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Amendments

Title:

Corporate Governance Best-Practice Principles for Securities Firms  CH

Amended Date: 2021.01.06 (Articles 3, 3-1, 5, 6, 7, 10, 11, 22, 23, 24, 26, 28, 28-1, 28-2, 28-3, 31, 35, 37, 37-1, 39, 42, 46, 49, 57 amended,English version coming soon)
Current English version amended on 2019.01.14 
Categories: Corporate Governance

Title: Corporate Governance Best-Practice Principles for Securities Firms(2009.10.21)
Date:
Article 1     In order to assist securities firms to establish a sound corporate governance system, and to promote the integrity of the securities market, the Taiwan Stock Exchange ("TSE"), the GreTai Securities Market ("GTSM") and the Chinese Securities Association ("CSA") hereby jointly adopt the Principles, which have been submitted to the Financial Supervisory Commission ("FSC") for recordation, to be followed by securities firms.
    A TSE/GTSM listed securities firm shall, unless otherwise provided for in the Principles, be required to comply with the Corporate Governance Best-Practice Principles For TSE/GTSM Listed Companies.
    A foreign securities firm having Taiwan branches may be waived the application of the Principles' regulations from Chapter I to Chapter IV.
    A company concurrently operating as securities firm may be waived the application of the Principles' regulations.
    Securities firms are advised to promulgate their own corporate governance principles in accordance with the Principles.
Article 3     A securities firm shall follow the Criteria Governing the Establishment of Internal Control System in Securities and Futures Service Enterprises and the standard guidelines for the internal control system of securities firms as jointly promulgated by TSE and such other securities related institutions and take into consideration the overall operational activities of itself and its subsidiaries in establishing an effective internal control system, and review it at all times, in order to keep up with the dynamics of environment inside and outside the company and ensure that the design and enforcement of the system remain effective.
    Establishment of or amendments to the internal control system shall be submitted to the board of directors for approval by resolution. If a director indicated an opposition which has been recorded or is supported with a written statement, the company shall submit the opposition opinion, together with the internal control system approved by the board of directors, to each supervisor. Where there are independent directors, during the discussions of the internal control system at the board of directors, the opinions of each individual independent director shall be fully considered. Where an independent director has an adverse opinion or qualified opinion, the opinion shall be stated in the board of directors' meeting minutes; provided, however, that if the firm has established an audit committee in accordance with the Securities and Exchange Act, the consent by a majority of all members of the audit committee and the resolution of the board of directors are required.
    If the majority consent of the audit committee as described in the preceding paragraph is not obtained, the consent by two thirds of all board directors may be required, and the resolution by the audit committee shall be stated in the minutes of the board meeting.
    In addition to faithfully performing voluntary reviews of the internal control system, the board of directors and the management shall review the result of the voluntary reviews of each department and the report of the internal audit department at least annually. Supervisors shall also pay attention to and exercise oversight on this matter. Responsible persons (directors and supervisors) shall meet with internal auditors to discuss how to correct the defects in the internal control system, which shall be stated in the minutes, on a regular basis. Where an audit committee has been established in accordance with the Securities and Exchange Act, evaluations on the effectiveness of the internal control system require the consent by a majority of all members of the audit committee and the resolution of the board of directors.
    The management of a securities firm shall pay special attention to the internal audit department and its personnel, fully empower them and urge them to conduct audits effectively, evaluate problems of the internal audit system and evaluate the efficiency of operations to ensure that such a system can be carried out effectively on a continuous basis and can assist the board of directors and the management to perform their duties effectively so as to ensure a sound corporate governance system.
    Where a proposal to correct major defects or violations of laws or rules pertaining to internal control made by the auditors and compliance officer of a securities firm is dismissed by the management and it is expected these defects or violations may cause significant losses to the securities firm, the competent authority shall be immediately notified of the issue.
Article 7     A securities firm shall encourage its shareholders to actively participate in its corporate governance and hold shareholders' meetings on the premise of legal, effective and safe proceedings. A securities firm shall seek all ways and means, including fully exploiting technologies for information disclosure and vote casting, so as to enhance the attendance rate of shareholders at the shareholders' meeting and ensure the exercise of shareholders' rights by shareholders at the shareholders' meeting in accordance with laws.
    When a securities firm provides giveaways in respect of a shareholders' meeting to its shareholders, there should be no different treatment or discrimination against shareholders.
Article 12     In entering into material financial and business transactions such as acquisition or disposal of assets, engaging in derivatives products transactions, lending funds of the company to any other person, making endorsements or providing guarantees to any other person, a securities firm shall proceed in accordance with the applicable laws and/or regulations. A securities firm shall further establish the operating procedures in relation to these material financial and business transactions and report the same to the shareholders' meeting for its approval so as to protect the interests of the shareholders.
    When making investments, a securities firm is advised to consider the corporate governance of the company issuing the underlying investments to set up its rules to be followed when making investments.
Article 18     A shareholder having controlling power over a securities firm shall comply with the following provisions:
  1. it shall bear a duty of good faith to other shareholders and shall not directly or indirectly cause the company to engage in transactions at other than arms' length or involve in management conduct for adverse interest.
  2. its representative shall follow the rules implemented by the securities firm with respect to the exercise of rights and participation of resolution, so that at a shareholders' meeting, the representative shall exercise his/her voting right for the best interest of all shareholders and in good faith and, when acting as a director or supervisor, he/she will exercise the fiduciary duty of a director or supervisor.
  3. it shall comply with relevant laws, regulations and the articles of incorporation of the company in nominating directors or supervisors and shall not act beyond the authority granted by the shareholders meeting or board meeting.
  4. it shall not improperly intervene in corporate policy making or obstruct corporate management activities.
  5. it shall not restrict or impede the management of the company by methods of unfair competition.
Article 20     The board of directors of a securities firm shall be responsible to the shareholders' meetings. Procedures and arrangement relating to corporate governance shall ensure that, in exercising its authority, the board of directors will comply with laws, regulations, articles of incorporation, and the resolutions of shareholders' meetings of the company.
    Regarding the structure of the board of directors of a securities firm, an appropriate number of the board members, which shall not be less than five, shall be determined based on the review of the scale of corporate management and operation and the shareholding of the major shareholders and by taking into consideration of the practical needs for operation. If independent directors are to be appointed, reasonable professional qualifications and objective conditions on how these directors may exercise powers independently shall be carefully reviewed.
    The board members shall have the necessary knowledge, skill, and experience for performing their duties. To achieve the ideal goal of corporate governance, the board of directors shall have the following abilities:
  1. ability to make operational judgment;
  2. ability to perform accounting and financial analysis;
  3. ability to conduct management administration;
  4. ability to conduct crisis management;
  5. possession of securities and financial derivatives products professional knowledge;
  6. possession of perspective of international market;
  7. ability to lead; and
  8. ability to make decisions.
  9. possession of knowledge of and ability for risk management.
    The board of directors shall be aware of the securities firm's operational risk exposure, such as market risk, credit risk, liquidity risk, operational risk, legal risk, reputation risk, and other types of risk relating to the securities firm's operation, to ensure effectiveness of risk management and shall be ultimately responsible for risk management.
Article 20-1     To achieve the goal of corporate governance, the board of directors of a securities firm has the following main job responsibilities:
  1. Establish an effective and appropriate internal control system.
  2. Elect and supervise managers.
  3. Review the company's management policy-making and operation plan, and supervise its execution.
  4. Review the company's financial objectives and supervise how they are accomplished.
  5. Supervise the results of the company's operation.
  6. Standards for performance evaluations and emoluments for managers and salespersons, and the structure and system of directors' emoluments.
  7. Supervise and handle the risks the company is facing.
  8. Ensure the company's compliance of applicable laws.
  9. Plan for the company's future objectives.
  10. Create and maintain the company's image and make the company a responsible member of the society.
  11. Elect accountants, lawyers and other experts.
  12. Protect investors' rights and interests.
  13. Ensure the company's compliance of applicable laws.
Article 24     A securities firm that has appointed two or more independent directors in accordance with the articles of incorporation shall keep the number of its independent directors not less than one fifth of number of seats at the board of directors.
    Independent directors shall have expertise and required knowledge, and are subject to restrictions on shareholding and outside employment. They shall maintain their independence when performing duties, and shall not have any direct or indirect interest in the company.
    To elect independent directors, a securities firm shall adopt the candidate nomination system in accordance with Article 192-1 of the Company Act. The articles of incorporation shall state shareholders are to elect independent directors from the candidates on the list. Both independent directors and non-independent directors shall be elected at the same time in accordance with Article 198 of the Company Act, and the number of elected dependent directors shall be separated from the number of elected non-independent directors for purpose of election.
    During their incumbency, no independent directors or non-independent directors may switch roles with each other.
    If the number of independent directors becomes less than the required number under the first paragraph or the articles of incorporation after the dismissal of one or more independent directors, a reelection shall be held at the next shareholders' meeting. When all independent directors are dismissed, the company shall convene a special shareholders' meeting for reelection within 60 days of occurrence of the dismissal.
    A securities firm that has appointed managing directors shall appoint at least one independent director as managing director and the independent director(s) shall account for not less than one fifth of the managing directors. The articles of incorporation shall specify the authorization of managing directors to exercise the powers of the board of directors during the recess of the board of directors. Despite of the above authorization, when there are matters involving the securities firm's major interest, the resolution of the board of directors is always required.
    Professional qualifications, restrictions on shareholding and outside employment, determination of independence, method of nomination and other regulations for compliance with regard to independent director shall be governed by the Securities and Exchange Act, the Regulations Governing Appointment of Independent Directors and Compliance Matters for Public Companies, and the regulations of Taiwan Stock Exchange or Taipei Exchange.
Article 25     Unless otherwise authorized by the competent authority, a securities firm that has appointed independent directors shall have the following matters resolved at the board of directors. Adverse opinion or qualified opinion, if any, expressed by independent director shall be stated in the board of directors' meeting minutes:
  1. Establishment of or modification to the internal control system in accordance with Article 14-1 of the Securities and Exchange Act.
  2. Establishment of and modification to the procedures of major financial and business activities such as acquisition or disposal of assets, performance of transactions of derivatives, lending of funds to third parties, granting of endorsements and provision of guarantees in accordance with Article 36-1 of the Securities and Exchange Act.
  3. Matters involving interests pertaining to directors or supervisors themselves.
  4. Major transactions of assets or derivatives.
  5. Major lending of funds, endorsement or provision of guarantee.
  6. Offering, issuance or private placement of securities of the nature of equity.
  7. Appointment,dismissal or remuneration of certified public accountant.
  8. Appointment and dismissal of chief financial, accounting, risk management, compliance and internal audit officers.
  9. Standards for performance evaluations and emoluments for managers and salespersons.
  10. Structure and system of directors' emoluments.
  11. Other major issues specified by the competent authority.
Article 26     A securities firm shall stipulate expressly the scope of duties of the independent directors and empower them with manpower and material support related to the exercise of their power. The company or other board members shall not restrict or obstruct the performance of duties by the independent directors.
    A securities firm shall stipulate expressly the emoluments of the directors in its articles of incorporation or pursuant to a resolution of the shareholders' meeting. Different but reasonable emoluments from that of other directors may be set forth for the independent directors.
Article 27     For the purpose of developing monitoring functions and strengthening management mechanisms, the board of directors of a securities firm may, taking into account the basis of the size of the board and the number of the independent directors, set up audit, risk management, nomination, remuneration or any other functional committees and have them stipulated in the articles of incorporation.
    Functional committees shall be responsible to the board and submit the proposals to the board of directors for approval. The above requirements, however, shall not apply when the audit committee is exercising the powers of supervisors in accordance with the Securities and Exchange Act, the Company Act and other laws.
    Functional committees shall adopt organizational regulations to be resolved and approved by the board of directors. The organizational regulations should cover at least the number of members in the committee, terms of office, duties and authorities, meeting proceedings, and what resources to be provided by the company to support their exercise of duties.
Article 28     It is advisable that a securities firm make it the first priority to set up the risk management committee, and shall either set up the audit committee or appoint supervisors.
    The main functions and duties of the risk management committee are as follows:
  1. Stipulation of risk management policy and framework and designate responsibilities to the relevant corporate departments.
  2. Stipulation of risk assessment criteria.
  3. Setting the overall level of risk of the company and of each corporate department and managing the risk.
    The risk management committee shall have at least one independent director with the expertise in securities and financial derivatives, accounting or finance in the committee who shall act as the convener.
    The audit committee shall be made up of all independent directors and shall have at least three members. One of the members shall act as the convener, and at least one member shall have the expertise in securities and financial derivatives, accounting or finance.
    Where a securities firm has set up an audit committee, the regulations of the Securities and Exchange Act, the Company Act, other laws and regulations and the Principles applicable to supervisors shall apply mutatis mutandis to the audit committee.
    Where a securities firm has set up an audit committee, the following matters shall be subject to approval of the majority of all members of the audit committee and the board of directors' resolution and Article 25 of the Principles shall not apply to these matters:
  1. Establishment of or modification to the internal control system in accordance with Article 14-1 of the Securities and Exchange Act.
  2. Evaluation of effectiveness of the internal control system.
  3. Establishment of and modification to the procedures of major financial and business activities such as acquisition or disposal of assets, performance of transactions of derivative products, lending of funds to third parties, granting of endorsements and provision of guarantees in accordance with Article 36-1 of the Securities and Exchange Act.
  4. Matters involving interests pertaining to directors themselves.
  5. Major transactions of assets or derivative products.
  6. Major lending of funds, endorsement or provision of guarantee.
  7. Offering, issuance or private placement of securities of the nature of equity.
  8. Appointment, dismissal or remuneration of certified public accountant.
  9. Appointment and dismissal of chief financial, accounting or internal audit officers.
  10. Annual financial report and semi-annual financial report.
  11. Establishment of the investor protection policy and evaluation of how the policy is being implemented.
    Exercise of powers by the audit committee and independent directors who are members of the committee and other related matters shall be governed by the Securities and Exchange Act, the Regulations Governing the Exercise of Powers by Audit Committees of Public Companies, and the regulations of Taiwan Stock Exchange or Taipei Exchange.
    A securities firm is advised to set up a remuneration committee, mainly responsible to establish the standards for performance evaluations and emoluments for managers and salespersons, and the structure and system of directors' emoluments. The remuneration committee shall have independent director(s) as its member(s), and it is advisable that an independent director act as the convener.
Article 35     A securities firm shall submit the following matters to the board of directors for discussion.
  1. The company's operation plan.
  2. Annual financial report and semi-annual financial report.
  3. Establishment of or modification to the internal control system in accordance with Article 14-1 of the Securities and Exchange Act.
  4. Establishment of and modification to the procedures of major financial and business activities such as acquisition or disposal of assets, performance of transactions of derivatives, lending of funds to third parties, granting of endorsements and provision of guarantees in accordance with Article 36-1 of the Securities and Exchange Act.
  5. Offering, issuance or private placement of securities of the nature of equity.
  6. Standards for performance evaluations and emoluments for managers and salespersons.
  7. Structure and system of directors' emoluments.
  8. Appointment and dismissal of chief financial, accounting risk management, compliance and internal audit officers.
  9. Matters to be submitted to the shareholders' meeting or board of directors for resolution in accordance with Article 14-3 of the Securities and Exchange Act, other laws and regulations or articles of incorporation, or important matters specified by the competent authority.
    The securities firm shall report the minutes of meetings during which issues relating to internal control system are reviewed and discussed to the board of directors.
    Except the matters required to be submitted to the board of directors for discussion as provided in the first paragraph, during the recess of the board of directors, the board of directors may authorize other persons to exercise the powers of the board in accordance with laws or the company's articles of incorporation. When such an authorization is made, information about level of authorization, what is covered in the authorization or particulars of the authorization shall be clear and specific. No general authorization shall be made.
Article 35-1     Standards for performance evaluations and emoluments for a securities firm's managers and salespersons, and the structure and system of its directors' emoluments shall be established based on the following principles:
  1. A securities firm shall establish the standards for, or the structure or system of, performance evaluations and emoluments based on the performance after taking into consideration future risks, and with reference to the company's overall long-term profits and shareholders' interest.
  2. The emolument and incentive system is not designed to encourage directors, managers and salespersons to attempt to perform an act that falls outside of its risk appetite. The securities firm shall regularly review the emolument and incentive system and performance to ensure they are within the company's risk appetite.
  3. How long a securities firm pays emoluments shall be subject to its profits after future risks have been taken into consideration to prevent the securities firm from suffering losses after paying emoluments and other adverse circumstances. A significant part of emoluments paid as incentives shall be in a deferred manner or in the form of equities.
  4. When evaluating contribution of a director, manager and salesperson to the company's profits on a personal level, a securities firm shall perform an overall analysis of the securities industry to figure out if their profits were generated because they have used the company's overall advantages such as lower cost of funds so that it will be able to have a meaningful evaluation of their individual contribution.
  5. A securities firm's agreement on severance pay with its director, manager and salesperson shall be made based on the performance that has been achieved to prevent the occurrence of a circumstance where an individual receives a large amount of severance pay after a short-term employment, and other inappropriate circumstances.
  6. A securities firm shall fully disclose to its shareholders the principles, methods and goals based on which it has established the standards for, or structure and system of, performance evaluations and emoluments as described above.
    For purpose of the Principles, salespersons are individuals whose emoluments or performance evaluations are based on their sales of various financial products and/or services.
