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Title Taipei Exchange Operation Rules for Audits of Securities Firms or Leverage Transaction Merchants and Follow-up, Assessment, and Guidance With Respect to Deficiencies CH
Date 2022.06.16 ( AMENDMENT )

Article Content

Chapter 1 General Principles
Article 1     These Rules are adopted pursuant to Article 24, paragraph 4 of the Taipei Exchange (TPEx) Rules Governing Securities Trading on the TPEx, Article 56 of the TPEx Regulations Governing Over-the-Counter Trading of Financial Derivatives by Securities Firms, Article 55 of the TPEx Rules Governing the Operation of Leverage Contract Trading Business by Leverage Transaction Merchants, Article 31, paragraph 1 of the TPEx Regulations Governing the Conduct of Equity Crowdfunding by Securities Firms, Article 54, paragraph 2 of the TPEx Rules Governing the Operation by Securities Firms of the Business of Proprietary Trading of Security Tokens, and Article 38, paragraph 2 of the TPEx Rules Governing the Operation by Securities Firms of Brokerage Business for Trading and Exchanging Beneficial Certificates of Funds.
Article 2     Audits by the Taipei Exchange of the finances and business of securities firms or leverage transaction merchants and follow-up, assessment, and guidance in regard to deficiencies shall be handled in accordance with these Rules, except as otherwise provided by law or regulation. Matters for which these Rules make no provision shall be handled in accordance with other relevant rules and bylaws of the TPEx.
    For the purposes of these Operation Rules, "audited deficiency" of a securities firm means a following matter that is found in an audit conducted by the TPEx or in a routine audit conducted by the Taiwan Stock Exchange Corporation (TWSE): a violation of rules of the TPEx, a deficiency in finances or business operations, or an unsatisfactory rating of the securities firm's internal audit operations (including self-auditing operations at a securities firm's branch office).
    For the purposes of these Operation Rules, "audited deficiency" of a leverage transaction merchant means a following matter that is found in an audit conducted by the TPEx: a violation of rules of the TPEx, a deficiency in finances or business operations, or an unsatisfactory rating of the leverage transaction merchant's internal audit operations.
Article 3     (Deleted)
Chapter 2 Operations for Audit of Securities Firms or Leverage Transaction Merchants
Article 4     TPEx audits of securities firms or leverage transaction merchants are divided into the following two types:
  1. Routine audits: audits of the securities firm or leverage transaction merchant conducted in accordance with the TPEx's annual operations plan.
  2. Special audits: audits, other than routine audits, conducted for a particular cause.
    The audit period of a routine audit under the preceding paragraph means the period from the date of the securities firm's or the leverage transaction merchant's previous routine audit until the day preceding the current audit. If the securities firm or leverage transaction merchant was not audited during the previous fiscal year, the one-year period preceding the date of the current audit shall be taken as the audit period.
Article 5     Audits may be conducted by means of document reviews or on-site audits, and in principle will be conducted on a test basis. A securities firm or leverage transaction merchant may not evade or refuse to undergo an audit.
    Any of the following circumstances is deemed evasion or refusal by a securities firm or leverage transaction merchant to undergo an audit:
  1. Failure to present account books, documents, and materials within the time period prescribed by the TPEx.
  2. The securities firm or leverage transaction merchant purposely creates an incident that hinders the examination and review work from proceeding smoothly, or while not creating such incident purposely, allows it to happen despite being able to foresee it, or fails to immediately eliminate it despite a chance to do so in its course.
    When auditors visit a securities firm or leverage transaction merchant to conduct an on-site audit, they shall present the inspection documents issued by the TPEx.
Article 6     After conducting an audit, the auditors shall produce an audit report, to serve as a basis for recommendations and improvements and to be kept for future reference.
    The audit report under the preceding paragraph shall include the following:
  1. The audit items.
  2. The circumstances of the audit.
  3. The audit findings.
  4. Recommendations or areas requiring improvement.
Article 7     The TPEx shall perform a special audit upon any of the following events occurring in respect of a securities firm:
  1. Receiving an unsatisfactory rating under the TWSE Rules Governing Early Warnings for Overall Operational Risk of Securities Firms or incurring consecutive losses and having a net worth that is less than three-fifths of its paid-in capital.
  2. The occurrence of any out-trade, default, delayed settlement, or irregular stock trade, where the circumstances are serious.
  3. Report by an investor, with specific and clear evidence.
  4. Receiving an unsatisfactory rating of the internal audit operations and failing to show improvement after receiving guidance.
  5. Material breach of law or regulation or rules or bylaws of the TPEx and failure to show improvement after the imposition of multiple sanctions by the competent authority or the TPEx.
  6. Having a circumstance under Article 66 of the Regulations Governing Securities Firms for 3 consecutive months.
  7. The Management Committee of the Joint Responsibility System Clearing and Settlement Fund for the TPEx securities trading market resolves for an audit to be conducted.
  8. The competent authority issues relevant instructions.
  9. Other material contingency.
    The TPEx shall perform a special audit upon any of the following events occurring in respect of a leverage transaction merchant:
  1. Report by an investor, with specific and clear evidence.
  2. Receiving an unsatisfactory rating of the internal audit operations and failing to show improvement after receiving guidance.
  3. Material breach of law or regulation or rules or bylaws of the TPEx and failure to show improvement after the imposition of multiple sanctions by the competent authority or the TPEx.
  4. The competent authority issues relevant instructions.
  5. Other material contingency.
Article 8     To conduct a special audit, the TPEx may require the securities firm or leverage transaction merchant to submit a self-review report by a prescribed deadline.
