Organizations providing transfer agent services in accordance with legal regulations

A transfer agent is one of the services provided in stock and securities activities and is governed by current securities regulations. Through the following article, NPLaw would like to present readers with certain essential legal issues relating to transfer agents.

I. Demand for establishing transfer agents

At present, the stock market in general, as well as bonds and fund certificates in particular, is experiencing strong growth. Along with the expanding needs of enterprises, the management and reporting relating to bonds, shares, and fund certificates has also increased significantly.

It further confirms the substantial demand for establishing transfer agents within the current Vietnamese economy.

II. Legal regulations on transfer agents

1. What is a transfer agent?

Pursuant to point đ, clause 2, Article 32 of Decree No. 95/2018/ND-CP, a transfer agent is defined as an organization selected to maintain reports on bondholders, cancel and issue certificates, and handle issues arising in connection with certificates that are lost, damaged, or stolen.

2. What activities are included in transfer agent services?

According to clause 21, Article 2 of Circular No. 98/2020/TT-BTC, transfer agent services include the following activities:

• Establishing and managing the principal register; opening, monitoring, and managing systems of individual accounts and nominee accounts; confirming ownership of open-ended fund certificates;
• Recording portfolio swap orders, purchase orders, sale orders, and conversion orders of investors and fund founding members; transferring ownership of fund certificates; and updating the principal register;
• Assisting investors and fund founding members in exercising rights related to the ownership of fund certificates;
• Organizing meetings of the Fund Representative Board and Investors’ General Meetings; maintaining communication with investors, distribution agents, state management authorities, and other competent organizations;
• Providing investors with financial statements, fund operation reports, prospectuses, summary prospectuses, transaction account statements, transaction confirmations, and other relevant documents.

3. Are organizations providing transfer agent services required to have ownership information of each investor?

Regarding whether organizations providing transfer agent services are required to maintain ownership information of each investor, clause 3, Article 15 of Circular No. 98/2020/TT-BTC stipulates as follows:

• Fund management companies and organizations providing transfer agent services must always maintain complete information on the ownership of each investor, including investors trading through nominee accounts. Information on investors’ assets recorded in the principal register, including those trading through nominee accounts, constitutes evidence confirming investors’ ownership of fund certificates. Investors’ ownership rights are established from the time the ownership information is updated in the principal register.

Accordingly, organizations providing transfer agent services are mandatorily required to always maintain complete ownership information of each investor.

III. Certain questions regarding transfer agents

1. What tasks are included in the transfer agent services provided by the Vietnam Securities Depository and Clearing Corporation to open-ended funds?

Article 3 of Decision No. 76/QD-VSD of 2023 provides that the transfer agent services supplied by the Vietnam Securities Depository and Clearing Corporation to open-ended funds include the following tasks:

• Recording the opening and closing of trading accounts for open-ended fund certificates for investors; monitoring and managing the system of investors’ trading accounts, including direct accounts and nominee accounts;
• Recording, reviewing, and processing registrations for initial issuance subscriptions, purchase orders (including regular purchase orders and periodic investment orders), sale orders, and conversion orders of investors when trading fund certificates; establishing order books to fully store information on investors’ fund certificate transactions;
• Receiving information on the maximum payable amount from the fund management company as a basis for calculating transaction results; determining the number of fund certificates investors are entitled to receive in cases of purchase or conversion orders, or the amount payable to investors in cases of sale orders;
• Establishing and managing the principal register of investors and recording information on fund certificate holders;
• Updating and confirming investors’ ownership information on their trading accounts and in the principal register as a result of purchase, sale, or conversion orders, distribution of income in the form of fund certificates, or transfer of ownership due to inheritance, donation, etc.;
• Providing information on account balances and periodic transaction statistics on a monthly, quarterly, and annual basis to the fund management company for provision to investors, and providing account balance information to investors upon request via distribution agents;
• Organizing the exercise of rights for fund certificate holders, including preparing lists of eligible holders, calculating, and allocating rights to investors according to ratios announced by the fund management company;
• Implementing voluntary freezing and unfreezing of fund certificates at the request of investors via distribution agents;
• Providing electronic voting (E-Voting) services;
• Other related tasks as agreed upon with the fund management company.

2. Conditions to qualify as the transfer agent

Some basic conditions that the transfer agent must satisfy include:

• Business license: Possessing a business license issued by a competent authority;
• Having a team of personnel with sufficient capacity, meeting professional and ethical requirements;
• Fully complying with relevant legal regulations governing business activities, particularly regulations on the protection of clients’ rights and interests. 

3. Is the transfer agent subject to sanctions if it operates without a license?

Administrative sanctions for providing securities services (including transfer agent services) without an operating license are stipulated at point a, clause 5, Article 24 of Decree No. 156/2020/ND-CP as follows:

• A fine ranging from 200,000,000 VND to 300,000,000 VND shall be imposed for conducting securities business operations without being granted a license by the State Securities Commission.

Accordingly, the transfer agent operating without a license may be subject to administrative sanctions in the form of a fine ranging from 200,000,000 VND to 300,000,000 VND. 

IV. Legal consulting services regarding transfer agents

Understanding clients’ needs to learn about regulations related to transfer agents, Ngoc Phu Law Company Limited provides support and legal consultation on transfer agent-related matters. Readers may contact NPLaw to receive prompt and dedicated advice from its team of experienced lawyers specializing in legal consultancy and procedures, via the following contact details: