Inspection Conclusion No. 71/KL-TT Regarding Inspection of Phu Hung Securities Joint Stock Company

On August 13, 2024, the Inspection Agency of the State Securities Commission (SSC) issued Inspection Conclusion No. 71/KL-TT regarding the inspection of Phu Hung Securities Joint Stock Company. The full text of the Inspection Conclusion is as follows:

1. General Overview Phu Hung Securities Joint Stock Company, formerly known as Au Lac Securities Joint Stock Company, was established and operates under Business Registration Certificate No. 4103005552 issued by the Department of Planning and Investment of Ho Chi Minh City on November 15, 2006. The most recent adjustment permit, Securities Company Establishment and Operation Permit No. 48/GPĐC-UBCK, was issued on June 24, 2021, by the Chairman of the SSC. The company's issued securities are registered for trading on the Ho Chi Minh City Stock Exchange (stock code: PHS). Headquarters Address: 21st Floor, Phu My Hung Tower, 08 Hoang Van Thai, Tan Phu Ward, District 7, Ho Chi Minh City, Vietnam. The company's charter capital at the time of inspection was 1,500,098,190,000 VND (according to the Q1/2024 Financial Statements). At the time of inspection, the company's licensed business operations included: Securities brokerage; Securities proprietary trading; Securities underwriting; Securities investment advisory. Operational network: The company has its headquarters and 03 branches (02 branches operating in Hanoi City and 01 branch operating in Hai Phong City), and 01 trading office operating in Ho Chi Minh City. Shareholder structure and major shareholders: According to the shareholder list certified by the Vietnam Securities Depository (VSDC) for the organization of the 2024 Annual General Meeting of Shareholders (AGM), as of March 20, 2024, the company had 381 shareholders holding 150,009,819 shares, including 03 major shareholders: Phu Hung Far East Holding Corporation, holding 69,004,600 shares (equivalent to 46%); An Thịnh Development Limited, holding 17,447,400 shares (equivalent to 11.63%); New Beam International INC, holding 26,176,745 shares (equivalent to 17.45%).

• Business results: According to the audited 2022 and 2023 Financial Statements and the self-prepared Q1/2024 Financial Statements, the company's net profit for 2022, 2023, and Q1 2024 was 59,979,201,559 VND, 44,550,793,002 VND, and 12,629,614,329 VND, respectively.

2. Inspection and Verification Results 2.1. Maintenance of Licensing Conditions The company meets the requirements for maintaining licensing conditions regarding infrastructure, minimum charter capital, and personnel as stipulated in Clauses 4 and 5 of Article 74, point a, Clause 1 of Article 85 of the Securities Law, Article 175 of Government Decree No. 155/2020/ND-CP dated December 31, 2020, detailing the implementation of certain articles of the Securities Law (Decree No. 155/2020/ND-CP), point d, Clause 2 of Article 190, and Clause 2 of Article 191 of Decree No. 155/2020/ND-CP. 2.2. Proprietary Trading Activities 2.2.1. Proprietary Trading Procedures The company issued procedures related to proprietary securities trading operations, attached to Decision No. 01/220/QĐ-TGĐ dated December 31, 2020, by the General Director. 2.2.2. Proprietary Trading Operations The company's proprietary trading activities include: proprietary trading of underlying securities (including listed stocks, stocks registered for trading on UPCOM, and unlisted stocks), listed bonds, and fund certificates. a) Proprietary trading of underlying securities:

