The Financial Supervisory Commission issued the Jin-Guan-Zheng-Tou-1060030890 Circular of September 15, 2017 (hereinafter, the “Circular”) to communicate that after outsourcing its back office operation of its discretionary investment accounts to professional institutions, a securities investment trust enterprise or securities investment consulting enterprise is still required to be accountable to its customers. This Circular came into effect immediately.
Under Article 2 of the Regulations Governing the Operation of Discretionary Investment Business by Securities Investment Trust Enterprises and Securities Investment Consulting Enterprises, the so-called “discretionary investment services” in these Regulations means services in which a securities investment trust enterprise or a securities investment consulting enterprise performs value analyses and makes investment judgments with regard to securities, securities-related products, or other items approved for investment or trading, and undertakes investments or trades based on such judgments on behalf of a customer using discretionary investment assets that the customer delivers by a mandate or transfers under a trust. Under Article 62 of the Securities Investment Trust and Consulting Law, an operator of discretionary investment business shall create a separate account for each individual customer and record on a daily basis the trading activities of the customer’s assets, and the balance of the fiduciary investment assets by volume and monetary amount.
This Circular points out that when a securities investment trust enterprise or a securities investment consulting enterprise outsources its back office processing operation (including the asset valuation, asset value calculation and accounting operation of discretionary investment accounts) to a professional institution (hereinafter, the “Entrusted Institution”), a written contract shall be executed to specifically stipulate the items and period of the mandate, the authority and responsibility of the Entrusted Institution and the supervisory responsibility of the above-mentioned enterprise. In addition, a securities investment trust enterprise or a securities investment consulting enterprise should have the mechanisms and capabilities to effectively supervise the Entrusted Institution at all times and its responsibility and obligation are not released as a result of outsourcing. Such enterprise is still required to be accountable to the customer under the discretionary investment contract and to formulate in its internal control system supervisory and management measures for outsourcing back office processing and operation of discretionary investment accounts and submit the same to its board of directors for approval.