Circular No. 146/2014/TT-BTC guiding financial regulations for securities companies and fund management companies.

CIRCULAR

Guidelines on financial regulations for securities companies, for securities companies, At the proposal of the Director of the Department of Financial Affairs of Banks and Financial Institutions

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BASED ON THE SECURITIES LAW NUMBER 70/2006/QH11 OF JUNE 29, 2006;

Pursuant to Law No. 62/2010/QH12 dated November 24, 2010 amending and supplementing certain articles of Securities Law No. 70/2006/QH11 dated June 29, 2006;

Pursuant to Law on Enterprises No. 60/2005/QH11 dated November 29, 2005;

Pursuant to Decree No. 215/2013/NĐ-CP dated December 23, 2013 of the Government stipulating the functions, tasks, powers, and organizational structure of the Ministry of Finance;

Pursuant to Decree No. 58/2012/NĐ-CP dated July 20, 2012 detailing and guiding the implementation of certain provisions of the Securities Law and the Law amending and supplementing certain provisions of the Securities Law;

At the proposal of the Director of the Department of Financial Affairs of Banks and Financial Institutions,

The Minister of Finance issues this Circular guiding financial regulations for securities companies, fund management companies.

PART I

GENERAL PROVISIONS

Article 1. Scope of Regulation

1. This Circular guides financial regulations for securities companies, fund management companies, and foreign fund management company branches licensed to operate in Vietnam.

2. Foreign fund management company branches operating in Vietnam shall implement financial regulations as prescribed in Article 21 of Circular No. 91/2013/TT-BTC dated June 8, 2013 on registration for establishment, organization, and operation of foreign securities business representative offices and foreign fund management company branches in Vietnam, and the guidelines set forth in this Circular.

Article 2. Applicability

1. Securities companies licensed to establish and operate in Vietnam.

2. Fund management companies and foreign fund management company branches (hereinafter referred to collectively as fund management companies) licensed to establish and operate in Vietnam.

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

Article 3. Responsibility Regime

The Chairman of the Board of Directors or the Chairman of the Board of Members or the General Director (Director) of securities companies and fund management companies shall be responsible under the law and state management agencies for compliance with financial, accounting, and auditing regulations of securities companies and fund management companies.

Chapter II

MANAGEMENT AND USE OF CAPITAL AND ASSETS

Article 4. Shareholders' Equity

1. Subscribed Capital

a) Adjustments to increase or decrease the registered capital of securities companies shall be carried out in accordance with the laws governing the establishment, organization, and operation of securities companies;

b) Adjustments to increase or decrease the registered capital of fund management companies shall be carried out in accordance with the laws governing the establishment, organization, and operation of fund management companies.

2. Capital surplus is the difference between the par value of shares and the actual amount received from issuance (if any).

3. Additional reserve funds for registered capital, financial reserve funds, and operational risk reserve funds.

4. Undistributed profits

5. Other capital legally owned by securities companies and fund management companies.

Article 5. Use of Capital and Assets

1. Securities companies and fund management companies have the responsibility to manage, use, and monitor all existing assets and capital, to record according to current accounting regulations; fully, accurately, and promptly reflect the situation of capital and asset usage and changes during the course of business, clearly defining responsibilities and forms of handling for each department and individual in cases of damage or loss of assets or capital.

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

a) For securities companies:

- Must manage the capital and assets of securities companies separately from those of clients; may not appropriate client capital and assets in any form.

- Comply with restrictions on borrowing, lending, and investment as prescribed by laws governing the establishment, organization, and operation of securities companies.

b) For fund management companies:

- Must ensure independent and separate management of assets of each fund, each securities investment company, capital and assets of entrusted clients, and the company's own assets.

- Operating capital for financial investment activities of fund management companies must come from the company’s own capital, strictly prohibiting the use of raised capital for financial investment.

- Comply with regulations regarding the responsibilities and obligations of fund management companies, limitations on fund management company activities as prescribed by laws governing the establishment, organization, and operation of fund management companies.

3. Authority to decide on investment projects, loan contracts, purchase and sale contracts, liquidation contracts, leasing contracts, subleasing contracts, sale and leaseback contracts, and asset liquidation contracts shall be carried out in accordance with laws governing the establishment, organization, and operation of securities companies and fund management companies and the Company's Articles of Organization and Operation.

4. Leasing, subleasing, mortgaging, pledging, selling, and liquidating assets of securities companies and fund management companies shall be carried out in accordance with the Civil Code, securities laws, the Company's Articles of Organization and Operation, and relevant laws.

Chapter III

FINANCIAL SAFETY

Article 6. Principles for Ensuring Financial Safety

1. Securities companies and fund management companies must maintain financial safety ratios, ensure liquidity, and comply with relevant provisions stipulated in the Securities Law, the Law Amending and Supplementing Certain Provisions of the Securities Law, and guiding documents.

2. Financial safety shall be ensured through the following methods:

a) Purchasing professional liability insurance or establishing an Investor Protection Fund/Risk Reserve and Loss Compensation Fund in accordance with Clause 11 of this Circular;

b) Establishing a securities price reduction reserve in accordance with Clause 7 of this Circular;

c) Establishing a long-term financial investment loss reserve in accordance with Clause 8 of this Circular;

d) Establishing a financial reserve and business risk fund in accordance with Clause 14 of this Circular;

đ) Establishing a reserve for doubtful debts in accordance with the regulations applicable to enterprises.

Article 7. Securities Price Reduction Reserve

1. Conditions for Establishing a Reserve

a) Securities recorded by securities companies and fund management companies at cost in accordance with accounting laws;

b) Securities freely traded on the market at the time of preparing financial statements have actual market prices lower than the book values recorded in accounting books;

c) Restricted transfer securities and treasury shares shall not establish a price reduction reserve according to the law.

2. Method for Establishing a Reserve:

The amount of the securities price reduction reserve is calculated using the following formula:

3. Determination of Actual Market Price of Securities for Calculating the Reserve:

a) For listed securities and securities registered for trading, the securities price for establishing the reserve is the actual market price on the last trading day of the stock exchange closest to the date of establishing the reserve, specifically:

- For listed securities on the stock exchange, the actual market price of securities is the closing price on the last trading day closest to the date of establishing the reserve.

- For registered trading securities (stocks registered for trading on UPCOM), the actual market price of securities is the closing price on the last trading day closest to the date of establishing the reserve.

b) For unlisted and non-registered trading securities:

- The actual market price of securities serving as the basis for establishing the reserve is the average of the actual transaction prices reported by three securities companies that have transactions closest to the date of establishing the reserve but not exceeding one month from the date of establishing the reserve. If there are no actual transactions during this period, the reserve will not be established.

- Management and operation personnel of securities companies must select reports from non-related parties as defined by the Securities Law.

- Reporting securities companies have the right to charge fees to securities companies/fund management companies requesting reports and must bear responsibility for the accuracy and truthfulness of the provided information. The fee level is agreed upon by both parties.

c) For listed securities that have been delisted or suspended from trading starting from the sixth trading day, the actual market price is the book value on the most recent balance sheet preparation date.

4. Principles for Establishing a Reserve:

a) Each type of investment securities experiencing a price reduction compared to the book value at the time of preparing financial statements shall establish a reserve and consolidate it into a detailed list of securities price reduction reserves as the basis for recording financial expenses of securities companies and fund management companies;

b) The timing for establishing a reserve for securities companies and fund management companies is the end of the accounting period when preparing quarterly and annual financial statements;

c) In cases where the actual value of securities cannot be determined, securities companies and fund management companies shall not establish a securities price reduction reserve.

5. Handling of Securities Price Reduction Reserves:

a) Handling of securities price reduction reserves is carried out at the end of each quarter and year on the date of preparing quarterly and annual financial statements;

b) If the amount of the securities price reduction reserve to be established in this period equals the remaining balance of the previously established reserve, no new reserve needs to be established;

c) If the amount of the reserve to be established in this period exceeds the remaining balance of the previously established reserve, the company shall establish the difference as an expense and record it as a financial expense;

d) If the amount of the reserve to be established in this period is less than the remaining balance of the previously established reserve, the excess must be reversed and recorded as a reduction in financial expenses.

