These Standards were established for governing the review and assessment of internal control and internal auditing procedures of applications by securities firms to conduct specific business operations.
For purposes of these Standards, the term "Specific Business Operations" means the various business operations which a securities firm applies for conducting pursuant to the "Regulations Governing Securities Lending by Securities Firms" or the "Regulations Governing Borrowing or Lending Money in Connection with Securities Business by Securities Firms".
For purposes of these Standards, the term "audit" includes routine audits, selective audits, and special audits of the head office and branches of a securities firm (including on-site audits and documents audits ); and internal audits by a securities firm include self-audits by its branches.
For purposes of these Standards, a securities firm with a good record of internal control and internal audit and a sound and effective internal control system refers to a securities firm satisfying the following conditions:
- Not having been given any deduction of 25 points or more in any assessment and audit of its internal control as conducted by the Taiwan Stock Exchange Corporation ("TWSE") or Gre-Tai Securities Market ("GTSM")in the past year; if the securities firm was not audited in the past year, not having been given any deduction of 25 points or more in the last assessment and audit of its internal control system.
- Its internal auditing procedures scoring on average 75 points or more in the routine audit conducted by the TWSE or GTSM in the past year; if the securities firm was not audited in the past year, its internal auditing procedures scoring 75 points or more in the last routine audit conducted.
After the securities firm applying for specific business operations in accordance with Article 2, Paragraph 1 submits the application to the TWSE, the TWSE shall review and assess according to the standards set out in the preceding article whether the securities firm's internal control and internal audit records are good and whether its internal control system is sound and effective.
If a securities firm fails to obtain approval for conducting special business due to its failure to satisfy the condition in Subparagraph 1 of the previous article and reapplies after making improvement, such that less than one year has passed since the decision disallowing its initial application, the TWSE determine that the securities firm meets the standard in Subparagraph 1 of the previous article if said firm:
- appoints, pursuant to the Regulations Governing the Establishment of Internal Control Systems by Service Enterprises in Securities and Futures Markets, a certified public accountant to conduct a special audit of its internal control system at least addressing the deficiencies that caused the initial application to be unapproved and produce an unqualified opinion and a audit report stating that the internal control system for the application of special business operations is sound and effective; or
- produces a statement that the deficiencies that caused the initial application to be disallowed have been mitigated and documents and related information proving the process of mitigation, and the TWSE finds upon verification that the deficiencies have been shown to be mitigated.
If a securities firm fails to obtain approval for conducting special business operations due to its failure to satisfy the condition in Subparagraph 2 of the previous article and reapplies after making improvement, such that less than one year has passed since the routine audit upon which its initial application was unapproved, the TWSE may request the securities firm to provide the scores in the last audit of the internal auditing procedures of all its branches. If all the branches score 75 points or above, the TWSE may elect to audit the internal audit procedures of either the head office or any branch of the securities firm and use the score thus obtained as the determining score in Subparagraph 2 of the previous article.
In regard to the same specific business operation of the same securities firm, the TWSE may conduct only one audit of the internal audit procedures of the head office or branch pursuant to the preceding paragraph.
These Standards shall take effect after having been submitted to and approved by the competent authority. Subsequent amendments thereto shall be effected in the same manner.