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Enforcement Letter

 
Organisation: Financial Supervisory Commission
Issue No.: Financial-Supervisory-Securities-SITC-1110380509 
Issue Date: 2022/03/09
Content:     Order of the Financial Supervisory Commission

    Issue date: 9 March 2022
    Issue number: Financial-Supervisory-Securities-SITC-1110380509

  1. To maintain the sound and stable financial structure of securities investment trust enterprises (SITEs) and securities investment consulting enterprises (SICEs), SITEs and SICEs shall apply the provisions set out below from the time that they distribute earnings for fiscal year 2021:
    1. When a SITE or SICE first adopts the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), and Interpretations developed by the International Financial Reporting Interpretations Committee (IFRIC) or the former Standing Interpretations Committee (SIC) (hereinafter collectively referred to as "IFRSs") as endorsed by the Financial Supervisory Commission (FSC), for any unrealized revaluation increment or cumulative translation adjustment (profit) accounted for under shareholders' equity, if it is transferred to retained earnings because the SITE or SICE chooses to apply an exemption under IFRS 1, the SITE or SICE shall allocate the same amount respectively in special reserve. However, if on the transition date the amount of the increase in retained earnings arising from the first-time adoption of the IFRS is insufficient to make the allocation mentioned above, the SITE or SICE may make the allocation based merely on the amount of the increase in retained earnings arising from the transition to the IFRS. When there is subsequently any use, disposal, or reclassification of the relevant assets, the SITE or SICE may reverse and book for earnings distribution the corresponding proportion originally allocated to special reserve.
    2. When a SITE or SICE distributes distributable surplus, it shall allocate special reserve in the manners listed below, and the special reserve may not be distributed:
      1. When a SITE or SICE sets aside special reserve under Article 11 of the Regulations Governing Securities Investment Trust Enterprises or under other laws or regulations, the basis of the allocation shall additionally involve items other than after-tax net profit for the period, that are included in the undistributed earnings of the period.
      2. With respect to the book net amount of other deductions from equity (for the cumulative balance of, for example, exchange differences resulting from translating the financial statements of foreign operations, unrealized gains or losses in the fair value of financial assets through other comprehensive income, gains or losses on hedges, revaluation increments) 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.
      3. With respect to the cumulative net amount of other deductions from equity in a preceding period(s), the SITE or SICE 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 SITE or SICE's articles of incorporation.
      4. If a SITE or SICE has already allocated special reserve under the preceding subparagraph, it shall make supplemental allocation of special reserve for any difference between the amount it has already allocated and the amount of special reserve it is required to allocate under the preceding two items. If subsequently there is any reversal of the net amount of other deductions from equity, the amount of the reversal may be reversed from special reserve and booked for earnings distribution.
  2. This Order is effective from this day forward. The 12 December 2012 FSC Order No. Financial-Supervisory-Securities-SITC-1010055977 is repealed from this day forward.