Attorney Phung Anh Tuan, Vice President cum General Secretary of the Vietnam Association of Financial Investors (VAFI), Managing Partner VCI Legal had an interview with Vietnam Investment Review about amendment of the Securities Law.

“To protect investors, especially retail investors, in this amendment of the Law on Securities, the Ministry of Finance, the State Securities Commission needs to supplement contents related to the establishment of the investor protection fund”, Mr. Phung Anh Tuan ESQ. said.

In your opinion, why should the investor protection fund be set up?

In perspective, safety for investors is an important factor to develop the capital market. However, in the targets which are set out in the amendment of the Law on Securities, there are no specific provisions on investor protection.

In the international context as well as in Vietnam, securities companies, fund management companies or financial consultancy organizations may become disarrayed or bankrupt, leading to the loss of capital and assets. This has happened to some securities companies in Vietnam in recent years. Meanwhile, the State has no public funds to support these investors, therefore, when the risk occurs with securities companies, investors have no place to go.

Hence, the formation of a legal mechanism for the establishment of an investor protection fund should be supplemented with the objectives of the Securities Law to create security in the market; also to help increase safety, professionalism of the stock market, and for capital markets in general.

As a researcher on the organizations and operations of the investor protection funds in many worldwide markets, can you give examples of the formation and operation of such fund?

In the United States, the Securities Investor Protection Corporation (“SIPC”) is a non-profit organization established under The Securities Investor Protection Act of 1970. The SIPC members include brokers, stockbrokers and other intermediaries.

The SIPC’s board of directors consists of seven individuals, one of whom is from the US Treasury, one from the US Federal Reserve Board, and the other five are appointed by the President of the US subject to U.S. Senate approval. The President of SIPC, who is a prestigious scholar, is not involved in any brokerage and stockbrokerage companies. The SIPC’s financial resources are mainly contributed by its members.

The SIPC is also financially supported through loans from the US Securities and Exchange Commission or by issuing debt instruments. The SIPC’s main task is to return securities, money or other securities to investors when securities brokerage and trading companies are in bankruptcy, confronted with financial difficulties or property investors have lost.

In the Taiwanese market, The Securities and Futures Investors Protection Center ( “SFIPC”) was established and operated under the Securities Investors and Futures Traders Protection Act of 2002 by the founding members nominated by the Securities and Exchange Commission, namely: Taiwan Stock Exchange, Futures Exchange, GreTai Securities Market, Taiwan Securities Central Depository, the Taiwanese Securities Association, Securities Investment Trust and Consulting Association of the ROC, Taipei Futures Association, all securities finance companies and other organizations.

The SFIPC is funded by members such as securities companies, futures exchange companies, stock exchange markets and futures exchange markets.

From this fund, the SFIPC is responsible for: Representatives of investors participating in litigation with securities companies, stock exchanges, clearing centers; Inquiries on the financial performance of securities issuers, securities companies, securities service companies and future trading companies, etc.

As an organization representing and protecting the interests of investors, the SFIPC is given privileges such as, requesting to assist and provide necessary documents; the right to petition the Taiwan Securities Commission to handle violations of supporting obligations, providing necessary dossiers and documents; the right to act as a dispute settlement body on the basis of the request of the securities investors; the right to initiate lawsuits and proceedings on behalf of investors when authorized by at least 20 investors who have infringed interests; and the right to use the Investor Protection Fund to pay damages when securities companies face financial difficulties.

In Hong Kong, the Investor Compensation Company (“ICC”) is established for the administration of claims against the Investor Compensation Fund (“ICF”), under the Securities and Futures Commission (“SFC”). The ICF is a compensation fund established under the Securities and Futures Act of 2003.

The fund is responsible for compensating the investors’ financial loss to due to the bankrupt or insolvency of securities business organizations. The ICF’s resources are from investors’ compensation fees from investors’ contribution of 0.002% of transaction value and from 0.1 to 0.5 Hong Kong dollars for future contracts, from the business profits and interests of the Fund’s deposits…

The ICC on behalf of the SFC is responsible for receiving, evaluating and making decisions on the requirements of intermediary brokers, intermediaries and financial institutions.

To carry out these tasks, the ICC has the function of administering the ICF, communicating with investors, considering for claim approvals, determining compensation rates, collecting information and reporting relevant issues, making compensation decisions, payment schedules and implementing compensations.

Which of above experiences should be incorporated into the amended Law on Securities to pave the way for setting up the Investors Protection Fund in Vietnam?

Some general principles in protecting investors from the experience of other countries could be acquired, as follows:

The three mechanisms of investors protection mentioned above are based on the following factors: There are specific legal provisions on the establishment and operation of the investors compensation fund; There is a standing body administering the fund consisting members designated by relevant interested parties.

Compensation funds are contributed by market participants, and securities trading companies. The State only provides financial support and assistance when needed.

There is a collective petition and litigation mechanism, in which an organization can be delegated by its members to proactively initiate lawsuits and conduct procedures when required conditions are met.

From the above lessons learned, it is imperative that Vietnam should enact legal regulations to protect investors; authorize and create conditions for organizations and associations to protect the interests of investors. Establishment of an investors protection fund is also necessary. Finally, there should be a mechanism whereby institutions protecting investors have the right to initiate lawsuits on behalf of investors.

All of above tasks may be promoted and implemented by a scheme commissioned by the Government and / or an association representing investors and market participants. The VAFI, whose mission is to provide guidance and protections for investors, mainly for small investors, individuals, can be a candidate to carry out this function.

Stock markets in many developed countries have been operating for hundreds of years, their legal frameworks have been much improved compared to Vietnam. Although the system of their securities companies has strong financial potential, the existence of the institution protecting the interests of investors is required.

In our opinion, Vietnam must set up the mechanism of an investors protection institution on the basic of the supplement in the Law on Securities of the Ministry of Finance and the State Securities Commission. This would meet many expectations of various investors, especially individuals and retail investors.



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