Circular No. 146/2014/TT-BTC dated October 06, 2014 of the Ministry of Finance guiding the financial regime for securities companies and fund management companies

CIRCULAR

Guiding the financial regime for securities companies and
fund management companies[1]

Pursuant to June 29, 2006 Securities Law No. 70/2006/QH11;

Pursuant to November 24, 2010 Law No. 62/2010/QH12 Amending and Supplementing a Number of Articles of the Securities Law;

Pursuant to November 29, 2005 Enterprise Law No. 60/2005/QH11;

Pursuant to the Government’s Decree No. 215/2013/ND-CP of December 23, 2003, defining the functions, tasks, powers and organizational structure of the Ministry of Finance;

Pursuant to the Government’s Decree No. 58/2012/ND-CP of July 20, 2012, detailing and guiding the implementation of a number of articles of the Securities Law and the Law Amending and Supplementing a Number of Articles of the Securities Law;

At the proposal of the Director of the Department for Finance of Banks and Financial Institutions,

The Minister of Finance promulgates the Circular guiding the financial regime for securities companies and fund management companies.

Chapter I

GENERAL PROVISIONS

Article 1.Scope of regulation

1. This Circular guides the financial regime for securities companies, fund management companies, branches of foreign fund management companies licensed to be established and operate in Vietnam.

2. Vietnam-based branches of foreign fund management companies shall observe the financial regime prescribed in Article 21 of Circular No. 91/2013/TT-BTC of June 8, 2013, on registration for establishment, organization and operation of representative offices of foreign securities trading organizations and branches of foreign fund management companies in Vietnam, and the guidance in this Circular.

Article 2.Subjects of application

1. Securities companies licensed to be established and operate in Vietnam.

2. Fund management companies and branches of foreign fund management companies (below collectively referred to as fund management companies) licensed to be established and operate in Vietnam.

3. Organizations and individuals related to operation of securities companies and fund management companies.

Article 3.Responsibilities

Chairpersons of Boards of Directors or Members’ Councils or general directors (directors) of securities companies and fund management companies shall take responsibility before law and state management agencies for their observance of the financial, accounting and audit regimes applicable to securities companies and fund management companies.

Chapter II

MANAGEMENT AND USE OF CAPITAL AND ASSETS

Article 4.Equity

1. Charter capital

a/ Any increase or reduction of charter capital of a securities company must comply with the law on establishment, organization and operation of securities companies;

b/ Any increase or reduction of charter capital of a fund management company must comply with the law on establishment, organization and operation of fund management companies.

2. Share capital surplus means a difference between the value calculated based on par value of issued stocks and the actual value raised from the stock issuance (if any).

3. Reserve funds for charter capital supplementation, financial and professional risk provisions.

4. Undivided earnings.

5. Other capital under lawful ownership of securities companies or fund management companies.

Article 5.Use of capital and assets

1. Securities companies and fund management companies shall manage, use and keep track of all existing assets and capital, and conduct accounting under current accounting regulations; fully, accurately and promptly reflect the use and developments of capital and assets in the course of business operation, clearly define responsibility of and sanctions against sections and individuals that cause damage to or loss of assets and capital of these companies.

2. Securities companies and fund management companies shall use their assets and capital to serve their business operations in accordance with the securities law and this Circular.

a/ Securities companies shall:

- Manage their capital and assets separately from capital and assets of their clients; refrain from appropriating capital and assets of their clients in any form.

- Comply with restrictions on borrowing and provision of loans and investment prescribed by the law on establishment, organization and operation of securities companies.

b/ Fund management companies shall:

- Ensure the independent and separate management of assets of each fund or securities investment company, capital and assets entrusted by their clients and their own assets.

- Use only their equity capital for their financial investment activities and be prohibited from using raised capital for financial investment.

- Comply with regulations on responsibilities and obligations of fund management companies and restrictions on operation of fund management companies prescribed by the law on establishment, organization and operation of fund management companies.

3. The competence to decide on investment projects, borrowing contracts, contracts on purchase, sale, liquidation, rent, lease, transfer or liquidation of assets must comply with the laws on establishment, organization and operation of securities companies and fund management companies and organization and operation charters of these companies.

