Taiwan’s financial regulator may ban Fuh Hwa Securities Investment Trust Co from participating in the investment mandates of the Bureau of Labor Funds (BLF) over bribery allegations involving a senior official at the pension supervisor, according to some market participants.
The scandal erupted in late November when Yu Nai-wen, the BLF’s domestic investment division director, was detained by Taiwan’s anti-corruption unit on suspicion of stock manipulation.
Mr. Yu allegedly received bribes from Taiwanese investment firm PJ Asset Management to buy local stocks at prices higher than market value using BLF money. Fuh Wah, one of the BLF’s external domestic managers, was allegedly involved in the trading, according to local news reports.
The Financial Supervisory Commission (FSC) has launched a probe into the matter, a spokesperson for the regulator tells Asia Asset Management (AAM). He says Mr. Yu is still under detention and declined to give further details.
A BLF spokesperson tells AAM that Mr. Yu has been suspended from his job. She says the BLF is providing “full support to FSC’s investigation”.
Spokespersons for Fuh Wah and PJ Asset Management did not immediately respond to questions.
According to Donna Chen, president of Taipei-based investment consultancy Keystone Intelligence, the scandal may have a significant impact on Fuh Hwa.
She says the company obtained 17 investment mandates from BLF over the years, the most among all of the pension supervisor’s external managers, and that these mandates had a combined value of NT$174.4 billion (US$6.27 billion) as of September 2020.
“If the FSC finds evidence of any wrongdoing, it may prohibit Fuh Hwa from bidding on BLF’s new mandates over the coming five years,” Ms. Chen tells AAM.
She says the regulator may even bar the company from launching new funds and expanding its institutional business.
According to Ms. Chen, Uni-President Securities Investment Trust and Capital Securities Investment Trust – are also under investigation over the scandal.
She says these companies, which were not named in the news reports, could face similar punishment as Fuh Wah Securities if the FSC finds evidence of wrongdoing.
Spokespersons for Uni-President did not immediately respond to questions from AAM.
A spokesperson for Capital would only say that the company “will cooperate with any regulatory investigation”.
The crux of the issue lies in BLF’s lack of internal investment expertise, according to a pension fund consultant.
“Members of BLF’s in-house investment team are civil servants. They do not have enough training in investment ethics. It’s easy for them to cross the line, particularly in some grey areas of the investment processes,” the Hong Kong-based consultant tells AAM, speaking on condition of anonymity.
The BLF spokesperson says the pension supervisor is overhauling its management practices. She says it introduced new measures on December 17 to shore up internal controls, including stronger monitoring of investment practices and risk management of its funds.
The BLF, which supervises seven labour pension and annuity funds, had NT$4.5 trillion of total assets as of November 2020.