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Official Gazette

Sunday, August 20, 2017

Investor protection funds to be set up

Updated: 17:33’ - 23/10/2014
Securities firms and fund management companies must set aside a certain percentage of their revenues to form investor protection funds.

This is highlighted in a draft decision on the mechanism on deduction for setting up and using investor protection funds, which is being elaborated by the Ministry of Finance.

The maximum deduction level would be five percent of annual brokerage revenues, for securities firms, or annual revenues from fund management, securities investment and investment portfolio management activities, for fund management companies.

Securities firms and fund management companies would be required to make deductions by March 31 every year at the level determined by their Boards of Directors. However, they would not need to make deductions when the fund balance reaches 10 percent of their charter capital.

The funds would be used to pay compensations to investors if their interests are damaged by technical errors or misconduct of employees of securities firms and fund management companies.

According to the Ministry of Finance, such provisions are necessary to reassure investors that their interests are safeguarded against market malpractices, especially in the context that Vietnam still lacks an effective investor protection scheme.

However, experts still worry about the proposal, saying that it is infeasible and cannot help minimize damage for investors when participating in the securities market. 

They argue that the draft paper vests securities firms and fund management companies with too many powers. They would themselves set up and manage the funds, decide on the deduction level and issue rules on the use of funds. The draft paper also requires investors to collect documents to prove their damage. This means that investors can hardly receive compensations once securities firms do not want to cooperate with them.

For these reasons, the draft paper should not empower securities firms and fund management companies to manage and operate investor protection funds but should assign such task to an independent legal entity, for example, the Vietnam Securities Depository.-


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