    The self-review report under the preceding paragraph shall specify the following matters, be signed and sealed by the responsible person of the securities firm or leverage transaction merchant and the chief officers of its finance, business, and audit departments, and have all of the relevant documents and forms attached:
  1. Analysis of the causes of any event referred to in the preceding article and an impact evaluation.
  2. Responsibility of the personnel committing the violation.
  3. Remediation/resolution plan.
  4. Custodians and locations of things relating to accounts, documents, and properties.
  5. Other matters specified by the competent authority or the TPEx.
    The report by the securities firm or leverage transaction merchant under paragraph 1 shall, within a 2 month deadline, be submitted to the next board of directors' meeting of the company for discussion and approval, signed by the supervisor(s), and delivered to the TPEx along with the minutes of the board of directors' meeting.
Article 9     When performing a special audit, the TPEx shall conduct a thorough investigation of the events set out in Article 7 and the content of the self-review report referred to in the preceding article. When necessary, it also may conduct an overall examination in accordance with the internal control system passed by the board of directors of the securities firm or leverage transaction merchant.
Article 10     When executing their duties, auditors shall maintain an impartial and objective stance and a fair and honest attitude, and shall bear the duty of confidentiality.
Chapter 3 Operations for Follow-Up, Assessment, and Guidance With Respect to Audited Deficiencies
Article 11     When a deficiency in a securities firm's or leverage transaction merchant's finances or business operations is found in a routine audit, follow-up, assessment, and guidance operations shall be conducted as follows:
  1. The TPEx may dispatch personnel to provide on-site guidance as it deems appropriate in view of the seriousness of the deficiency.
  2. After a securities firm or leverage transaction merchant receives a letter of sanction from the TPEx, it shall, within the designated deadline, compile a report on its corrective and preventive measures taken with respect to the deficiencies found. It shall also list those deficiencies as additional audit items for daily tracking by its internal audit department for the next 10 consecutive business days and prepare a comprehensive internal audit report, to include an audit report, an itemized audit statement, and audit working papers, and submit it with the aforementioned report by letter to the TPEx for recordation. If the deficiencies of a securities firm involve central custody operations, it shall send a copy the Taiwan Depository & Clearing Corporation.
  3. The TPEx shall review the itemized statement and evidence submitted by letter by the securities firm or leverage transaction merchant under the preceding subparagraph and ascertain the status of the firm's remediation of the deficiencies. If any matter has not been carried out in accordance with the preceding subparagraph or the itemized statement and evidence are insufficiently detailed and accurate, the TPEx shall dispatch personnel to conduct on-site guidance.
Article 12     For securities firms that have also entered into a contract with the TWSE for use of the centralized securities market, the TPEx shall compile the deficiencies found in routine audits and the results of follow-up, assessment, and guidance with respect thereto, and notify the TWSE of them.
Article 13     When a securities firm's or leverage transaction merchant's internal audit operations have received an unsatisfactory rating, the TPEx shall carry out follow-up, assessment, and guidance operations as follows:
  1. The TPEx may notify the securities firm or leverage transaction merchant to issue a warning disposition to its internal auditors or self-auditing personnel (the managerial officers at a branch office of a securities firm conducting self-audits and the internal auditors of the firm's head office responsible for their supervision shall also bear responsibility for inadequacies in supervision), and in addition, shall require that the securities firm or leverage transaction merchant submit within a prescribed deadline a self-review report on its internal audit operations. The content shall include a specific remediation plan, which shall be submitted by letter to the TPEx for recordation after being signed by the securities firm's or leverage transaction merchant's responsible person and internal auditors.
  2. The TPEx shall review the report submitted by the securities firm or leverage transaction merchant under the preceding subparagraph and gain an understanding of the status of its corrections. If any matter has not been carried out in accordance with the preceding subparagraph or the report is insufficiently detailed and accurate, the TPEx shall dispatch personnel to conduct on-site guidance.
Article 14     After performing an audit, the TPEx shall take the following measures:
  1. Report any violation of laws or regulations discovered to the competent authority for handling.
  2. If there has been any violation of the rules or bylaws of the TPEx, impose sanctions in accordance with applicable provisions.
  3. Provide guidance for the securities firm or leverage transaction merchant in drafting a remediation or resolution plan for its finances, business operations, or internal control system with respect to any event listed in Article 7 and oversee the exact implementation of the plan.
  4. Other necessary measures.
Article 15     After performing a special audit, the TPEx may perform follow-up, assessment, and guidance operations for a securities firm or leverage transaction merchant in accordance with Article 11 and the following provisions:
  1. Request the securities firm or leverage transaction merchant to adopt a remediation plan in accordance with subparagraph 3 of the preceding article, submit the plan by letter to the TPEx for recordation, and periodically report to the TPEx on its progress on implementing the plan.
  2. According to the results of the securities firm's or leverage transaction merchant's implementation of the remediation plan, request at any time that the securities or leverage transaction merchant firm reexamine its plan and formulate improvements.
  3. Based on the results of the securities firm's or leverage transaction merchant's implementation of the plan, whenever necessary, invite the responsible person and chief officers of relevant departments of the securities firm or leverage transaction merchant to discuss improvement measures.
  4. Other necessary guidance measures.
Article 16     The TPEx may appoint disinterested lawyers, certified public accountants, or other persons who are familiar with the operation of securities business or leverage contract trading business as assistants, to the extent necessary for performing a special audit and guidance, to assist with the audit, guidance, and other necessary measures. All remuneration and expenses incurred therefrom shall be borne by the audited securities firm or leverage transaction merchant.
Article 17     The securities firm or leverage transaction merchant may appeal to the TPEx, specifying the reasons, in the event it finds it difficult to comply with, or disagrees with, guidance and relevant measures imposed by the TPEx.
Chapter 4 Supplementary Provisions
Article 18     These Operation Rules, and any amendments hereto, shall be publicly announced and implemented after approval by the competent authority.
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