| Title： |
Directions for the Conduct of Wealth Management Business by Securities Firms(2006.05.30) |
| Date： |
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These Directions are adopted pursuant to the latter part of paragraph 1, Article 45 of the Securities and Exchange Act.
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A securities firm that meets the following conditions and qualifications may conduct wealth management business after obtaining approval from the Financial Supervisory Commission (FSC), and shall do so in accordance with these Directions:
(1) Regulatory capital adequacy ratio: its regulatory capital adequacy ratio reported prior to applying exceeds 200 percent.
(2) Credit rating: Has a long-term credit rating of twBBB or above from Taiwan Ratings Corporation, or of BBB (twn) from Fitch Ratings Limited, Taiwan Branch, or of Baaii. tw from Moody's Investors Service Taiwan Branch, or of BBB from Fitch Ratings Ltd, or of BBB from Standard & Poor's Corp., or of Baa2 or above from Moody's Investors Service.
(3) Legal compliance
i. Has not, within the past three months, been sanctioned under Article 66, subparagraph 1 of the Securities and Exchange Act or under Article 100, paragraph 1, subparagraph 1 of the Futures Trading Act.
ii. Has not, within the past six months, been sanctioned under Article 66, subparagraph 2 of the Securities and Exchange Act or under Article 100, paragraph 1, subparagraph 2 of the Futures Trading Act.
iii. Has not, within the past one year, had a sanction imposed by the FSC to suspend its business.
iv. Has not, within the past two years, had a sanction imposed by the FSC to revoke any part of its business permit.
v. Has not, within the past one year, had a sanction of suspended or restricted trading imposed on it by the Taiwan Stock Exchange Corporation, GreTai Securities Market, or Taiwan Futures Exchange, under the operating rules or corporate bylaws thereof.
A securities firm that fails to meet the compliance requirements in subparagraph (3) of the preceding paragraph may be exempted from restriction under that subparagraph if it can specifically document that it has already corrected the infraction.
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The term "wealth management business" refers to a securities firm, through its associated persons, providing a high net worth customer with services such as asset allocation or financial planning, according to the demands of the customer.
Each individual securities firm sets its own criteria, based on its operational strategies, for what constitutes a "high net worth customer" as set out in the preceding paragraph.
Where the conduct of wealth management business by a securities firm will involve operation of foreign exchange business, the consent of the Central Bank shall first be obtained.
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If wealth management business involves another financial business for which special approval is required, permission for concurrent conduct of such business and the qualification requirements for personnel to engage in the business shall be handled in accordance with legal provisions governing the business in question.
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A securities firm conducting wealth management business shall, acting in accordance with laws and regulations governing the products and services that it provides, adopt the following management policy and working procedures, which shall be implemented after they have been approved by the board of directors (or, in the case of a Taiwan branch of a foreign securities firm, such approval may be given by a person authorized by the head office).
(1) Management policy: Shall at least include wealth management business objectives and strategies, market positioning, customer segmentation, products and services, organizational structure, and segregation of duties.
(2) Working procedures: Shall contain at least the following items:
i. Personnel administration rules for the associated persons handling wealth management business ["wealth managers"].
ii. Working procedures for "Know Your Customers" evaluating.
iii. Working procedures for monitoring unusual and suspicious transactions.
iv. Procedures for using customer data, maintaining its confidentiality, and handling customer comments.
v. Working procedures for business promotion and risk management of customer accounts.
vi. Mechanisms to prevent insider trading and conflicts of interest.
vii. An internal control and internal audit system, and a risk management system.
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To conduct wealth management business, a securities firm shall establish a dedicated department and personnel, independent of other departments, and charge such department with the duties of business planning and implementation, and management of wealth managers.
Persons other than dedicated personnel of the wealth management department may neither sell products in the name of wealth management nor carry on business in the name of wealth managers.
Wealth managers shall meet the qualifications set out in Article 6 of the Regulations Governing Responsible Persons and Associated Persons of Securities Firms, and shall additionally possess the qualifications, conditions, and training formulated by the Chinese Securities Association and ratified by the FSC.
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The personnel administration rules for wealth managers adopted by a securities firm shall at least include personnel qualification requirements, professional training and prerequisites, a code of professional ethics, and a salary, reward, and performance evaluation system.
To enhance the competence of wealth managers, a securities firm shall on an ongoing basis administer education and training for such personnel and shall, for all working procedures and rules, adopt standard operating procedures for compliance by wealth managers.
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Working procedures adopted by a securities firm for "Know Your Customer" evaluating rules shall be tailored to the characteristics of each different by type of business, and shall at least include the following:
(1) Customer acceptance and account opening:
i. Procedures for opening customer accounts and the minimum dollar amount and conditions required to enter into the business relationship, and the circumstances in which the securities firm may refuse to do business or to accept a customer. Stricter due diligence and approval procedures shall be in place for higher risk individuals of specific backgrounds or professions, and family members thereof.
ii. Procedures for building basic information on the customer, including customer identity and basic background information, customer credit information, wealth management needs and goals, and other information relating to the customer's credit standing, profession engaged in and source of assets (describe in detail the economic activities that produced the wealth), and verification of the information provided by the customer.
iii. In a situation where a customer authorizes another person to sign and open an account on his or her behalf, additional evaluation shall be conducted on such authorized representative and the beneficiary shall be identified.
(2) Evaluation of customer's investment capacity: Evaluation of a customer's investment capacity and acceptance of a customer's mandate shall, in addition to taking into consideration the information referred to in the preceding subparagraph, take the following information into overall consideration as well as the approval procedures for large transactions of over a certain dollar amount:
i. The customer's fund utilization status and professional competence.
ii. The customer's investment attributes, understanding of risk, and risk tolerance.
iii. Suitability of customer services, suitable range of investment recommendations, or suitable transaction amounts.
(3) Updating of customer evaluation materials:
i. The securities firm shall update customer information in a timely manner, and closely monitor any change in a customer's financial status.
ii. The evaluation of a customer's investment ability and the acceptance of transactions shall be reviewed and revised in light of any changes in a customer's information and other relevant supporting materials.
(4) Verification of the customer information and customer investment capacity evaluation: The securities firm shall designate personnel other than those involved in handling wealth management business, or other independent control personnel, to perform regular audits of the customer files for accuracy, consistency, and completeness.
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The work procedures adopted by securities firms for surveillance of unusual or suspicious transactions shall at least include the following:
(1) Establishing a management system that identifies, tracks, and controls unusual or suspicious transactions.
(2) Establishing management-by-exception mechanisms for banking activities of higher risk customers and, on the basis of past transactions or case reports from relevant agencies, establishing a database (dossiers) on unusual and suspicious transactions that is sufficient to the development and complexity of the business.
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When a securities firm adopts procedures for the use of customer data, maintenance of its confidentiality, and the handling of customer comments, such procedures shall at least include:
(1) The scope of use and maintenance of customer information and levels of personnel authorization, and control mechanisms to guard against unauthorized disclosure and other improper use of customer information.
(2) Working procedures governing the processing of customer comments and complaints, and investigation of, response to, and handling of customer comments and complaints. In addition, the chief wealth management officer shall periodically monitor and provide guidance on the handling of customer complaints.
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When a securities firm adopts working procedures for business promotion and risk management of customer accounts, such procedures shall include at least:
(1) The securities firm shall adopt standard operating procedures for conducting the promotion of wealth management business, to ensure that the workflow and related documents are compliant with the applicable legal requirements, and shall cover such matters as product explanations, risk disclosure, and fee itemizations and standards (including products sold on consignment).
(2) When selling products, the securities firm shall provide a risk disclosure statement to the customer, and shall ask the customer to provide written confirmation that he or she understands the product risks. A wealth manager shall implement a check procedure to confirm whether a customer is involved in money laundering or unlawful transactions, and shall furnish a written report of confirmation.
(3) The securities firm shall prepare and provide to the customer a handbook on customer rights and interests, and shall include information on how the customer can express comments and lodge complaints, the mechanism whereby the securities firm responds to and handles customer comments, and other information related to the safeguarding of customer rights and interests.
(4) If a securities firm conducting wealth management business recommends or sells to a customer any product issued by another institution, it shall be liable for any dispute arising in connection with any promotion of false products or failure to properly disclose associated risk. This liability shall be fully disclosed to customers in the handbook on customer rights and interests referred to in subparagraph (3).
(5) The securities firm shall establish transaction control mechanisms to avoid providing to customers products or services exceeding their credit limits, financial capacity, or suitable investment scope, and to avoid unauthorized business activities or improper consulting activities by wealth managers.
(6) For important documents and reports that the securities firm provides to the customer, it shall establish an appropriate control mechanism and indicate the number of years information is to be kept on file, to ensure the suitability and accuracy of the content. Where there is an information change or data error of material significance, the securities firm shall promptly notify the customer and handle the matter appropriately.
(7) The securities firm shall adopt appropriate working rules, and closely monitor, evaluate, and report to the customer any changes in a customer's asset allocation and investment portfolio.
(8) The securities firm shall establish a system for reporting to the customer regularly and from time to time. Apart from the report items set out in subparagraphs (6) and (7), which are mandatory, the content, scope, manner, and frequency of other related reports shall be set by mutual agreement between the two parties.
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The mechanisms adopted by a securities firm to prevent insider trading and conflicts of interest shall at least include:
(1) In conducting wealth management business, mechanisms shall also be put in place for segregating information belonging to other departments, to prevent improper disclosure.
