Focus

The Securities Regulations and Business Advocacy Attracted Overwhelming Attendance

Gellan Young
Researcher at TWSE

The Number of Applicants Exceeded Expectations, and an Additional Session Is Urgently Added in Response to the Needs of Various Sectors

The 2024 Regulations and Business Advocacy course for securities firm employees finally came to a successful conclusion on June 28 at the Grand Hyatt Taipei after a two-way exchange of opinions for three hours. In addition to enthusiastic participation from securities firms’ audit and compliance personnel, there were front-line professionals who directly interfaced with customers responsible for handling daily credit investigation and entrusted trading businesses. Nearly 200 people gathered at the event.

Due to our belief in providing on-site services, our professional advocacy team traveled to various major cities in Taiwan over the past month for services. After our members’ non-stop speaking tours, the expected advocacy target of 1,500 people in the first half of the year has been achieved. After the last session in the first half of the year, the members finally had a chance to take a break, and made a solemn promise to the securities firms that the same team of people would return to serve everyone in the second half of the year, and look forward to meeting again then.

Starting from May this year, the regulatory advocacy course, which already started in the first half of 2024, was held at three stops. The first stop started in Taichung, followed by Hsinchu, which has a high concentration of technology industries and a high proportion of young people. The second stop was launched in early June, and our professional advocacy team moved to Tainan and Kaohsiung to actively serve local businesses and received high praise from the industry participants.

For the third stop, which was initially planned for Taipei in late June with four consecutive sessions, the number of applicants exceeded the organizers’ expectations, resulting in difficulty for the originally booked venue to accommodate them. In order to meet the expectations of those who missed the sessions, our Intermediaries Service Department, which has been responsible for planning this business for a long time, went through many twists and turns, and finally overcame all difficulties to move the session time forward to June 11, and financed totally two sessions in the morning and afternoon respectively at the five-star Humble House Taipei, Curio Collection by Hilton. This also led to a sudden increase of 25% to a total of 10 sessions of legal advocacy courses in the first half of the year (as shown in the attached table).

Table 1
Session Time Place
I. May 30 (Thursday) Hall 1, Banquet Room, 10th Floor, the Splendor Hotel-Taichung
II. May 31 (Friday) The Ballroom B, 10th Floor, Ambassador Hotel, Hsinchu
III. June 6 (Thursday) Banquet Room, 2nd Floor, Tainan
IV.  June 7 (Friday) Golden Phoenix Room, 9th Floor, Grand Hilai, Kaohsiung
V. Morning of June 11 (Tuesday) Banquet Room, 5th Floor, Humble House Taipei, Curio Collection by Hilton (additional session)
VI. Afternoon of June 11 (Tuesday)
VII. June 18 (Tuesday) Grand Ballroom Zone 2, 3rd Floor, Grand Hyatt Taipei
VIII. June 21 (Friday)
IX. June 26 (Wednesday)
X. June 28 (Friday)

The Securities and Futures Bureau, the Competent Authority, Dispatched Personnel to Guide the Relevant Departments of the Company for Joint Handling

The scope of the regulatory advocacy course for securities firms in the first half of this year, as usual, is based on the policy interpretation of the Financial Supervisory Commission, the regulatory authority. The Securities Firm Management Group of the Securities and Futures Bureau dispatched representatives to explain the “Key Points of Recent Business Opening and Regulatory Explanation,” which included the scope of loosened businesses, regulatory amendments, information security, protection of elderly customers, and prevention of financial fraud. In addition, the advocacy work is supported by the Intermediaries Service Department and the Trading Department, the Company’s two major business units. Senior colleagues of the departments were appointed to travel from the north to various cities in the central and southern regions, taking turns introducing the following key business norms and practical operations:

  1. Common Business Deficiencies and Case Sharing (Securities Firm Counseling Group, Intermediaries Service Department).
  2. Securities Firm Security Operation Instructions (Securities Firm Counseling Group, Intermediaries Service Department).
  3. Explanation on the Amendment of Securities Firm Management Regulations (Securities Firm Service Group, Intermediaries Service Department).
  4. Key Explanation of Recent Changes in Trading System (Group I, Trading Department).
Table 2
Time Agenda
13:45–14:00 Registration/seating
14:00–14:25 Common business deficiencies and audit case sharing
14:25–14:50 Information security operation explanations for securities firms
14:50–15:10 Explanation of additions and amendments to securities firm management regulations
15:10–15:40 Explanation of key recent changes to transaction related systems
15:40–15:50 Break
15:50–17:00 Key Points of Recent Business Opening and Regulatory Explanation
17:00 Event ends

