Conclusion on Inspection No. 120/KL-TT Regarding MB Fund Management Joint Stock Company

On December 31, 2024, the Inspection Agency of the State Securities Commission (SSC) issued Inspection Conclusion No. 120/KL-TT regarding the inspection at MB Fund Management Joint Stock Company. The full text of the conclusion is as follows:

1. General Overview

MB Fund Management Joint Stock Company (the Company/MB Capital) was established and operates under the License for establishment and operation of securities fund management No. 21/UBCK-GP dated November 15, 2007; and the most recent License Adjustment No. 71/GPĐC-UBCK dated September 30, 2024, issued by the SSC.

At the time of inspection, the Company's licensed business operations included: Management of securities investment funds; Management of securities investment portfolios; Securities investment advisory.

The Company's charter capital as of December 31, 2023, and September 30, 2024, was 356,174.5 million VND. The Company is a subsidiary of Military Commercial Joint Stock Bank (MBBank) (owning 90.77% of the Company's charter capital).

2. Results of Inspection and Verification

2.1. Maintenance of Licensing Conditions

The Company meets the conditions for maintaining operational licenses regarding infrastructure, minimum charter capital, and personnel as stipulated in Clause 4 and Clause 5 of Article 75, Clause 1 of Article 135 of the Securities Law, Clause 3 of Article 175 of Government Decree No. 155/2020/NĐ-CP dated December 31, 2020, detailing certain articles of the Securities Law (Decree No. 155/2020/NĐ-CP); and Clause 2 and Clause 3 of Article 7, Clause 20 of Article 10 of Circular No. 99/2020/TT-BTC dated November 16, 2020, by the Minister of the Ministry of Finance guiding the activities of securities fund management companies (Circular No. 99/2020/TT-BTC).

2.2. Organizational Structure of the Company

• Organizational Structure: The Company has issued the Regulation on Organization and Operation defining the functions and tasks of business departments within the Company. The Company's organizational structure includes the following departments: Investment Department, Sales and Marketing Department, Business Support Department, Finance and Accounting Department, Risk Management and Compliance Department, and Internal Audit Department.

• Company Charter: The Company Charter was last amended in June 2024. The content of the Company Charter is basically consistent with the Company's operational organizational model and contains at least the contents specified in the Model Charter attached to Appendix XII of Circular No. 99/2020/TT-BTC.

• Business Processes: Basically, the Company has issued all relevant processes related to the activities of the fund management company and licensed businesses as stipulated in Clause 2 of Article 10 of Circular No. 99/2020/TT-BTC.

2.3. Internal Control, Internal Audit, and Risk Management Activities

2.3.1. Internal Control Activities

The Company has established the Control and Compliance Department under the Risk Management and Compliance Department and issued an Internal Control Process.

During the inspection period, the personnel structure of the Control and Compliance Department met the conditions stipulated in Clause 3 and Clause 4 of Article 6 of Circular No. 99/2020/TT-BTC.

The Company has submitted internal control reports for the years 2022 and 2023 as required.

2.3.2. Internal Audit Activities

The Company established an Internal Audit Department directly under the Board of Directors (BOD) of the Company and issued the Regulation on Organization and Operation of the Internal Audit Department and the Internal Audit Process.

The Head of the Internal Audit Department of the Company meets the personnel conditions for the internal audit department as stipulated in Clause 4 of Article 5 of Circular No. 99/2020/TT-BTC.

The Company has submitted Internal Audit Reports for the years 2022 and 2023 as required.

2.3.3. Risk Management Activities

The Company has issued General Risk Management Policy and Risk Management Policy for funds managed by the Company as stipulated in Clause 4 of Article 10 of Circular No. 99/2020/TT-BTC.

Basically, the Company's risk management activities meet the requirements of Clause 4 of Article 10 of Circular No. 99/2020/TT-BTC.

During the inspection period, the Company prepared semi-annual and annual Risk Management Reports for 2022, semi-annual and annual reports for 2023, and semi-annual report for 2024 as stipulated in Appendix VIII attached to Circular No. 99/2020/TT-BTC and reported to the SSC as required.