Article 8. Provision for Losses on Long-term Financial Investments

1. Securities companies and fund management companies shall establish provisions for losses on long-term financial investments in accordance with the legal regulations applicable to enterprises.

2. The time for establishing provisions for losses on long-term financial investments is at the end of the accounting period when preparing the annual financial statements.

Chapter IV

MANAGEMENT OF REVENUE AND EXPENSES

Article 9. Revenue and Income

The revenue and income of securities companies and fund management companies include:

1. Business operation revenue

a) For securities companies, including:

- Revenue from securities brokerage activities and products related to securities brokerage (entrusted accounts);

- Revenue from proprietary trading in securities;

- Revenue from underwriting and agency issuance of securities;

- Revenue from financial advisory services;

- Revenue from securities investment advisory services;

- Revenue from entrusted and auction activities;

- Revenue from securities custody activities;

- Other business operation revenue;

b) For fund management companies, including:

- Revenue from managing investment funds and securities companies;

- Revenue from securities investment advisory services;

- Revenue from managing investment portfolios;

- Fees earned based on performance exceeding reference benchmarks as stipulated in contracts with clients;

- Fees from issuing fund certificates or shares of securities companies;

- Fees from designated foreign investor investment activities;

- Fees from repurchasing and converting fund certificates;

- Other business operation revenue.

2. Financial activity revenue includes revenue from the following activities:

a) Capital contributions;

b) Interest income from deposits;

c) Foreign exchange rate differences;

d) Revenue from dividends and interest on bonds from proprietary trading and dividends and interest on bonds from financial investments, as well as revenue from lending and collateral transactions;

đ) Anticipated bond and stock interest income;

e) Other financial and investment revenue.

3. Other income includes revenue from leasing, liquidation, and sale of fixed assets not used in securities business operations; penalty revenues; insurance compensation for property damage; other lawful income.

Article 10. Principles for Determining Revenue

Securities companies and fund management companies shall record revenue and other income in accordance with accounting standards on revenue and other income, specifically as follows:

1. Revenue is the total economic benefits of securities companies and fund management companies during the accounting period.

2. Revenue arising during the period must be supported by valid invoices and documents and must be fully recorded.

3. For revenue from foreign exchange rate differences due to revaluation of foreign currencies and gold, recording shall be carried out in accordance with accounting standards and current legal regulations.

Article 11. Expenses

Operating expenses of securities companies and fund management companies are actual expenses incurred during the period related to business operations, including:

1. Business operation expenses:

a) For securities companies, operating expenses include:

- Expenses for securities brokerage activities;

- Expenses for proprietary trading in securities;

- Expenses for underwriting and agency issuance of securities;

- Expenses for advisory activities;

- Expenses for securities custody activities;

- Expenses for auction and entrusted activities;

- Expenses for purchasing professional liability insurance for securities business operations at the securities company or setting up an Investor Protection Fund to compensate investors for losses caused by technical failures and negligence of employees during operations, as stipulated in Article 71 of the Securities Law. The establishment and use of the Investor Protection Fund shall comply with legal regulations;

- Other operating expenses.

b) For fund management companies, operating expenses include:

- Expenses for managing investment funds and securities companies;

- Expenses for establishing funds and securities companies;

- Expenses for managing investment portfolios and providing securities investment advisory services;

- Expenses for purchasing professional liability insurance for fund managers or setting up a Risk Reserve and Compensation Fund to compensate investors, investment funds, and securities companies for losses caused by technical failures and negligence of fund managers during operations; compensating investors and open-ended funds in cases where open-ended funds are incorrectly valued, as stipulated in Article 71 of the Securities Law. The establishment and use of the Investor Protection Fund shall comply with legal regulations;

- Other operating expenses.

2. Financial activity expenses include expenses related to external investments, such as: interest payments on loans for securities companies, fundraising costs, investment activity costs; foreign exchange rate differences; provisions for declines in the value of securities, provisions for declines in financial investments, provisions for doubtful debts; other financial expenses.

