Cathay Securities Investment Trust recalculates net asset value for 8 funds; FSC to investigate internal controls, potential fine up to NT$3 million

Taipei, June 18 (CNA) Cathay Securities Investment Trust's (Cathay SITC) recent announcement of recalculating the net asset value (NAV) for eight of its funds has drawn market attention. The Financial Supervisory Commission (FSC) stated today that Cathay SITC plans to notify affected beneficiaries on June 23. For discretionary managed accounts, compensation for losses has already been reported in the financial statements at NT$454 million. The number of affected individuals and the exact amount for the funds are still being calculated. A maximum fine of NT$3 million may be imposed.

Cathay SITC Director Kuo Ming-chien also serves as an independent director for Winstone-KY. However, funds and discretionary accounts managed by Cathay SITC invested in related stocks. On June 15, Cathay SITC announced that during a routine operational review, it discovered that eight funds, including Cathay Cathay Fund and Cathay SME Growth Fund, did not comply with regulations. Consequently, the NAVs of these funds were recalculated, and beneficiaries will be compensated based on the recalculated NAVs. All associated costs will be borne by Cathay SITC, without affecting fund assets or the rights of other beneficiaries.

Wang Hsiu-ling, Chief Secretary of the FSC's Securities and Futures Bureau, stated that Cathay SITC reported to the Securities and Futures Bureau on January 23 and March 17 of this year. The investment trust's director began serving as an independent director for a listed company on May 29 of last year. Due to internal control oversights, funds managed by the investment trust and discretionary accounts invested in stocks of related companies. Cathay SITC discovered this internally on January of this year and reported it.

Regarding discretionary accounts, Wang Hsiu-ling pointed out that the investment trust and the discretionary account principal enter into a contract. According to regulations, they cannot trade related stocks, and any invested individual stocks must be divested. If losses occur, the investment trust and the discretionary account principal must determine and negotiate according to the contract. Cathay SITC's 2025 financial report, announced in March of this year, also disclosed that the compensation and loss amount recognized for this case is approximately NT$454 million.

As for the funds, Wang Hsiu-ling stated that relevant regulations apply to both actively managed and passively managed funds, including ETFs. After its review, Cathay SITC announced on the 15th that eight actively managed general funds were involved and required NAV recalculation. However, due to differences in investor holding periods, the actual number of affected individuals and the amount are still being compiled. The affected period for the funds exceeds six months in the longest case.

Wang Hsiu-ling said that Cathay SITC has been communicating and explaining to the FSC. The investment trust plans to notify affected investors on June 23, and the FSC will ensure that investors' rights are protected.

Regarding the compensation mechanism of Cathay SITC, Wang Hsiu-ling explained that the company will recalculate the NAV amount as if the investment target did not include the specific stock. If the new NAV is lower, no additional money will be collected from investors. If the new NAV is higher, resulting in losses for investors, the loss amount will be compensated.

When asked why Cathay SITC was unaware that its director's appointment at another company led to a violation, Wang Hsiu-ling said that the company's internal control situation and whether the director and other relevant personnel were negligent need to be clarified. After clarifying the circumstances, appropriate penalties will be imposed. According to the Trust Investment Company Act, if a warning or higher penalty is issued, it will be linked to business operations, with fines ranging from NT$600,000 to NT$3 million.

According to FSC data, this case involves two regulations. First, according to Article 10, Paragraph 1, Subparagraph 5 of the Regulations Governing Securities Investment Trust Funds, investment trust enterprises shall not invest fund assets in stocks issued by companies with which the investment trust enterprise has a conflict of interest. Second, according to Article 14, Paragraph 1, Subparagraph 6 of the Regulations Governing Securities Investment Trust Enterprises and Securities Investment Consulting Enterprises Engaging in Discretionary Investment Business, investment trust enterprises engaging in discretionary investment business shall not invest in stocks issued by companies with which the investment trust has a conflict of interest, unless with the client's written consent or a special provision in the contract. (Editor: Yang Lan-hsuan) 1150618

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