2.4. Securities Investment Fund Management Activities

During the inspection period, the Company had 04 active open funds: MB Bond Fund (MBBOND), MB Capital Value Fund (MBVF), Bordier-MB Flagship Growth Fund (BMFF), and MB Flexible Cash Flow Bond Fund (MBAM); 01 active member fund: Rhodium Venture Capital Fund (RVCF); and 01 member fund in the process of dissolution: Japan Asia MB Capital Fund (JAMBF).

2.4.1. MB Bond Fund (MBBOND)

• General Information: The MB Bond Fund was established as an open fund under Fund Establishment Registration Certificate No. 32/GCN-UBCK issued by the SSC on March 26, 2018, with initial charter capital of 64,200 million VND, and indefinite duration. The supervising bank is Bank for Investment and Development of Vietnam - Ha Thanh Branch (BIDV Ha Thanh). The transfer agent is Vietnam Securities Depository Corporation (VSDC). The Fund has 03 members of the Fund Representative Board and 02 members of the Fund Management Board. Distribution agents include: MB Capital; MB Securities Joint Stock Company; Japan Securities Joint Stock Company; Fincorp Joint Stock Company; VNDIRECT Securities Joint Stock Company; Digi Invest Joint Stock Company. The number of investors holding fund certificates as of September 30, 2024, was 6,691.

• Investment Activities:

As of September 30, 2024, the investment portfolio of MBBOND Fund consisted of 02 listed bonds, cash and cash equivalents, and other assets.

According to supervision reports from BIDV Ha Thanh dated November 23, 2022, and December 8, 2022, the investment ratio in bond NVL122001 issued by Nova Real Estate Group Joint Stock Company by MBBOND Fund exceeded the limits stipulated in Circular No. 98/2020/TT-BTC dated November 16, 2020, by the Minister of the Ministry of Finance guiding the activities and management of securities investment funds (Circular No. 98/2020/TT-BTC), specifically:

• At the valuation date of November 22, 2022, bond NVL122001 accounted for 21.11% of the total asset value of MBBOND Fund, exceeding the 20% limit stipulated in point c, Clause 4, Article 35 of Circular No. 98/2020/TT-BTC;
• At the valuation date of December 7, 2022, bond NVL122001 accounted for 33% of the total asset value of MBBOND Fund, exceeding the 30% limit stipulated in point d, Clause 4, Article 35 of Circular No. 98/2020/TT-BTC.

According to supervision reports from BIDV Ha Thanh dated February 23, 2023, and March 8, 2023, MBBOND Fund failed to adjust its investment portfolio structure within 03 months from the time the deviation occurred as stipulated in Clause 6 of Article 35 of Circular No. 98/2020/TT-BTC. According to BIDV Ha Thanh's supervision report, at the valuation date of September 30, 2024, bond NVL122001 accounted for 87.04% of the total asset value of MBBOND Fund. Thus, the investment portfolio structure of MBBOND Fund at the valuation dates of February 23, 2023, March 8, 2023, and September 30, 2024, violated point c and point d, Clause 4, Article 35 of Circular No. 98/2020/TT-BTC.

• Operational Results: According to the MBBOND Fund Activity Report for September 2024, the investment income (cumulative) of MBBOND Fund was 16,351 million VND, and the investment operational result (cumulative) was 13,678 million VND.

2.4.2. MB Capital Value Fund (MBVF)

• General Information: The MB Capital Value Fund was established as an open fund under Fund Establishment Registration Certificate No. 10/GCN-UBCK issued by the SSC on April 25, 2014, with initial charter capital of 54,423.6 million VND, and indefinite duration. The custodian and supervising bank is BIDV Ha Thanh. The transfer agent is VSDC. The Fund has 04 members of the Fund Representative Board and 02 members of the Fund Management Board. Fund certificate distribution agents: MB Capital, MB Securities Joint Stock Company, Japan Securities Joint Stock Company, Fincorp Joint Stock Company, Digi Invest Joint Stock Company. The number of investors holding fund certificates as of September 30, 2024, was 7,740.

• Operational Results: According to the Fund's report as of September 30, 2024, investment income (cumulative from the beginning of the year) of MBVF Fund was 31,882.9 million VND, and net investment income (cumulative) was 29,359.4 million VND.