• For listed stocks: Proprietary trading of listed stocks is conducted through proprietary trading account No. 022P002222. The inspection team selected a sample of some investments in listed stocks, and the company basically followed its proprietary trading procedures.
• For unlisted stocks: The inspection team selected a sample of some investments in unlisted stocks, and the company basically followed its proprietary trading procedures. b) Regarding bond proprietary trading The inspection team selected a sample of some investments in listed bonds, and the company basically followed its proprietary trading procedures. c) Purchase and sale of fund certificates During the inspection period, the company basically invested in open-end fund certificates in accordance with its proprietary trading procedures. Sampling results indicate that at the time of inspection, the company's proprietary trading positions complied with investment ratio regulations stipulated in Article 28 of Circular No. 121/2020/TT-BTC dated December 31, 2020, by the Minister of the Ministry of Finance on the operations of securities companies (Circular No. 121/2020/TT-BTC). 2.3. Brokerage Activities 2.3.1. Brokerage Procedures The company has issued procedures related to securities brokerage activities. 2.3.2. Implementation Status The inspection team conducted sampling checks on 20 regular trading accounts, revealing:
• Regarding account opening contracts: The company's account opening contracts signed with customers included the contents stipulated in Clause 1 of Article 15 of Circular No. 121/2020/TT-BTC. The company assigned some staff members without valid securities practice certificates to work in operational departments that require securities practice certificates (performing procedures for opening securities trading accounts for customers and receiving customers' trading orders), violating Clause 2 of Article 89 of the Securities Law, and points a and c, Clause 1 of Article 13 of Circular No. 121/2020/TT-BTC.
• Regarding receiving, executing, and retaining order evidence: Sampling checks on some order placement times for certain accounts showed that at the time of order placement (day T0), customers had sufficient funds in their securities trading accounts, and the company retained customers' order evidence. 2.4. Management of Customers' Securities Trading Deposits 2.4.1. For cases where customers open accounts directly at commercial banks selected by the securities company to manage securities trading funds The company signed the BIDV@Securities Service Agreement No. 01/2020/HĐDV/BIDV.NKKN-PHS dated December 22, 2020, with the Bank for Investment and Development of Vietnam – Nam Ky Khoi Nghia Branch regarding the management of investor deposit accounts for securities trading transactions in cases where customers open accounts directly at the bank. According to the company's report, as of May 24, 2024, there were 3,160 customers who opened direct trading accounts at commercial banks, including 44 domestic customers and 3,116 foreign customers. 2.4.2. For cases of managing customers' securities trading funds through specialized accounts opened by the securities company at commercial banks The company opened 13 specialized accounts at 07 commercial banks to manage investors' securities trading deposits. Of the 13 accounts, 10 are for domestic customers, 01 is for foreign customers, 01 is for individual bonds, and 01 is for derivative securities. For each bank, the company signed contracts for opening and managing specialized securities trading deposit accounts. 2.5. Underwriting Activities The company issued procedures for underwriting advisory services according to Decision No. 29/2024/QĐ-TGĐ dated May 23, 2024, by the General Director. During the inspection period, the company did not generate any underwriting activities. 2.6. Securities Investment Advisory Activities The company issued securities investment advisory procedures according to Decision No. 09/2021/QĐ-TGĐ dated February 5, 2021, by the General Director. During the inspection period, the company did not generate any securities investment advisory activities. 2.7. Financial Advisory Services The company issued procedures for signing advisory contracts according to Decision No. 33/2023/QTr-TV dated August 15, 2023, by the General Director. The inspection team checked some advisory contracts signed with customers and found that the company's advisory activities were basically carried out in accordance with the content of the signed contracts. 2.8. Services Related to Private Corporate Bond Offerings During the inspection period, the company did not generate any private corporate bond issuance advisory activities. 2.9. Entrusted Management of Securities Trading Accounts During the inspection period, the company did not provide services for receiving entrusted management of securities trading accounts. 2.10. Securities Sale Advance Payment Services The company was approved by the SSC to provide securities sale advance payment services according to Decision No. 205/QĐ-UBCK dated April 14, 2022. The company issued procedures for securities sale advance payments according to Decision No. 11/2023/QĐ-TGĐ by the General Director. According to the audited 2022 Financial Statements, reviewed H1 2023, audited 2023 Financial Statements, and Q1/2024 Financial Statements, the company's securities sale advance payment balance at December 31, 2022, June 30, 2023, December 31, 2023, and May 24, 2024, was 29,877,694,865 VND, 40,225,769,853 VND, 61,875,307,875 VND, and 185,671,211,972 VND, respectively. 2.11. Margin Trading Activities 2.11.1. Procedure Issuance The company issued Margin Trading Procedures according to Decision No. 14/2023/QĐ-TGĐ dated April 20, 2023, by the General Director. 