3. Corporate management expenses:

a) Depreciation expenses for fixed assets according to current state regulations, maintenance and repair expenses for fixed assets;

b) Tool and equipment expenses; raw material expenses;

c) Travel expenses;

d) Purchased service expenses: electricity, water, telephone, fixed asset repair rental expenses; auditing, legal services, asset insurance, accident insurance, office supply expenses, transportation, fire prevention and extinguishing expenses; expenses for using the equipment system of the Stock Exchange; fees paid to supervisory organizations as prescribed by law; expenses for hiring experts and other purchased services;

đ) Advertising, marketing, promotional, reception, ceremonial, transaction, external relations, conference, meeting, vocational training expenses, and other expenses as prescribed;

e) Salaries and allowances with salary nature according to the current regulations stipulated by the Board of Directors/Board of Members/Company Chairman in accordance with the Company's Charter;

g) Contributions made according to state regulations such as: social insurance, health insurance, trade union fees, unemployment insurance.

4. Payments of taxes, fees, and levies as prescribed by law.

5. Other valid expenses include:

a) Expenses for liquidation, leasing, and selling assets;

b) Fees paid to Associations and organizations that securities companies and fund management companies participate in;

c) Other expenses.

Article 12. Principles for Determining Expenses

1. The expenses of securities companies and fund management companies are those incurred during the period related to business operations.

2. Expenses recorded must comply with the principle of matching revenue and expenses, and must be supported by legal invoices and receipts as prescribed by law.

3. Securities companies and fund management companies shall not record the following items as expenses:

a) Expenses covered by other sources of funding;

b) Expenses unrelated to business activities, or expenses without legitimate supporting documents;

c) Expenses that have been recorded but were not actually paid;

d) Expenses resulting from administrative violations and financial penalty payments;

đ) Expenses that are not deductible when determining taxable income according to the Corporate Income Tax Law.

Chapter V

PROFITS AND RESERVE FUNDS

Article 13. Realized Profit

The realized profit of securities companies and fund management companies is the total operating profit, financial profit, and other activity profits.

Article 14. Distribution of Profits

1. Conditions for profit distribution and principles for approving profit distribution are carried out in accordance with the Circular guiding the establishment and operation of securities companies and fund management companies and other relevant laws. Securities companies and fund management companies may only distribute profits to members and shareholders after meeting the conditions stipulated by law.

2. After covering previous year losses according to the Corporate Income Tax Law and paying corporate income tax, the realized profit of securities companies and fund management companies will be distributed as follows:

a) Allocate 5% into the supplementary capital reserve fund; when the balance reaches 10% of the registered capital, no further allocations will be made;

b) Allocate 5% into the financial risk reserve fund; when the balance of the fund reaches 10% of the registered capital, no further allocations will be made.

3. The remaining profit distribution is decided by the Shareholders' Meeting/Board of Members/Company Owner of the securities company and fund management company.

Article 15. Purpose of Reserve Funds

1. Supplementary Capital Reserve Fund: Used annually to supplement the registered capital of securities companies and fund management companies according to the decision of the Shareholders' Meeting/Board of Members/Company Owner. The annual allocation rate is determined by the Shareholders' Meeting/Board of Members/Company Owner of the securities company and fund management company in accordance with the Company Charter.

2. Financial Risk Reserve Fund: Used to cover the remaining losses and damages to assets occurring during business operations after being compensated by the organization or individual causing the loss, by insurance organizations, using the Investor Protection Fund for securities companies, and using the Risk and Loss Compensation Reserve Fund for fund management companies, and using the provisioned expense reserves. The Board of Directors/Board of Members of the securities company and fund management company are responsible for managing and utilizing this fund.

3. It is strictly prohibited for securities companies and fund management companies to use the supplementary capital reserve fund and financial risk reserve fund to pay dividends.

Chapter VI

ACCOUNTING REGIME, AUDITING, FINANCIAL REPORTING, AND FINANCIAL INSPECTION

Article 16. Accounting and Auditing System

1. The fiscal year of securities companies and fund management companies begins on January 1 and ends on December 31 of each calendar year. For the first fiscal year of securities companies and fund management companies, it starts from the date of establishment and ends on December 31 of that year. In cases where the first fiscal year is less than four months, the financial report of that year will be audited together with the financial report of the following year.