2.4.3. Bordier - MB Flagship Growth Fund (BMFF)

• General Information: The Bordier Growth Fund was established as an open fund under Fund Establishment Registration Certificate No. 29/GCN-UBCK issued by the SSC on February 14, 2023, with fund charter capital of 51,286.6796 million VND, and indefinite duration. The supervising bank is BIDV Ha Thanh. Distribution agents: MB Capital, Digi Invest Joint Stock Company. The Fund has 03 members of the Fund Representative Board and 02 members of the Fund Management Board. The number of investors holding fund certificates as of September 30, 2024, was 6,328.

• Operational Results: According to the Fund's report as of September 30, 2024, investment income (cumulative) of BMFF Fund was 27,188 million VND, and realized operational result (cumulative) of BMFF Fund was 9,111 million VND.

2.4.4. MB Flexible Cash Flow Bond Fund (MBAM)

• General Information: The MB Flexible Cash Flow Bond Fund was established in Vietnam as an open fund under Public Fund Establishment Registration Certificate No. 42/GCN-UBCK issued by the SSC on May 14, 2024, with fund charter capital of 50,130.36 million VND, and indefinite duration. The supervising bank is BIDV Ha Thanh. Distribution agents: MB Capital, Digi Invest Joint Stock Company. The Fund has 03 members of the Fund Representative Board and 02 members of the Fund Management Board. The number of investors holding fund certificates as of September 30, 2024, was 1,616.

• Operational Results: According to the Fund's report as of September 30, 2024, investment income (cumulative) of MBAM Fund was 4,785 million VND, and realized operational result (cumulative) of MBAM Fund was 2,640 million VND.

2.4.5. Rhodium Venture Capital Fund (RVCF)

• General Information: The Rhodium Venture Capital Fund is a member fund established under Member Fund Establishment Registration Certificate No. 53/GCN-UBCK issued by the SSC on September 28, 2022, with charter capital of 115 billion VND, and a duration of 10 years. The custodian bank is BIDV Ha Thanh. The Fund currently has 03 members of the Fund Representative Board and 02 members of the Fund Management Board.

• Operational Results: According to the audited semi-annual financial statements of the Fund, as of June 30, 2024, the Fund's total assets were 122,624.67 million VND, the realized net operational result distributed during the period was 625.2 million VND; the Fund's net asset value was 122,406.22 million VND, and the net asset value per fund unit was 10,644 VND.

2.4.6. Japan Asia MB Capital Fund (JAMBF)

• General Information: The Japan Asia MB Capital Fund was initially established under the name MB Capital 1 Equity Fund under Establishment and Operation License No. 104/TB-UBCK issued by the SSC on May 28, 2010, with charter capital of 200,000 million VND, and a duration of 12 years. The supervising bank is Standard Chartered Bank (Vietnam) Limited Liability Company Single Member. The Fund has 03 members of the Fund Representative Board and 02 members of the Fund Management Board.

• Operational Status: MB Capital sent Official Letter No. 250/CV-MBC dated April 8, 2022, to the SSC requesting the dissolution of Fund JAMBF, which was approved by the SSC. On May 26, 2022, the Fund completed the liquidation of assets. To date, the Fund has not completed the dissolution process as it is still awaiting collection of dividends from Song Da 6 Joint Stock Company amounting to 1,141.7 million VND, with payment extended to December 31, 2024. This amount was fully provided for as doubtful receivables before the Fund's dissolution date of May 28, 2022. The Fund reported to the SSC on the dissolution of Fund JAMBF in Official Letter No. 790/CV-MBC dated June 11, 2024.

2.5. Portfolio Management Activities

During the inspection period, the total number of portfolio management contracts the Company was executing at various times were as follows: As of January 1, 2022: 179 contracts, including 10 contracts with institutional clients and 169 contracts with individual clients; As of December 31, 2022: 56 contracts, including 08 contracts with institutional clients and 48 contracts with individual clients; As of December 31, 2023: 29 contracts, including 11 contracts with institutional clients and 18 contracts with individual clients; As of September 30, 2024: 73 contracts, including 12 contracts with institutional clients and 61 contracts with individual clients.

The Company issued the Directed Portfolio Management Process on August 10, 2022, the Active Portfolio Management Process on August 10, 2022, and the Securities Trading Process amended on November 17, 2022.

Client assets are custodied at custodian banks: Bank for Investment and Development of Vietnam - Nam Ky Khoi Nghia Branch and Military Commercial Joint Stock Bank.