Analysis of 15 Common Audit Deficiencies and 6 Typical Cases

The first warm-up course on the agenda of the advocacy meeting was conducted by colleagues from the Securities Firm Counseling Group of the Company’s Intermediaries Service Department, who are familiar with the auditing business, to share their experiences on common business deficiencies and case studies:

  1. Common deficiencies: Specific explanations were made on a total of 15 common audit deficiencies, including “fund or securities borrowing and lending with customers, or acting as an intermediary for fund or securities borrowing and lending,” “safekeeping securities, funds, seals or passbooks on behalf of customers,” “accepting customers’ full authority to buy and sell securities in terms of type, quantity, price and buying/selling,” “failure to execute securities buying and selling in accordance with the requirements and conditions entrusted by the customer,” “failure to notify the customer of the trading status after the entrusted transaction is completed,” “failure to handle customer complaints or accusations in accordance with the securities firm’s internal control system standards and regulations,” “the securities firm’s failure to report violations of securities management regulations by employees after discovery,” “failure to comply with confidentiality regulations regarding customer information obtained due to job responsibilities,” “failure to follow relevant management measures for recommending stocks to customers,” “accepting account opening by overseas Chinese and foreigners not approved by the Investment Commission, Ministry of Economic Affairs for securities selling,” “failure to cancel ordinary trading accounts previously opened by internal personnel,” “accepting securities trading orders not by the customers in person or by agents without a power of attorney,” “failure to accurately evaluate the credit status and investment ability of customers for entrusted securities trading,” “the securities firm executives’ failure to fulfill their supervisory and management responsibilities,” and “accepting securities borrowing and lending orders of internal personnel of the issuing company of the underlying securities.”
  2. Case study: Cases were raised about “associated persons mislead investors to wire funds with the excuse of stock subscription in the names of employees,” “entrusted trading personnel performed discretionary trading on behalf of elderly customers,” “the business supervisor gave false response to the letter from the Evaluation Center, and did not return the seals and passbooks to entrusting customers,” and “entrusted trading personnel recommended stocks through FB, LINE groups or live streaming” which were reported by investors, and were verified by the Company to have violated the Regulations Governing Responsible Persons and Associated Persons of Securities Firms, the Regulations Governing Internal Control System Standards of Securities Firms, the Operating Rules of the Taiwan Stock Exchange Corporation, and the Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. During the routine audit conducted by the Company, deficiencies of “internal personnel of listed companies automatically lent securities through the system” and “securities firms did not confirm whether the stocks obtained by foreign investors were approved for purchase by the Department of Investment Review, Ministry of Economic Affairs when accepting their sale orders, or did not require them to attach sale approval documents by the Department of Investment Review and tax declaration agency letters” were detected, which were verified to have violated the Regulations Governing Internal Control System Standards of Securities Firms, the letter referenced Tai-Cheng-Fu No. 1120504033, and the Operating Rules of the Taiwan Stock Exchange Corporation, and were subject to sanctions.

Over 500 Information Security Notifications a Year Focus on 10 Major Types, with the Management Guided by Hierarchical Thinking

Secondly, in order to implement the national policy of “information security equals national security,” the Intermediaries Service Department carefully selected the members of a dedicated task force which is responsible for securities firms’ information security to undertake the important task of advocacy and explanation in this part. The following is a brief introduction:

  1. Information security risks: Based on last year’s information security report, 10 main types have been identified and analyzed, including “anomalies of securities firms’ own systems,” “foreign system anomalies,” “anomalies of outsourced vendors’ systems,” “Internet anomalies,” “distributed denial of service attacks,” “hacker intrusions,” “credential issues,” “ransomware” and “personal data leaks.”
  2. Information security standards and certification: A total of 547 information security notification cases were reported in the previous year, and the proportion of reports related to anomalies of securities firms’ own systems has reached 34.55%; if system anomalies from foreign and outsourced vendors are also included, the total proportion has exceeded 80%.Based on this, as the security risks of securities firms have been growing rapidly with the increase in the proportion of electronic orders, the Company continues to promote business operators to obtain relevant security certifications, including company certifications such as ISO 27001, ISO 27701 and ISO 22301, as well as personal certifications such as management and technical certifications, in order to enhance system protection capabilities.
  3. Hierarchical management: Based on the information security inspection mechanism, the Company has implemented various annual routine, selected and special-project information security audit operations for securities firms, and based on factors such as the capital amount, brokerage business market share and electronic order ratio of the business operator, the Company implements hierarchical and segmented management for the business operator’s frequency of cybersecurity audits, the setting of the chief information security officer, the introduction of international information security management, the allocation of dedicated information security units and personnel, and the investment schedule of information security defense equipment.
  4. Case sharing: An analysis was conducted on the common patterns of mistakes in practice, such as “the outsourced vendor did not conduct an overall resource evaluation of its front, middle and back-end offices and voucher system, and did not implement a business continuity plan,” “the outsourced vendor’s system was virus affected and transmitted the virus to the securities firm through online maintenance,” “the securities firm did not isolate testing system from the formal system,” “the order placement program was not thoroughly checked for the official launch results after being online,” and “non-securities firm adopted apps appeared in online stores.” The Company also reminds business operators that if the system control is not handled properly, it may not only cause huge losses to themselves, but also suffer liquidated damages imposed by the Company.