Article 40     Members of the board are advised to participate in training courses of finance, risk management, business, commerce, accounting or law which cover subjects relating to corporate governance upon becoming directors and throughout their term of office. They shall also ensure that company employees at all levels will enhance their professionalism and knowledge of the law.
    The training of directors shall be fully disclosed, and such information along with their performance during the current term shall be provided to shareholders for their consideration to elect the next term of directors.
Article 43     Unless otherwise approved by the competent authority, at least one supervisor of a securities firm shall not be a person who is the spouse or a relative within two degrees of consanguinity to another supervisor or a director.
    A securities firm is advised to follow the requirements of independence in the Regulations Governing Appointment of Independent Directors and Compliance Matters for Public Companies to appoint appropriate supervisors to strengthen the company's risk management and control over finance and operation.
    A supervisor is advised to have a domestic residence to be ready to exercise his or her supervision when needed.
    The minimum number of supervisors of a securities firm shall be governed by the Company Act or the regulations of the TWSE or the Taipei Exchange.
Article 44     A supervisor shall have the specialized knowledge and shall be familiar with the relevant laws and regulations, understand the rights, obligations, and duties of directors of the company and the functions and duties, and operation of each department, and attend regular meetings of the board of directors to supervise the operations and to state his/her opinions when appropriate so as to control or discover any abnormal situation early on.
    A person acting as a supervisor shall evaluate what time and resources available to him/her to ensure he/she is capable of performing the job of a supervisor.
Article 45     A supervisor shall supervise the implementation of the operations of the company and the performance of duties by directors and managers and care the enforcement of the internal control system so as to reduce the financial and operational risks of the company.
    Where a director, for himself/herself or on behalf of others, engages in sales and purchases, lending and loaning activities, or conducts any legal act with the company, a supervisor shall act as the representative of the company. In the event that there is an audit committee, it is advisable that the member of the audit committee shall act as the representative of the company in the above situation.
Article 48     When exercising his/her supervision power, each supervisor of a securities firm may convene a meeting to exchange opinions among all the supervisors when he or she feels necessary, but may not by such way obstruct supervisors in exercising their duties.
    When supervisors individually exercise their supervision power at a different time, the departments subject to supervision shall not demand they act consistently in their supervision activities or refuse to provide information requested by another supervisor.
Article 51     Supervisor(s) are advised to participate in training courses of finance, risk management, business, commerce, accounting or law which cover subjects relating to corporate governance when he/she assumes the position and shall do the same or during his/her term of office.
Article 52     A securities firm shall set forth the emoluments of supervisor(s) in its Articles of Incorporation or by a resolution of its shareholders' meeting.
    The regulations of Article 35-1 of the Principles shall apply mutatis mutandis to a securities firm's determination of the standards of the emoluments of supervisor(s).
Article 57     In developing its normal business and maximizing the shareholders interest, a securities firm shall pay attention to investor's interests, orders of securities markets, community, environmental protection and other pro bono activities, and shall have a high regard for the social responsibility of the company.
Article 61     A securities firm shall disclose the following relevant information regarding corporate governance for the fiscal year in accordance with laws and regulations and the regulations of the TSE, GTSM or Chinese Securities Associations:
  1. corporate governance framework structure and rules;
  2. ownership structure and shareholders' equity;
  3. structure and independence of board of directors;
  4. responsibility of the board of directors and managerial personnel;
  5. composition, duties and independence of the audit committee or supervisors;
  6. composition, duties and operation of the remuneration committee;
  7. emoluments paid to directors, supervisors, general manager, and vice general manager in the most recent year, analysis of ratio of the sum of emoluments paid to after-tax net profits, emolument payment policy, standards and makeups, procedures to determine emoluments, and the relevance to operational performance and future risks. In a special individual circumstance, emoluments of an individual director and supervisor shall be disclosed;
  8. the progress of training of directors and supervisors;
  9. risk management information;
  10. shareholders' rights and relationship;
  11. details of the events subject to information disclosure required by law and regulations;
  12. the enforcement of corporate governance, deficiency between the corporate governance principles implemented by the company and the Principles, and the reason for the deficiency;
  13. information about transactions with related parties;
  14. disclosure of capital adequacy; and
  15. other information regarding corporate governance.
    The Taiwan branches of foreign securities firms may choose not to disclose the matters set forth in items 2 to 8 in the preceding paragraph.
    A securities firm is advised, according to the actual performance of the corporate governance system, to disclose the plans and measures to improve its corporate governance system through appropriate mechanisms.