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Enforcement Letter

 
Organisation: Financial Supervisory Commission
Issue No.: Financial-Supervisory-Securities-Futures-11103802121 
Issue Date: 2022/01/21
Content:     Order of the Financial Supervisory Commission

    Issue date: 21 January 2022
    Issue number: Financial-Supervisory-Securities-Futures-11103802121

  1. If a futures commission merchant (FCM) chooses to adopt the fair value model for subsequent measurement of investment properties in accordance with Article 14, paragraph 4, subparagraph 4 of the Regulations Governing the Preparation of Financial Reports by Futures Commission Merchants and with International Accounting Standard (IAS) 40 Investment Property, to maintain the sound and stable financial structure of the FCM, unless the Financial Supervisory Commission (FSC) has otherwise made supplementary provisions, an FCM shall apply the provisions set out below from the time that it distributes earnings for fiscal year 2021:
    1. When an FCM chooses to adopt for the first time a fair value model for subsequent measurement of investment property, it shall allocate special reserve in an amount equivalent to the portion of the amount of the net increase in fair value transferred to retained earnings. However, when, after the transfer to retained earnings, there remains an insufficiency for allocation of the amount mentioned above, the FCM may make the allocation based merely on the book retained earnings amount, and the amount of the insufficiency for allocation need not be included in the calculation of the amount of the cumulative net increase in fair value.
    2. When an FCM continues to adopt a fair value model for subsequent measurement of investment property, at the time for distribution of distributable surplus, it shall allocate special reserve in the manners listed below and, secondarily, allocate special reserve in accordance with the 21 January 2022 FSC Order No. Financial-Supervisory-Securities-Futures-1110380212, and the special reserve may not be distributed:
      1. With respect to the book amount of the net increase in fair value for the period in which it arises, an equivalent amount of special reserve shall be allocated from the amount of the after-tax net profit for the period, plus items other than after-tax net profit for the period, that are included in the undistributed earnings of the period. If there remains any insufficiency, it shall be allocated from the undistributed earnings of the previous period.
      2. With respect to the cumulative amount of net increase in fair value in a preceding period(s), the FCM shall choose one of the following methods to allocate special reserve, which may not be distributed:
        1. Allocate an amount of special reserve equal to the amount allocated to undistributed earnings for the preceding period.
        2. Allocate an amount of special reserve equal to the amount allocated to undistributed earnings for the preceding period. If there remains any insufficiency, allocate it from the amount of the after-tax net profit for the period, plus items other than after-tax net profit for the period, that are included in the undistributed earnings of the period. Furthermore, if this method is to be used, it shall be expressly provided in the dividend policy specified in the FCM's articles of incorporation.
    3. If subsequently there is any decrease in the cumulative amount of net increase in fair value of investment property, or the investment property is disposed of, the amount of the decrease or the amount dictated by the circumstances of disposal may be reversed and booked for earnings distribution.
  2. This Order is effective from this day forward. The 11 April 2014 FSC Order No. Financial-Supervisory-Securities-Futures-1030009577 is repealed from this day forward.