The Securities Firm Service Group Explained the Latest Requirements of Various Rules and Regulations and Circulars

Furthermore, the Intermediaries Service Department also dispatched the core members of its Securities Firm Service Group to provide detailed explanations to the attendees on the recent updates to the securities firm management regulations. The content roughly covers three main structures:

  1. Regulatory amendments: It mainly explains recent regulatory adjustments including the identity confirmation methods, single-day trading limit for online adjustment, and financial action identity recognition in the “Standards Governing Principal Identification and Management of Credit Line Categorization in the Processing by Securities Firms of Account Opening,” the method of retaining confirmation records of the principal from the custodian institution and retention period, the limit of the penalty for breach of contract, and any change to the articles of association of the securities firm that needs not be submitted to the competent authority in the “Operating Rules,” the collection method of settlement penalty for same-day wash sale in the “Regulations Governing Brokerage Contracts,” the management operations related to customer accounts in the “Regulations Governing Internal Control System Standards of Securities Firms,” the options concerning allowing electronic payment accounts to be designated as the ledgers for the transfer of funds from the designated settlement account in the “Guidelines Governing the Creation of Customer Ledgers of Securities Firms’ Settlement Accounts,” as well as the requirement that when overseas Chinese and foreigners entrust the sale and disposal of securities, securities firms may accept the orders after confirming through the relevant operating system of the Taiwan Depository & Clearing Corporation that the custodian institution has fully blocked the funds and securities in the “Operation Directions for the Advance Collection of Funds and Securities by Securities Brokers in Brokerage Trading.”
  2. New regulations: The Group introduce that in order to provide investors with more diversified electronic accounting document services, diversified electronic accounting document service operations may be adopted for the delivery and reading confirmation of statements and confirmation letters, and a “control mechanism for sending statements and confirmation letters through mobile SMS and APP” is added. In order for different types of customers to experience user-friendly inclusive financial services through virtual and real channels, securities firms are allowed to flexibly set up digital experience zones and adopt emerging technologies for customer service centers according to their business strategy needs. Therefore, the “Guidelines for Securities Firms to Provide Digital Services” are formulated to standardize the essence and key contents.
  3. Circulars and other matters: It briefly describes the regulations concerning the strict prohibition of business personnel from safekeeping customer assets or using the accounts, passwords, and electronic trading vouchers for online order placement services on behalf of customers, and that securities firms should strengthen personal data protection measures as described in circulars referenced Tai-Cheng-Fu No. 1120502215 and No. 1120503082.

Regulatory Authorities Pay Equal Attention to Supervision and Regulatory Relaxation, and Further Strengthen the Inspection of Information Security, Outsourcing, and Elderly Protection

The main focus of the briefing by the Securities and Futures Bureau is the discussion of regulatory relaxation and business opening, regulatory amendments, information security standards, protection of the elderly, and prevention of fraud, with the key points as follows:

  1. Regulatory relaxation and expansion of securities firms’ business scope: Different categories were explained, including liberalization of the use of funds in the customer ledgers of securities firms’ settlement accounts, coordination with the Ministry of Finance to reduce the securities transaction tax for warrant hedging, new wealth management plans for securities firms, expansion of the scope of securities firms’ monetary and securities trust business, and important measures already opened in the capital market roadmap.
  2. Recent regulatory amendments: In addition to the amendment to Article 178-1 of the Securities and Exchange Act which emphasizes the need to comply with laws and regulations and makes penalties more deterrent, the upper and lower limits of fines for relevant business operators have been adjusted to between NT$300,000 and NT$6 million. Regarding the amended section of the “Regulations Governing Responsible Persons and Associated Persons of Securities Firms,” it is elaborated that the chairman of a securities firm should meet positive qualifications such as having a good moral character, effective management and leadership skills, and academic background and work experience. The “Regulations Governing Securities Firms Accepting Orders to Trade Foreign Securities” was also amended to allow securities firms to commission the Taiwan Depository & Clearing Corporation to custodize the entrusted foreign securities purchased.
  3. Strengthening information security operation standards: The representative of the Securities and Futures Bureau introduced step by step the “Standards for Strengthening Securities Firms’ Information Security Operation” on the cybersecurity management part, including establishing a dedicated system for information security, improving the quality of information security personnel, and enhancing information security protection capabilities. The representative further gave a reminder of the summary of the recently issued “Norms of Outsourced Operations of Securities Firms,” including the requirement for securities firms to establish an internal control system for “Management of Outsourced Operations to Others” to strengthen the risk management of securities firms’ entrustment of relevant operations to others, and the release of the “Directions for Operations Outsourcing by Securities Firms” by referring to the “Regulations Governing Internal Operating Systems and Procedures for the Outsourcing of Financial Institution Operation,” in order to establish a risk-based outsourcing management mechanism.
  4. Strengthening the protection measures for elderly customers: Finally, regarding the protection measures for elderly customers, the Director of the Securities and Futures Commission also solemnly informed the attending business operators that the Inspection Bureau of the Financial Supervisory Commission, as well as peripheral units including the Company and the Taiwan Exchange, will include whether securities firms have implemented the aforementioned elderly protection in the scope of strengthened inspections, and expected all business operators to comply with relevant marketing procedures and requirements on disclosure, caring questioning, identity confirmation, transaction inspection, and monitoring and auditing.
  5. Preventing financial investment fraud: Regarding the rampant problem of financial fraud, the Financial Supervisory Commission has held consecutive meetings in response to the large number of false financial investment advertisements on social network media, in order to strengthen cooperation between the public and private sectors to work together to combat crimes.

Financial Service Innovation Continues, with an Annual Attendance Goal of 3,000 Person Times

Previously, due to factors such as the rampant pandemic, for several consecutive years the Company has been complying with the government’s pandemic prevention policy of reducing gatherings, and has reduced the scale of regulatory advocacy for securities firms’ employees. However, as the domestic pandemic situation has gradually eased, the previously mentioned concerns no longer exist. Accordingly, in response to the government’s efforts to promote financial reform as well as the policy declaration of the Financial Supervision Commission regarding the regulatory relaxation and financial technology development and innovation after Chairman Peng took office, starting from this year, the Company decides to resume the pre-pandemic scale of regulatory advocacy and hold the event in stages in the first and second half of the year. That is to say, in addition to the completed part in the second quarter, the Company will continue to promote a series of regulatory explanation activities in the fourth quarter of this year, in order to enhance the frequency and performance of advocacy, strengthen the overall momentum and resilience of the securities market, and strive to promote the innovation and transformation of financial services.

The part that securities industry participants especially feel thankful is that since last year (2023), the Company has extended its service scope to meet the needs of local securities industry participants, and specially added a special session in Hsinchu to facilitate local securities firms that focus on promoting their business to high asset clients in the Science Park to send representatives from nearby to participate in the entire discussion process. This move has yielded unexpected results, while also creating a ripple effect in the surrounding areas, allowing many businesses located between south of Taipei and north of Taichung to choose venues that are relatively close and convenient to them. This not only helps attending businesses save travel and time costs and alleviate the hardships of long-distance transportation, but also helps reduce the accumulated carbon emissions generated by long-distance transportation vehicles to achieve the environmental sustainability goal.

According to current regulations, the on-the-job training time for entry-level personnel, advanced personnel, and mid-level supervisors of securities firms is at least 15 hours every 3 years, including the training hours for regulatory training courses. In addition to on-the-job training courses organized by the Taiwan Securities Association, securities firm employees may choose to participate in regulatory and business advocacy courses jointly organized by the Company or peripheral securities units, but the deductible time is limited to 3 hours. With reference to the Company’s intensive regional promotions across the country in the first and second half of the year so far, with about 8 to 10 sessions of regulatory promotions for industry s every six months, it is expected that more than 3,000 person times of industry s will benefit in the whole year, and the performance can be described as outstanding.

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