2.11.2. Implementation Status The inspection team conducted sampling checks on 23 margin trading accounts as follows: a) Regarding opening margin trading accounts: The company signed margin trading account opening contracts with customers in accordance with regulations. b) Regarding margin trading restrictions A review of the margin trading account list as of May 24, 2024, and the list of accounts belonging to major shareholders, internal shareholders, and related parties of the company showed that the company did not open margin trading accounts for these subjects or for foreign investor customers. The company did not include its own stock (stock code: PHS) in the list of securities permitted for margin trading. c) Regarding placing buy/sell orders for margin trading securities The company has a separate order form for margin trading orders. For online trading orders, customers must select the margin trading account at the time of order placement. For orders placed via the call center, customers must confirm that the order is placed on the margin trading account. d) Regarding the list of securities permitted for margin trading Each month, the company prepares and notifies customers of the list of securities permitted for margin trading. The company has published the updated list of permitted margin trading securities on its website. Sampling checks of the company's permitted margin trading securities portfolio for June 2022, December 2023, and May 2024 showed that the published list of permitted margin trading securities complied with the lists published by the two stock exchanges. A review of order book statements placed on margin trading accounts and cash transaction statements of margin accounts showed that at certain times, the company disbursed funds for customers to purchase margin trading securities for some stock codes not included in the permitted margin trading securities list (specifically: disbursed margin loans for stock codes FRT, HBC, VNE, HAG), violating Clause 4 of Article 9 of Circular No. 120/2020/TT-BTC dated December 31, 2020, by the Minister of the Ministry of Finance on trading listed stocks, registered trading stocks, fund certificates, corporate bonds, and listed covered warrants on the securities trading system. e) Regarding margin lending limits
• Checking the company's total margin trading balance as of December 31, 2022, June 30, 2023, December 31, 2023, March 31, 2023, and May 24, 2024, showed that the company's total margin lending balance did not exceed 200% of the company's equity.
• Checking the margin trading balance of margin trading accounts as of December 31, 2022, June 30, 2023, December 31, 2023, March 31, 2023, and May 24, 2024, showed that the company's total margin lending to a single customer did not exceed 3% of the company's equity.
• Sampling checks on certain stock codes at certain times (December 31, 2022, June 30, 2023, December 31, 2023) with the largest margin lending disbursements showed: The total lending balance for a single security type did not exceed 10% of equity, and the total margin trading securities for a single security type did not exceed 5% of the listed volume. f) Regarding margin trading ratios Sampling checks showed that the company's margin lending disbursements did not exceed the purchasing power in customers' margin trading accounts, and no loan had a margin ratio lower than the 30% maintenance margin ratio. 2.12. Securities Offerings/Additional Issuances During the inspection period, the company had 01 stock issuance to pay dividends and increase charter capital from 1,400,000,000,000 VND to 1,500,098,190,000 VND in accordance with Article 187 of Decree No. 155/2020/ND-CP. 2.13. Activities of the Supervisory Board, Internal Audit, Internal Control, and Risk Management 2.13.1. Supervisory Board and Internal Audit Activities a) Supervisory Board AGM Resolution No. 01/2021/NQ-ĐHĐCĐ dated April 13, 2021, approved amendments to the Organization and Operation Regulations of the Supervisory Board. The Supervisory Board for the 2022-2025 term was approved at AGM Resolution No. 01/2022/NQ-ĐHĐCĐ dated March 31, 2022. The company appointed Mr. Liew Sep Siang as Chairman of the Supervisory Board. Twice a year, the Supervisory Board holds meetings and issues meeting minutes. During the inspection period, the company had compliance assessment reports from the Supervisory Board, including: Internal Audit Report on Anti-Money Laundering Work of PHS (2022, 2023); Report on Margin Lending Activity Review (2022, 2023, March 31, 2024, May 24, 2024); Interim Financial Statements for the six-month accounting period (June 30, 2022, December 31, 2022, June 30, 2023, December 31, 2023, March 31, 2024); Financial Safety Ratio Report (June 30, 2022, December 31, 2022, June 30, 2023, December 31, 2023, March 31, 2024); Company Operation Report, Summary Report (2022, 2023). b) Internal Audit The Internal Audit Department was established according to Decision No. 01.03-2016/QĐ-TGĐ dated January 20, 2016, by the General Director. The company issued procedures related to internal audit activities. Ms. Bach Thi Phuong Thao was appointed as Head of Internal Audit. The company has compliance assessment reports from Internal Audit (Internal Audit Activity Reports for 2022, 2023, Q1/2024). 2.13.2. Internal Control Activities The Internal Control Department was established according to Decision No. 01.1-2016/QĐ-TGĐ dated January 20, 2016, by the General Director. The company issued procedures related to internal control activities. The company appointed Mr. Nguyen Hoang Thanh Sang as Director of Internal Control. The company has a Report on the Assessment of the Internal Control System for 2022, 2023, reviewing the internal control system; checking and monitoring compliance with legal regulations and the company charter; monitoring implementation of the Professional Code of Ethics. 2.13.3. Risk Management Activities The Risk Management Department was established according to Decision No. 01.2-2017/QĐ-TGĐ dated January 20, 2016, by the General Director. The company issued procedures related to risk management activities. The company appointed Ms. Nguyen Thi Thu Anh as Deputy Head of Risk Management. The company has semi-annual Risk Management Reports for 2022, 2023, and early 2024. 2.14. Corporate Governance