2. Securities companies and fund management companies are responsible for implementing the accounting system as prescribed by the Ministry of Finance, recording all original vouchers, updating accounting ledgers, and accurately, timely, truthfully, and objectively reflecting economic and financial activities.

3. Annual financial reports and interim financial reports of securities companies and fund management companies must be audited by an auditing organization approved by the State Securities Commission before being submitted to the Shareholders' Meeting/Board of Members/Owner for review and approval according to the company's Articles of Association. The audit of financial reports shall be carried out in accordance with the laws guiding the establishment and operation of securities companies and fund management companies.

4. The Chairman of the Board of Directors/Chairman of the Board of Members/Chairman of the Company or General Director (Director) of securities companies and fund management companies are responsible for the accuracy and truthfulness of financial reports.

Article 17. Reports on Financial Status and Securities Investment

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

a) Annual financial reports, interim financial reports, quarterly financial reports as stipulated in the Accounting Regulations applicable to securities companies and fund management companies;

b) Annual financial reports and interim financial reports of securities companies and fund management companies shall be implemented in accordance with Clause 3, Article 16 of this Circular.

2. Reports on securities investment status include:

a) Reports on securities investment status, situation of provision for and handling of write-downs of securities investments (as per Appendix 1 attached to this Circular). Detailed explanations about the number and type of securities currently held by securities companies and fund management companies, book value, actual value at the time of preparing the annual and quarterly financial reports; reference price basis for establishing provisions; write-down reversal situations;

b) Reports on long-term financial investment status; situation of provision for and handling of losses of long-term financial investments (as per Appendix 2 attached to this Circular). Detailed explanations about capital contribution situations, external investment situations of securities companies and fund management companies.

3. Deadline for submitting financial reports:

a) The deadline for submitting audited annual financial reports by an auditing organization approved by the State Securities Commission is no later than 90 days from the end of the fiscal year;

b) The deadline for submitting audited interim financial reports by an auditing organization approved by the State Securities Commission is 45 days from the end of the first six months of the fiscal year;

c) The deadline for submitting quarterly financial reports is no later than the twentieth day of the first month of the next quarter;

d) The deadline for submitting reports on securities investment status as stipulated in Clause 2 of this Article is no later than 30 days from the end of the fiscal year.

4. Recipients of the reports:

Securities companies and fund management companies shall prepare and submit the reports specified in Clauses 1 and 2 of this Article to the State Securities Commission.

5. Disclosure of information regarding annual financial reports of securities companies and fund management companies shall be carried out in accordance with the Securities Law, regulations on information disclosure in the securities market, and any amendments, supplements, or replacements thereof (if any).

Article 18. Financial Inspection and Handling of Financial Violations

1. Forms of Financial Inspection

a) Regular or surprise financial inspections;

b) Financial inspections on specific topics as required by financial management work.

2. Authorities Conducting Financial Inspections

a) The State Securities Commission:

- Conducts comprehensive inspections, examinations, and supervision of securities companies and fund management companies, including their financial activities.

- Reports to the Ministry of Finance any violations and issues related to the implementation of financial regulations discovered during the inspection and supervision process for the Ministry of Finance to improve financial systems and policies.

b) The Ministry of Finance:

The Ministry of Finance conducts inspections of financial management work and compliance with financial regulations of securities companies and fund management companies to perfect the financial management system in accordance with laws on inspection and examination.

Chapter VII

RESPONSIBILITIES OF ORGANIZATIONS AND INDIVIDUALS INVOLVED IN BANKING SUPERVISION ACTIVITIES

Article 19. Securities Companies and Fund Management Companies

1. Adhere to the financial regime stipulated in this Circular, securities laws, and stock market laws, and tax laws.

2. Implement reporting systems as prescribed in this Circular and securities laws.

Article 20. State Securities Commission

Conduct financial inspections and supervision of securities companies and fund management companies in accordance with this Circular.

Chapter VIII

IMPLEMENTATION

Article 21. Effective Date

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

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

3. During implementation, if there are any difficulties, please report to the Ministry of Finance for research, consideration, and resolution./.