(2) The securities firm shall employ ongoing training to improve the professional ethics of wealth managers.
(3) Wealth managers shall put top priority on customer interests. The chief wealth management officer shall decline approval when a transaction with a specific individual would be improper due to the likelihood of conflict with a customer's interests.
(4) A securities firm shall exercise tightened control over wealth managers, and prohibit them from making any agreement with a customer to share benefits or bear losses, or from directly or indirectly soliciting, agreeing to accept, or accepting improper benefits in cash, in kind, or otherwise, such as may influence the objectivity of their professional judgment or discharge of duties.
(5) Standards or supervisory measures shall be adopted to govern the direct or indirect acceptance by wealth managers of gifts from customers or third parties. It shall also be ensured that the adopted reward and remuneration system will not affect the objectivity and impartiality of wealth mangers when recommending certain products to customers.
(6) A wealth manager may not accept a customer's unlawful transaction. When a wealth manager learns from a customer of information related to his or her trading of any target product, if there exists any likelihood of conflict of interest or undue profit, the wealth manager may not engage in trading of such target products.
(7) Wealth managers shall recommend products based on customer suitability, and their salary and compensation shall, in a balanced manner, take into account commissions, growth of assets entrusted by customers for financial planning, and other factors. They may not recommend a product merely out of consideration for the amount of commission to be received, nor use some specific benefit or false advertising to induce a customer to buy or sell a specific product.
(8) A securities firm shall fully disclose the fee schedule and itemized details thereof for all products and services it provides.
(9) A securities firm shall fully disclose to its customers the handling fees that it actually collects for the provision of wealth management services, the commissions it obtains from recommending and selling products, and any other fees charged whatsoever.
(10) Unless otherwise provided by law or regulation, none of the income set out in the preceding subparagraph may be paid to any specific related party.
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In formulating various rules and procedures, a securities firm conducting wealth management business shall strengthen money laundering prevention measures in accordance with the Money Laundering Control Act and related provisions, and shall provide for participation by wealth managers, internal auditors, and legal compliance personnel in a money laundering prevention education and training program, to include regular training sessions focusing on how to recognize and track unusual and suspicious transactions.
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A securities firm shall adopt internal control and internal auditing regimes in accordance with the working procedures and mechanisms set out above. The internal audit department or legal compliance department shall regularly review the content of the various rules to ensure compliance with laws and regulations, and intensify the auditing of the implementation of wealth management business, to control and manage the compliance of work procedures and transaction procedures with internal rules and with laws and regulations.
The internal audit department shall intensify auditing of the implementation of work procedures relating to "Know Your Customers" evaluation, suitability of customer investment amounts and scope, and anti-money laundering procedures, and review the effectiveness of the establishment of related controls and mechanisms.
When a securities firm conducts wealth management business, the chief of its internal audit department shall be responsible for planning and surveillance of relevant money laundering control matters, and shall report to the board of directors at least once annually on the status of implementation of related work by the business department.
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A securities firm shall adopt relevant risk management mechanisms in accordance with the working procedures and mechanisms set out above, and shall analyze and monitor related risks for the products and services that it provides, and take appropriate response measures.
When implementing response measures referred to above, a securities firm shall take care to avoid prejudicing the rights and interests of customers.
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A securities firm conducting wealth management business shall continually upgrade its management information system in response to the development and complexity of the business, so as to successfully implement the provisions set out in the procedures mentioned above, including, among other matters, filing and updating customer information in a timely manner and monitoring customer accounts for any unusual or suspicious transactions. The designing and testing of the system's functions shall involve active participation of personnel from each department, with a view to ensuring that the securities firm complies with relevant provisions in the course of business.
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To conduct wealth management business, a securities firm shall apply to the FSC, furnishing the documents listed below. Approval to conduct the business is deemed to be granted if the FSC does not raise any objection within 15 days:
(1) Minutes of the directors meeting that approved the plan to conduct wealth management business.
(2) Business plan: to include, among other items, the management policy and working procedures set out in Point 5 of these Directions.
(3) Documentary proof that the securities firm meets the qualification requirements for conducting wealth management business (proof that it has not been sanctioned by the FSC authority is not needed).
A Taiwan branch of a foreign securities firm intending to apply to conduct wealth management business shall furnish a letter of consent from the board of directors of its head office when applying to the FSC, and shall comply with the provisions of Point 2, paragraph 1, subparagraph 3, herein. The regulatory capital adequacy ratio and long-term credit rating of its head office shall meet the standards set out in Point 2, paragraph 1, subparagraphs 1 and 2, respectively.
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If a securities firm violates these Directions in conducting wealth management business, the FSC may impose sanctions commensurate with the seriousness of the circumstances pursuant to Articles 65 and 66 of the Securities and Exchange Act.
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