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 designing and effectively implementing its 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 evaluations of the internal control system, the board of directors and the management shall review the result of the voluntary evaluations of each department and audit the report of the internal audit department on a quarterly basis. The audit committee or supervisors shall also pay attention to and exercise oversight on this matter. A securities firm is advised to establish a communication channel and system for its independent directors, audit committee or supervisions and internal audit officers. 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.
To successfully implement the internal control system and strengthen the professionalism of agents acting for internal auditors so as to improve and maintain the quality and results of the audit work, a securities firm shall appoint designated agents for its internal auditors.
The requirements pertaining to qualifications of internal auditors under Article 12, paragraph 6 of the Regulations Governing the Establishment of Internal Control Systems by Service Enterprises in Securities and Futures Markets, and the regulations of Articles 17, 18 and 19 of the above regulations shall apply mutatis mutandis to the designated agents in the preceding paragraph.