acting as the general agent of offshore funds, and run the futures trust business in 2 years.
III. No application for investment in domestic and foreign business operations or establish branches, and participation in investment in manager companies of securities investment trust fund in Mainland China.
IV. Others: such as the application for undertaking discretionary investment of government funds will be affected (prohibited for participation in bidding in 5 years), before the FSC recognized the rectification of the defects of the aforementioned report on special audits, the FSC will return or prohibit the application (declaration) for offering or addition of securities investment trust funds.
The FSC emphasized that investment trust firms are specially approved financial institutions subject to intensive monitoring as its function is the management of public assets. The business operation of which shall be established on a trust worthy corporate culture and high standard of code of conduct. In addition, the boards of directors of these firms shall be responsible for carving a trust worthy corporate culture and establishing a perfect system of code of conduct in order to earn the trust of the investors. It is necessary for protecting and maintaining the rights and privileges of the public.
The FSC reiterated that honesty is foremost important in the business of asset management where a duty of care as reasonable person in due diligence will be necessary. This is particularly the case when the fund involved the labor fund, which is a matter of the rights and privileges of the large population of labor after retirement. Special care should be taken. It is explicitly stated in applicable legal rules governing the operation of investment trust firms in running discretionary accounts that both the firms and their personnel shall not engage in any transactions and business that may cause damage to the rights and privileges of the clients when using the fiduciary assets in securities trade, and shall enter into a discretionary service agreement with the clients to specify the authority and restriction of related investment decision-making. The acceptance or cooperation with unauthorized persons in using the discretionary accounts to engage in transaction that will cause damage to the rights and privileges of the clients will not be tolerated. For the firms and individuals acting in defiance of these rules and regulations shall be subject to severe punishment without reserve to avoid the acts of a handful of practitioners in the business affecting the trust of the investors in assets management of the country. The FSC shall also continue to bolster the mechanisms for the avoidance of the conflict of interest, internal control system of investment trust firms, and the awareness of the practitioners in the business in law compliance and code of conduct for assurance of the proper pursuit of corporate governance and maintaining a professional image of the asset management firms.
Contact: Securities and Futures Bureau, Securities Investment Trust and Consulting Division, Section Manager Lin
Telephone: 02-2774-7311
Should you have query, please write to: FSCMAIL
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2021-08-10