4. The rent, lease, mortgage, pledge, transfer, sale and liquidation of assets of securities companies and fund management companies must comply with the Civil Code, securities law and organization and operation charters of these companies and relevant regulations.

Chapter III

FINANCIAL PRUDENCE

Article 6.Principles of financial prudence assurance

1. Securities companies and fund management companies shall maintain financially prudential ratios, ensure their solvency and comply with relevant provisions in the Securities Law and Law Amending and Supplementing a Number of Articles of the Securities Law and guiding documents.

2. Financial prudence may be ensured through:

a/ Purchasing professional liability insurance or setting aside investor protection fund/hedging and loss-offsetting fund under Article 11 of this Circular;

b/ Setting aside securities write-down provision under Article 7 of this Circular;

c/ Setting aside provision for loss of long-term financial investments under Article 8 of this Circular;

d/ Setting aside financial and professional risk provision under Article 14 of this Circular;

dd/ Setting aside non-performing loan provision as prescribed for enterprises.

Article 7.Securities write-down provision

1. The provision may be set aside for:

a/ Securities that are booked by securities companies and fund management companies with their original prices in accordance with the accounting law.

b/ Securities that can be freely traded on the market and have market prices lower than their book prices at the time of making financial statements.

c/ Securities that are subject to transfer restrictions prescribed by law and treasury stocks for which no write-down provision is set aside.

2. Method of setting aside the provision:

The securities write-down provision level shall be calculated according to the following formula:

3. Identification of market prices of securities for setting aside the provision:

a/ For listed securities and securities registered for trading, prices used as a basis for setting aside the provision are their actual prices on the Stock Exchange on the trading day preceding the date of setting aside the provision, specifically:

- For securities listed on the Stock Exchange, their market prices are their closing prices on the trading day preceding the date of setting aside the provision.

- For securities registered for trading (stocks registered for trading on UPCOM), their market prices are their closing prices on the trading day preceding the date of setting aside the provision.

b/ For unlisted securities and securities unregistered for trading:

- The market price used as a basis for setting aside the provision is the average of actual trading prices quoted by 3 securities companies conducting transactions within one month before the date of setting aside the provision. If no transaction is conducted for such securities within that time limit, no provision is required.

- Managers and executive officers of securities companies who are chosen to make quotations and those of securities companies/fund management companies who receive quotations are not affiliated persons defined in the Securities Law.

- Securities companies making quotations may collect a charge from securities companies/fund management companies requesting such quotations and shall take responsibility for the accuracy and truthfulness of provided information. The charge level shall be agreed upon by the two parties.

c/ For securities that are delisted or suspended or banned from trading from the 6^thtrading day on, their actual prices are their book values on the date of making the latest accounting balance sheet.

4. Principles for setting aside the provision:

a/ For each invested type of securities that sees a write-down compared to its book value at the time of making a financial statement, the provision may be set aside and incorporated in a detailed list of securities write-down provisions for being accounted as a financial expense of the securities company or fund management company;

b/ The provision shall be set aside by securities companies and fund management companies at the end of an accounting period when they make quarterly and annual financial statements;

c/ In case the actual value of securities cannot be determined, securities companies and fund management companies may not set aside the securities write-down provision.

5. Settlement of the securities write-down provision:

a/ The securities write-down provision shall be settled at the end of a quarter or year on the date of making quarterly or annual financial statements;

b/ If the securities write-down provision amount required to be set aside in a period is equal to the balance of the provision set aside in the previous period, such provision amount is no longer required to be set aside;

c/ If the securities write-down provision amount required to be set aside in a period is higher than the balance of the provision set aside in the previous period and not yet used up, the difference shall be set aside and accounted as a financial expense;

d/ If the securities write-down provision amount required to be set aside in a period is lower than the balance of the provision set aside in the previous period and not yet used up, the difference shall be reimbursed and accounted as a reduction of financial expenses.

Article 8.Provision for loss of long-term financial investments

1. Securities companies and fund management companies shall set aside a provision for loss of long-term financial investments in accordance with regulations applicable to enterprises.

