Decision guides investor protection funds

Update: September, 13/2014 - 09:12

HA NOI (VNS)  — The Ministry of Finance is drafting a decision that will compel securities and fund management companies to set up investor protection funds this year.

The funds will compensate investors if their interests are damaged by technical flaws or misconduct by employees at these companies.

Reassuring investors that their interests are safeguarded against market malpractices is crucial for the development of capital markets. However, Viet Nam still lacks a clear investor protection scheme.

In the past, wrongdoings by employees at several securities companies caused heavy financial losses to investors. However, they had no place to find help.

The 2007 Securities Law stipulated that securities and fund management companies must buy occupational liability insurance and set up investor protection funds. However, no such funds have been set up.

Moreover, only two brokerage firms out of the country's 91 securities and 41 fund management companies have bought occupational liability insurance, and none has set up an investor protection scheme, according to a recent Ministry of Finance survey.

Companies said they were unsure where to extract the money from (revenue or earnings) or how to compensate investors, as they lacked guidance on how to set up the funds.

The draft decision sets out detailed regulations on these issues. Companies will set aside a maximum of 5 per cent of their annual brokerage revenue to set up the funds. If the fund balance is equal to 10 per cent of company charter capital, they will not need to extract more funds. Companies must extract the funds by March 31 every year, with director boards determining the specific amount.

Insured investors can receive compensation if they possess signed investment contracts with securities and fund management companies as well as documents that prove their losses and legal rights for compensation.

The State Securities Commission will supervise the establishment and use of these funds. — VNS