Internal Audit of Fund Management Companies: Reporting Line, Certificates, Reporting

To whom does the internal audit department of a securities investment fund management company report?

Under Clause 1, Article 5 of Circular 99/2020/TT-BTC, the following is prescribed:

Internal audit

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1. A fund management company that is a public company or manages public funds, or a public securities investment company, must establish an internal audit department. The internal audit department reports to the Board of Directors or the Members’ Council or the company owner.

2. The internal audit department has the following responsibilities:

a) Inspect and evaluate the organisational structure, corporate governance, operational management, and coordination of each department and position to prevent conflicts of interest and protect clients’ interests;

b) Inspect and evaluate the adequacy, effectiveness, and efficiency of, and compliance with, legal regulations and the company charter; the internal control system; internal policies and procedures, including the code of professional ethics, business procedures, risk management procedures and systems, information technology systems, accounting, reporting and information disclosure procedures and systems, procedures for receiving and handling denunciations and complaints from clients, and other internal regulations;

c) Inspect the validity, legality, truthfulness, prudence, and compliance with business procedures and risk management;

d) Conduct operational audits under the annual internal audit plan. The annual internal audit plan must be approved by the Board of Directors or the Members’ Council or the company owner before implementation. The annual internal audit plan must ensure the following principles:

– Internal audits are conducted annually and ad hoc;

– Activities, procedures, and departments must be risk-rated under the company’s internal regulations. Activities, procedures, and departments with high risk levels are prioritised with concentrated resources for audit and are audited at least once a year;

– The annual periodic audit plan must be adjusted when there are changes in the risk levels of activities, procedures, and departments;

dd) Conduct audits of all activities of all departments in the company at least once every two years;

e) Recommend solutions to improve the effectiveness and efficiency of the company’s operations; monitor the implementation of post-audit recommendations approved by the Board of Directors or the Members’ Council or the company owner.

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Accordingly, under the above provision, the internal audit department of a securities investment fund management company reports to the Board of Directors or the Members’ Council or the company owner.

What professional certificates must internal audit staff of a securities investment fund management company hold?

Under point c, Clause 4, Article 5 of Circular 99/2020/TT-BTC, the following is prescribed:

Internal audit

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4. Internal audit staff, upon appointment, must ensure:

a) Not being prosecuted for criminal liability, not serving a prison sentence, and not being banned from securities practice as prescribed by law;

b) Not having been administratively sanctioned in the securities and securities market sector within the most recent 06 months up to the time of appointment;

c) Holding an asset management practising certificate in countries that are members of the Organisation for Economic Co-operation and Development (OECD), or having passed the international investment analysis certificate CFA from level II upwards (Chartered Financial Analyst level II) or CIIA (Certified International Investment Analyst – Final Level); or holding a securities practising certificate; or holding certificates in Fundamentals of Securities and the Securities Market and in Securities Law and the Securities Market.

5. The personnel structure of the internal audit department must include at least one staff member holding an auditor certificate or accountant certificate issued by Vietnam; or international accounting and auditing certificates such as ACCA (Association of Chartered Certified Accountants), CPA (Certified Public Accountants), CA (Chartered Accountants), ACA (Associate Chartered Accountants); or having worked for 03 years or more in the legal, inspection, management, or supervision departments of financial organisations at State management agencies in the finance, banking, insurance, securities, or State audit sectors.

Accordingly, under the above provision, internal audit staff of a securities investment fund management company must hold:

• An asset management practising certificate in countries that are members of the Organisation for Economic Co-operation and Development (OECD);
• Or have passed the international investment analysis certificate CFA from level II upwards (Chartered Financial Analyst level II) or CIIA (Certified International Investment Analyst – Final Level);
• Or hold a securities practising certificate;
• Or hold certificates in Fundamentals of Securities and the Securities Market and in Securities Law and the Securities Market.

Does a securities investment fund management company submit internal audit result reports to the State Securities Commission annually or quarterly?

Under Clause 1, Article 29 of Circular 99/2020/TT-BTC, the following is prescribed:

Reporting obligations

1. Fund management companies submit the following periodic reports to the State Securities Commission:

a) Monthly and annual periodic reports on the operations of the fund management company in the form prescribed in Appendix VI issued with this Circular;

b) Monthly periodic reports on the investment portfolio management activities of the fund management company, confirmed by the depository bank where the fund management company opens its depository account, by the depository member where the entrusting client opens an account, and by the foreign depository organisation, in the form prescribed in Appendix VII issued with this Circular;

c) Semi-annual and annual reports on the risk management activities of the fund management company in the form prescribed in Appendix VIII issued with this Circular;

d) Periodic annual reports on internal audit results; periodic annual reports on internal control of the fund management company;

dd) Quarterly financial statements; reviewed semi-annual financial statements; annual financial statements audited by an approved auditing organisation of the fund management company as prescribed by accounting law for fund management companies;

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Accordingly, under the above provision, a securities investment fund management company submits internal audit result reports to the State Securities Commission on a periodic annual basis.