2. A provision for loss of long-term financial investments shall be set aside at the end of an accounting period when annual financial statements are made.

Chapter IV

MANAGEMENT OF REVENUES AND EXPENSES

Article 9.Revenues and incomes

Revenues and incomes of securities companies and fund management companies include:

1. Business revenues

a/ For securities companies, they include:

- Revenue from securities brokerage and products of the securities brokerage operation (trust account);

- Revenue from securities dealing;

- Revenue from securities issuance underwriting and agency;

- Revenue from financial consultancy;

- Revenue from securities investment consultancy;

- Revenue from trust and auction;

- Revenue from securities depository;

- Other business revenues.

b/ For fund management companies, they include:

- Revenue from management of securities investment funds and companies;

- Revenue from securities investment consultancy;

- Revenue from management of investment portfolios;

- Operation bonus charged for investment results of funds or portfolios exceeding reference ratios based on contracts with clients;

- Charge for issuance of fund certificates or stocks of securities investment companies;

- Charge for investment designated by foreign investors;

- Charge for redemption or conversion of fund certificates;

- Other business revenues.

2. Revenues from financial activities, including:

a/ Capital contribution;

b/ Deposit interests;

c/ Exchange rate difference;

d/ Revenue from dividends and bond yields of dealing activities and dividends, bond yields and securities trading spread of financial investments; revenue from provision of loans and margin.

dd/ Expected bond and stock yields;

e/ Other revenues from financial activities and financial investment.

3. Other revenues including charges and proceeds from lease, liquidation, transfer and sale of fixed assets unused in securities trading; collected fines; insurance indemnity for asset loss; and other lawful revenues.

Article 10.Principles of determination of revenues

Securities companies and fund management companies shall record their revenues and other incomes in conformity with accounting standards on revenues and other incomes, specifically as follows:

1. Turnover means total value of economic benefits of a securities company or fund management company in an accounting period.

2. Revenues arising in a period must have valid invoices and documents and be fully accounted.

3. Revenues from exchange rate difference due to revaluation of foreign currencies and gold shall be recorded according to accounting standards and current relevant regulations.

Article 11.Expenses

Operation expenses of securities companies and fund management companies are those actually paid in a period and related to business operations, including:

1. Business expenses:

a/ For securities companies, they include:

- Expense for securities brokerage;

- Expense for securities dealing;

- Expense for securities issuance underwriting and agency;

- Expense for consultancy;

- Expense for securities depository;

- Expense for auction and trust;

- Expense for purchase of professional liability insurance for securities trading operation in the securities company or for setting aside of the investor protection fund for payment of compensations for investors’ damage caused by technical failures and errors of staff members in their professional performance as prescribed in Article 71 of the Securities Law. The setting aside and use of the investor protection fund must comply with law.

- Other business expenses.

b/ For fund management companies, they include:

- Expense for management of securities investment funds and expense for management of securities investment companies;

- Expense for raising capital for establishment of securities investment funds and companies;

- Expense for management of securities investment portfolios, expense for securities investment consultancy;

- Expense for purchase of professional liability insurance for practitioners in the fund management company or setting aside of the hedging and loss-offsetting fund for payment of compensations for investors’ and securities investment funds’ and companies’ damage caused by technical failures and errors of fund management practitioners in their professional performance; or payment of compensations for damage of investors and open-end funds in case such funds are misvalued under Article 71 of the Securities Law. The setting aside and use of the investor protection fund must comply with law;

- Other business expenses.

2. Expenses for financial activities include those related to outward investments, such as payment of loan interests for securities companies, expense for capital raising and investment expense; exchange rate difference; securities write-down provision, financial investment devaluation provision, non-performing loan provision; and other financial expenses.

