New types of business for SICE/SITE

On 4 August 2023, the Financial Supervisory Commission (FSC) issued a press release that the FSC will issue the Directions for Outsourcing by Securities Firms, Securities Investment Trust Enterprises & Securities Investment Consulting Enterprises, and Futures Commission Merchants (together the “Service Enterprises”) respectively soon (“Directions for Outsourcing”). We summarize below:

1. The Service Enterprises shall establish corresponding internal control system for “management of outsourcing operation to others”.

2. The Directions for Outsourcing will establish a risk-based outsourcing management mechanism, and the Service Enterprises shall bear the ultimate liability for the outsourcing operation. The key points shall include:

(1) The Service Enterprises shall manage the outsourcing risk based on the materiality and Risk-based Approach (RBA). The Directions for Outsourcing will provide compliance flexibility according to the business scale and features of the Service Enterprises;

(2) The outsourcing scope of the Enterprises will be stipulated, e.g., data processing, safekeeping of documents such as forms, statements and certificates. Where an outsourcing item of the Enterprises is not included in the Directions for Outsourcing and such outsourcing has been approved by the competent authority, other Service Enterprises may follow without an approval;

(3) Where the Service Enterprises outsource material client data or business information system to an offshore institution, a prior approval from the FSC is required;

(4) The outsourcing involving the cloud service will be regulated; and

(5) A grace period of “one year” will be granted to the Service Enterprises.

Mike Lu/Jeffrey Liu/Lia Wang

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