• AGM Resolution No. 01/2024/NQ-ĐHĐCĐ dated April 17, 2024, approved amendments to the company charter; amendments to the corporate governance regulations. Basically, the company charter complies with the Enterprise Law and Circular No. 121/2020/TT-BTC; the corporate governance regulations contain content consistent with the company charter.
• At the time of inspection, the company's Board of Directors consisted of 05 members. The number of members complies with the company charter and Clause 1 of Article 154 of the Enterprise Law.
• During the inspection period, the company's Board of Directors held 29 meetings. Basically, the Board of Directors conducted meetings in accordance with the procedures stipulated in the company charter.
• During the inspection period, the company held the 2022, 2023, and 2024 Annual General Meetings of Shareholders, and the mailing of meeting invitations ensured compliance with the timeframes stipulated in Clause 1 of Article 143 of the Enterprise Law. 2.15. Anti-Money Laundering Activities
• The company issued procedures for anti-money laundering activities.
• The company established the company's Anti-Money Laundering Council, with Mr. Chen Chia Ken – General Director as Chairman of the Anti-Money Laundering Council.
• The company issued Official Letter No. 83/2022/PHS-KT dated March 30, 2022, to the Anti-Money Laundering Department, registering Ms. Pham Thi Thu Nhan (Deputy General Director) as the person responsible for anti-money laundering at the company.
• The company has submitted anti-money laundering reports to the State Bank of Vietnam. 2.16. Compliance with Reporting and Information Disclosure Requirements 2.16.1. Regarding procedures and organization of reporting and information disclosure
• The company issued the Information Disclosure Regulations according to Decision No. 10/2021/QĐ-TGĐ by the General Director. On May 30, 2024, the Board of Directors issued Decision No. 03/2024/QĐ-HĐQT promulgating the Information Disclosure Regulations according to Circular No. 96/2020/TT-BTC dated November 16, 2020, by the Minister of the Ministry of Finance guiding information disclosure on the securities market.
• The company established a website (http://phs.vn) to implement information disclosure. The company website has a dedicated section for shareholder relations.
• The company registered Mr. Chen Chia Ken – General Director, legal representative, as the person responsible for information disclosure.
• The company registered to perform reporting and information disclosure on the SSC's Securities Company Management System (SCMS) and the Hanoi Stock Exchange's CIMS system. 2.16.2. Regarding reporting and information disclosure obligations Basically, during the inspection period, the company fulfilled its obligations to report and disclose periodic and abnormal information in accordance with regulations. 2.17. Financial Safety Indicators 2.17.1. Financial Safety Management Indicators Based on the audited 2022 and 2023 Financial Statements and Q1 2024 Financial Statements of the company, the financial safety management indicators are as follows:
• The company's Total Debt to Equity Ratio at December 31, 2022, December 31, 2023, and March 31, 2024, was 1.3 times, 1.5 times, and 1.36 times, respectively, meeting the ratio stipulated in Clause 1 of Article 26 of Circular No. 121/2020/TT-BTC.
• The company's Short-term Debt to Short-term Assets Ratio at December 31, 2022, December 31, 2023, and March 31, 2024, was 0.57 times, 0.61 times, and 0.59 times, respectively, meeting the ratio stipulated in Clause 2 of Article 26 of Circular No. 121/2020/TT-BTC. 2.17.2. Financial Safety Ratio
• The company prepared and submitted periodic reports to the SSC on the financial safety ratio in accordance with Circular No. 91/2020/TT-BTC dated November 13, 2020, by the Minister of the Ministry of Finance on financial safety indicators and handling measures for securities business organizations that do not meet financial safety indicators.
• According to the company's report, the company's available capital ratio at June 30, 2022, December 31, 2023, and March 31, 2024, was 542%, 518%, and 535%, respectively.

3. Conclusion During the inspection period, the company basically complied with securities laws regarding the inspected content. However, the company had certain violations and shortcomings as stated in Section 2 of the Inspection Conclusion.
4. Sanctions Applied Within Competence During the inspection process, the inspection team required the company to review, rectify, and remediate violations and shortcomings.
5. Recommended Sanctions 5.1. The administrative violations of the company stated in Section 2 of the Inspection Conclusion will be subject to administrative penalties in accordance with the law. 5.2. The SSC Inspection Agency requests the company to promptly implement measures to rectify and remediate the shortcomings identified after the inspection, specifically as follows:

• Ensure that staff working in operational departments hold valid securities practice certificates appropriate for the tasks performed; do not assign personnel without valid securities practice certificates to perform tasks or hold positions that legally require securities practice certificates.
• Strictly comply with margin trading regulations; do not disburse loans for stock codes not included in the list of securities permitted for margin trading. The SSC Inspection Agency requires the company to immediately implement the post-inspection rectification and remediation measures within 30 days from the date of signing the inspection conclusion. The results report must be submitted to the SSC Inspection Agency within 05 days from the expiration of the rectification and remediation period./.