ESTABLISHMENT OF THE FUND MANAGEMENT COMPANIES AND SOME NOTES FOR FOREIGN INVESTORS

by Admin

14/04/2022

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ESTABLISHMENT OF THE FUND MANAGEMENT COMPANIES AND SOME NOTES FOR FOREIGN INVESTORS

 

ESTABLISHMENT OF THE FUND MANAGEMENT COMPANIES AND SOME NOTES FOR FOREIGN INVESTORS

 

Currently, the stock market is an important part of any country's economy as it is an effective medium and long-term funding channel for the State and the enterprise. In addition, the stock market is a complex financial-economic market, thus,  many investors have chosen to invest their assets in securities investment funds to minimize risks. Accordingly, investors give the right to manage the fund, authorize the fund management company to manage the fund, and conduct securities investment activities from the fund's capital. This article will briefly examine the establishment of the fund management company as well as the points that foreign investors should consider when establishing the fund management company in Vietnam.

1. Legal basis:

  • Law on Securities 2019
  • Circular No. 99/2020/TT-BTC
  • Decree No. 155/2020/ND-CP

2. What is the fund management company?

 

According to the Black’s Law Dictionary, securities are evidence of debts or of property; evidence of obligations to pay money or of rights to participate in earnings and distribution of corporate, trust, and other property. Meanwhile, the Vietnamese Law on Securities lists securities as the following assets: stocks, bonds, fund certificates; warrants, secured warrants, pull options, depository receipts; derivatives; other kinds of securities defined by the Government. Obviously, Vietnamese regulations on securities are expanding due to the development of the stock market.

Article 4.36 of Law on Securities 2019 prescribes: “Securities investment fund management means management of the sale, purchase and holding of securities and other assets of the securities investment fund.”. Thus, “the fund management company” means an enterprise that has been issued with the securities trading license by the SSC (State Securities Commission), and takes charge of managing securities investment fund and securities portfolio, and providing securities investment consulting services.

3. Establishment of the fund management company:

3.1. Conditions to establish the fund management company:

According to the provisions of law, individuals and organizations that want to establish the fund management company must be granted a license for establishment and operation by the State Securities Commission (SSC). The followings are some conditions to be licensed to establish and operate a fund management company:

  • Conditions on capital: The capital contributed shall be VND. The minimum charter capital for each operation of the fund management company is 25 billion VND.
  • Conditions on shareholders, contributing members: Shareholders and contributing members that are individuals are qualified for establishment and management of enterprises in Vietnam as prescribed by the Law on Enterprises or that are organizations shall be lawfully operating juridical persons that have profitable business in 02 years prior to the year in which the license is applied for; the latest annual financial statement has been audited and received unqualified opinions. In addition, shareholders and contributing members holding at least 10% of charter capital of 01 securities company; their related persons (if any) do not hold more than 5% of charter capital of another securities company. Shareholders and contributing members that are foreign investors shall satisfy the requirements specified in Article 77 of Law on Securities 2019.
  • Conditions on the quantities of shareholders, contributing members include: At least 02 founding shareholders and contributing members shall be organizations. The owner of the securities company that is a single-member limited liability company shall be an insurer or commercial bank or foreign organization that satisfies the requirements specified in Article 77.2  of the Law on Securities 2019. The total capital contributed by organizations shall be at least 65% of charter capital; capital contributed by insurers and commercial banks shall be at least 30% of charter capital.
  • In addition, the fund management companies need to meet the conditions on facilities, personnel and charter detailed in Article 75.4 and 75.5 of Law on Securities 2019.

 

After being granted the securities trading License, the License holder that is a fund management company shall apply for enterprise registration in accordance with the Law on Enterprises, the License holder that is a branch in Vietnam of a foreign securities company or fund management company shall apply for business registration at a business registration authority. The fund management company must be organized in the form of a limited liability company or a joint-stock company in accordance with the Law on Enterprises.

3.2. Dossier of application for a license to establish and operate securities of the fund management company:

  • The application form No. 64 in the Appendix issued with Decree 155/2020/ ND-CP;
  • The written agreement on establishment of the company of the shareholders, contributing members or the decision of the company owner;
  • The premises lease contract; documents proving the right to own or use the premises; description of property;
  • The list of personnel, personal information sheets, enclosed with the judicial records of members of the Board of Directors, President of the Member assembly, President of the company; General Director/Director that are issued within 06 months before the application is submitted;
  • The list of shareholders and contributing members is submitted together with the documents detailed in Clause 5, Article 176 of Decree 155/2020/ND-CP;
  • The decision issued by a competent authority on operational, internal control, risk management processes.
  • The draft charter of the company.

4. Regulations on the participation of foreign investors:

Currently, following the trend of globalization, the participation of foreign investors is an inevitable phenomenon and requires adjustment of domestic laws. Article 51 of the Law on Securities 2019 stipulates that Foreign investors and foreign-invested business organizations that participate in Vietnam’s securities market shall comply with regulations of securities laws on foreign holdings, conditions and procedures for investment.

Specifically, when participating in the fund management company, foreign investors are entitled to contribute capital to the establishment, purchase shares and stake of the fund management company according to the following principles:

  • A foreign investor that is an organization satisfying the requirements specified in Article 77.2 of Law on Securities and its related persons may hold up to 100% of charter capital of a securities company or fund management company. In case the requirements here above are not fully satisfied, the foreign investor that is an organization and its related person may only hold up to 49% of charter capital of a securities company or fund management company.
  • The foreign investor that is an individual and his/her related persons may hold up to 49% of charter capital of the fund management company;
  • Shareholders and contributing members holding at least 10% of charter capital of 01 securities company; their related persons (if any) do not hold more than 5% of charter capital of another securities company. 

In addition, in order to hold 100% charter capital of a securities company or fund management company by contributing capital or buying shares/stakes, a foreign organization shall:

  • Be licensed and has been continuously operating in the field of banking, securities, insurance for 02 years before the year in which capital is contributed or shares/stakes are purchased.
  • The home country’s licensing authority and SSC has entered into a mutual or multilateral agreement on information exchange, management, inspection, supervision of securities activities and securities market.
  • The organization’s business has profit in 02 years prior to the year in which capital is contributed or shares/stakes are purchased, and the latest annual financial statement has been audited and received unqualified opinions.

The establishment of companies and representative offices of the foreign fund management companies in Vietnam is regulated in Articles 76 and 78 of the Law on Securities 2019.

Above is our research on the establishment of a securities investment fund management company. Please contact us if you have any questions or concerns.