During the inspection period, the Company had 08 institutional clients, accounting for a large proportion of the total entrusted portfolio value of the Company. The results of sampling inspection of some contracts with institutional clients having a large proportion in the total entrusted portfolio and some contracts with individual clients entrusting investment to the Company show that, basically, the Company has executed investments according to the contracts signed with entrusting clients; entrusting clients have all authorized the Company to stand as the owner of assets in the portfolio. The Company reports portfolio information to entrusting clients as required.

2.6. Securities Investment Advisory Activities

The Company issued the securities investment advisory business process according to Decision No. 159/QĐ-MBC dated August 10, 2022, by the Company Director. During the inspection period, the personnel performing securities investment advisory business of the Company met the conditions for securities investment advisory practitioners.

During the inspection period, the Company had 04 securities investment advisory contracts. All advisory contracts were terminated in 2022, and no new securities investment advisory contracts were signed during the inspection period. Revenue from advisory activities in 2022 was 1,746 million VND.

2.7. Anti-Money Laundering Work

The Company issued the anti-money laundering process on August 1, 2023.

The Company has reported the personnel responsible for anti-money laundering in the 2021 anti-money laundering audit reports and the 2022 and 2023 comprehensive anti-money laundering reports.

The Company has sent the Anti-Money Laundering Department (State Bank of Vietnam) the 2021 internal audit report on anti-money laundering work, and the 2022 and 2023 comprehensive reports on anti-money laundering activities.

2.8. Reporting and Information Disclosure Regime

• Subjects of Information Disclosure:

The person in charge of information disclosure of the Company is Ms. Doan Kim Dung, Director of the Risk Management and Compliance Department.

The Company has established the website https://mbcapital.com.vn to fulfill periodic and ad hoc information disclosure obligations as required.

• Reporting and Information Disclosure Regime:

During the inspection period, the Company basically implemented the reporting regime and information disclosure obligations as required.

2.9. Financial Investment Activities

The Company issued the Financial Investment Regulation QCQT.QCĐT on December 27, 2021.

The Company uses securities accounts (all of which are regular securities trading accounts) opened at 06 securities companies. The total value of the Company's financial investment items at the times of January 1, 2022, December 31, 2022, December 31, 2023, and June 30, 2024, were 397,985 million VND, 370,722.9 million VND, 449,321.3 million VND, and 332,238.3 million VND, respectively; mainly consisting of short-term financial investments in stocks, bonds, fund certificates, and deposit certificates.

The results of sampling inspection show that, in financial investment activities from owner's capital, the Company basically complies with the regulations in Clause 21 of Article 10 of Circular No. 99/2020/TT-BTC.

2.10. Financial Safety Ratio Report

The Company has prepared and submitted periodic reports to the SSC on the financial safety ratio as stipulated in Circular No. 91/2020/TT-BTC dated November 13, 2020, by the Minister of the Ministry of Finance defining financial safety indicators and handling measures for securities business organizations not meeting financial safety indicators (Circular No. 91/2020/TT-BTC).

According to the Company's report, the available capital ratio according to the audited financial safety ratio reports and calculated by the Company at the times of December 31, 2022, June 30, 2023, December 31, 2023, and September 30, 2024, were 572.14%, 728.83%, 850.80%, and 868.36%, respectively. Basically, the Company's available capital ratio meets the financial safety indicators for securities business organizations as stipulated in Circular No. 91/2020/TT-BTC.

3. Conclusion

During the inspection period, the Company basically complied with securities law regulations regarding the content of the inspection. However, the Company still had violations mentioned in Section 2 of the Inspection Conclusion.

4. Handling Measures within Competence

During the inspection process, the Inspection Team required the Company to urgently take measures to rectify and correct violations and adjust the investment portfolio structure of MBBOND Fund.

5. Recommendations for Handling Measures

5.1. Regarding the Company's violations mentioned in Section 2.4.1 of the Inspection Conclusion (non-compliance with investment ratios), the SSC Inspection Agency recommends that the SSC consider administrative penalties for violations according to legal regulations.

5.2. The SSC Inspection Agency requests the Company to urgently take measures to rectify and correct violations and adjust the investment portfolio structure of MBBOND Fund.

The SSC Inspection Agency requires the Company to implement immediate rectification and corrective measures after the inspection within 30 days from the date of signing the inspection conclusion. The report on results shall be sent to the SSC Inspection Agency within 05 days from the end of the rectification and correction period.