3. General and administrative expenses:

a/ Expense for depreciation of fixed assets under current regulations, expense for maintenance and repair of fixed assets;

b/ Expense for instruments and tools; expense for raw materials, fuels and supplies;

c/ Expense for working-trip allowance;

d/ Expenses for services rendered: Charges for electricity, water, telephone and fixed asset repair; expenses for audit, legal services, asset insurance, accident insurance, stationery, transport, fire protection; charge for use of equipment of the Stock Exchange; charge payable to supervisory organizations as prescribed by law; expense for hiring specialists and other services rendered;

dd/ Expenses for advertising, marketing, sales promotion, guest reception, festivities, trading, external affairs, meetings and conferences, professional training and other expenses;

e/ Payment of salaries and amounts of salary nature under current regimes prescribed by the Board of Directors/Members’ Council/President in the company charter;

g/ Dues and budget remittances prescribed by the State, such as social insurance, health insurance and unemployment insurance premiums and trade union dues.

4. Payable taxes, charges and fees prescribed by law.

5. Other valid expenses including:

a/ Expense for liquidation, lease or sale of assets;

b/ Payment of dues to associations and organizations to which the securities company or fund management company is a member.

c/ Other expenses.

Article 12.Principles of determination of expenses

1. Expenses of securities companies and fund management companies are those paid in a period and related to business operations.

2. Expenses shall be recorded on the principle of compatibility between revenues and expenses and accompanied by adequate lawful invoices and supporting documents prescribed by law.

3. Securities companies and fund management companies may not account as expenses the following:

a/ Expenses covered by other funding sources;

b/ Expenses neither related to business operations nor accompanied by valid supporting documents;

c/ Amounts already accounted as expenses but not actually paid;

d/ Amounts paid for administrative violations and fines for violations of the financial regime;

dd/ Expenses not to be subtracted upon determination of incomes liable to enterprise income tax in accordance with the law on enterprise income tax.

Chapter V

PROFITS AND SETTING ASIDE OF FUNDS

Article 13.Realized profits

Realized profits of securities companies and fund management companies means total profits from their professional operations, financial activities and other activities.

Article 14.Division of profits

1. Conditions for profit division and principles of approval of profit division must comply with the Circular guiding the establishment and operation of securities companies and fund management companies and other relevant regulations. Securities companies and fund management companies may divide their profits to their members and shareholders only when meeting the conditions prescribed by law.

2. Realized profits of securities companies and fund management companies, after being used to offset losses of the previous year in accordance with the Law on Enterprise Income Tax and pay enterprise income tax, may be divided as follows:

a/ Setting aside 5% of profits to the charter capital supplementation reserve fund. Profits will no longer be required to be set aside when this fund’s balance is equal to 10% of the charter capital;

b/ Setting aside 5% of profits to the financial and professional risk provision. Profits will no longer be required to be set aside when this provision’s balance is equal to 10% of the charter capital.

3. The division of remaining profits shall be decided by the Shareholders’ General Meeting/Members’ Councils/Boards of Directors of securities companies or fund management companies.

Article 15.Use purposes of funds and provisions

1. The charter capital supplementation reserve fund shall be used to annually supplement charter capital of securities companies or fund management companies under decisions of their Shareholders’ General Meeting/Members’ Councils/Owners. Amounts to be set aside to this fund shall be decided by the Shareholders’ General Meeting/Members’ Councils/Owners of these companies according to their charters.

2. The financial and professional risk provision shall be used to offset the remaining asset loss and damage occurring in the course of business operation after such loss and damage are offset with compensations paid by organizations and individuals that have cause such loss and damage, insurers and investor protection fund, for securities companies, or by the hedging and loss-offsetting fund, for fund management companies, and provisions set aside from expenses. The Boards of Directors/Members’ Councils of securities companies or fund management companies shall take responsibility for the management and use of this provision.

3. Securities companies and fund management companies are prohibited from using the charter capital supplementation reserve fund and financial and professional risk provision to pay dividends.

Chapter VI

ACCOUNTING, AUDIT, FINANCIAL STATEMENTS AND FINANCIAL INSPECTION

Article 16.Accounting and audit

1. A fiscal year of a securities company or fund management company starts on January 1 and ends on December 31 of a calendar year. The first fiscal year of a securities company or fund management company starts on the date of its establishment and ends on December 31 of the same year. In case the first fiscal year consists of under 4 (four) months, the financial statement of such year may be consolidated into that of the next year.

2. Securities companies and fund management companies shall conduct accounting under the Ministry of Finance’s regulations, fully record initial documents and update accounting books and fully, promptly, truthfully, accurately and objectively reflect economic and financial activities.

3. Annual and mid-year financial statements of securities companies and fund management companies shall be audited by an audit firm accepted by the State Securities Commission before being submitted to the Shareholders’ General Meeting/Members’ Councils/Owners of these companies for consideration and approval according to their charters. The audit of financial statements must comply with the law on establishment and operation of securities companies and fund management companies.

4. Chairpersons of Boards of Directors/chairpersons of Members’ Councils/Presidents or General Directors (Directors) of securities companies or fund management companies shall take responsibility for the accuracy and truthfulness of their financial statements.

Article 17.Reports on financial status and securities investment

1. Financial statements of securities companies and fund management companies include:

a/ Annual financial statements, mid-year financial statements and quarterly financial statements prescribed in the accounting regime applicable to securities companies and fund management companies;

b/ Annual financial statements and mid-year financial statements of securities companies and fund management companies must comply with Clause 3, Article 16 of this Circular.

2. Reports on securities investment include:

a/ Report on securities investment, setting aside and settlement of the securities investment write-down provision (made according to Appendix 1 to this Circular), which must clearly state volume and types, fund management companies currently holding, book value and actual value of securities at the time of making quarterly and annual financial statements; sources of price quotations for reference for use as a basis for setting aside the provision; and reimbursement of the provision;

b/ Report on long-term financial investment; setting aside and settlement of the provision for loss of long-term financial investments (made according to Appendix 2 to this Circular), which must clearly state the capital contribution and outward investment by the securities company or fund management company.

3. Time limits for submission of financial statements:

a/ The time limit for submission of an annual financial statement audited by an audit firm accepted by the State Securities Commission is 90 days from the end of the fiscal year;

b/ The time limit for submission of a mid-year financial statement audited by an audit firm accepted by the State Securities Commission is 45 days from the end of the first half of the fiscal year;

c/ The deadline for submission of a quarterly financial statement is the 20^thday of the first month of the subsequent quarter;

d/ The time limit for submission of a report on securities investment prescribed in Clause 2 of this Article is 30 days from the end of a fiscal year.

4. Place of receipt of statements and reports:

Securities companies and fund management companies shall send statements and reports prescribed in Clauses 1 and 2 of this Article to the State Securities Commission.

5. The disclosure of information on annual financial statements of securities companies and fund management companies must comply with the Securities Law, regulations on disclosure of information disclosure on the securities market and amending or replacing documents (if any).

Article 18.Inspection and handling of financial violations

1. Forms of financial inspection:

a/ Regular or irregular financial inspection;

b/ Themed inspection to meet requirements of financial management.

2. Agencies conducting financial inspection:

a/ The State Securities Commission shall:

- Conduct comprehensive inspection, examination and supervision of activities, including financial activities of securities companies and fund management companies.

- Report on violations and problems related to the observance of the financial regime by securities companies and fund management companies detected in the course of inspection and supervision to the Ministry of Finance for improving relevant regulations and policies.

b/ The Ministry of Finance shall inspect in accordance with the inspection and examination law the financial management and observance of the financial regime by securities companies and fund management companies in order to improve the financial management regime.

Chapter VII

RESPONSIBILITIES OF RELATED ORGANIZATIONS AND INDIVIDUALS

Article 19.Securities companies and fund management companies

1. To observe the financial regime provided in this Circular, the law on securities and securities market and tax laws.

2. To observe the reporting regime under this Circular and the securities law.

Article 20.The State Securities Commission

To inspect and supervise securities companies and fund management companies under this Circular.

Chapter VIII

ORGANIZATION OF IMPLEMENTATION

Article 21.Effect

1. This Circular takes effect on November 21, 2014, and applies from the fiscal year of 2014.

2. This Circular replaces the Ministry of Finance’s Circular No. 11/2000/TT-BTC of February 1, 2000, guiding the financial management of joint-stock and limited liability securities companies.

3. Any problems in the course of implementation should be reported to the Ministry of Finance for study, consideration and settlement.-

For the Minister of Finance
Deputy Minister
TRAN XUAN HA