- AE: associated entity
- AGM: annual general meeting
- Board: board of directors of the Company
- Company: licensed corporation
- Companies Ordinance: Companies Ordinance (Cap. 32 of the Laws of Hong Kong)
- Compliance Officer: compliance officer of the Company, appointed by the Board from time to time
- CPT: continuous professional training
- Executive Director: executive director of the Company
- Financial Director: financial director of the Company, appointed by the Board from time to time
- FR: financial resources
- FRR: Securities and Futures (Financial Resources) Rules (Cap. 571N of the Laws of Hong Kong)
- IRD: Inland Revenue Department
- LR: licensed representative(s)
- RO: responsible officer as approved by the SFC pursuant to section 126 of the SFO
- SFO: Securities and Futures Ordinance (Cap.571 of the Laws of Hong Kong)
- SFC: Securities and Futures Commission of Hong Kong
- SS: substantial shareholder of the Company
We set out below the specific on-going compliance obligations of the Company.
Compliance regarding matters the Company is required to notify the SFC
Section 135 of the SFO and parts 1 to 3 of Schedule 3 to the Securities and Future (Licensing and Registration) (Information) Rules (“Information Rules”) set out the events for which notifications to the SFC is required.
Changes requiring notification to the SFC and which are applicable to the Company are set out in Part A of Schedule 1 of this note. These relevant to changes of information and particulars of directors, LRs, ROs, SSs and the Company, where applicable.
The following table summarizes the relevant forms to be lodged with the SFC and relevant notification time limits on common events that require notification to the SFC:
|Type of change/ events||Notification time limit||Form required|
|Cessation of business||At least 7 days in advance for intended cessation of business||Form 5|
|Cessation to act as licensed representative||Within 7 business days||Form 5|
|Change in name||Within 7 business days||Form 5|
|Change in business address||At least 7 business days in advance for intended change in business address||Form 5|
|Change in director or his particulars||Within 7 business days||Form 5|
|Change in compliant officer or his particulars||Within 7 business days||Form 5|
|Change in emergency contact person or his particulars||Within 7 business days||Form 5|
|Change in share capital or shareholding structure||Within 7 business days||Form 5|
|Change in contact information||Within 7 business days||Form 5|
|Change in bank accounts||Within 7 business days||Form 5|
|Give notice of motion to change auditor in general meeting, etc. (see section 154 of SFO)||Within 1 business day||Form 5|
|Change in associated entity or its particulars||Within 7 business days||Form 5|
Certain other changes require the prior approval of the SFC. If the Company intends to make any such change, it or the person concerned (e.g. a proposed substantial shareholder of the Company) must lodge the required application form and fee with the SFC. Part B of Schedule 1 of this note sets out matters relevant to the Company which require the prior approval of the SFC.
The following table summarizes the relevant forms to be lodged with the SFC for matters that require prior approval from the SFC:
|Type of change/ events||Form required|
|Addition of regulated activity||Form 4|
|Reduction of regulated activity||Form 4|
|Modification or waiver of licensing or registration condition||Form 4|
|Change of financial year end||Form 4|
|Adoption of period exceeding 12 months as financial year||Form 4|
|Extension of deadline for submission of audited accounts||Form 4|
|New premises to be used for keeping records or documents||Form 4|
|Becoming a substantial shareholder of licensed corporation||Form 4|
|Transfer or addition of accreditation||Form 4|
Further to the above, certain events will also require notification to the SFC. These relevant to certain breaches, infringements and non-compliance of laws, rules, regulations and codes and are set out in more detail in Part C of Schedule 1 of this note.
Compliance regarding Continuous Professional Training(“CPT”)
Obligations on the Company
The Company is primarily responsible for designing and implementing a continuous program best suited to the training needs of LRs of the Company. Such programs should be able to enhance the LRs’ industry knowledge, skills and professionalism and to enable them to perform their duties competently and professionally.
Sufficient records on the programs and the CPT activities undertaken by the LRs should be kept for a minimum of 3 years and be made available for inspection upon request by the SFC.
Obligations on the individual LRs
For LRs to remain fit and proper at all times, one of the assessment criterion is that they remain continuously competent to perform the regulated activities and this is achieved by undertaking training that enhances his technical skills, professional expertise, ethical standards and regulatory knowledge.
Each LR must undertake a minimum of 5 CPT hours per calendar year for each regulated he engages in.
LRs are also required to retain appropriate records of all CPT activities completed in a calendar year. Documentary evidence sufficient to support their attendance or completion of CPT activities issued by course providers and examination results should be kept for a minimum of 3 years.
The SFC may impose higher CPT hour requirements under certain circumstances.
A list of approved CPT providers is set out in Part A of Schedule 4 and topics relevant for CPT purposes is set out in Part B of Schedule 4.
Compliance regarding financial resources
Pursuant to the FRR, the Company is required to maintain prescribed minimum paid-up share capital and minimum liquid capital at all times during which it is licensed. With a condition on its license that no client assets will be held, the Company may not be subject to any minimum paid-up share capital requirement despite the fact it is licensed to carry out regulated activities.
Under the FRR, “liquid capital” is the amount by which a licensed corporation’s liquid assets (including cash in hand and monies in an authorised institution beneficially owned by it) exceed its ranking liabilities.
For the purpose of the FRR, ranking liabilities include all of the Company’s liabilities including:
- any amount payable by it in relation to any overdraft obtained by it;
- any amount payable by it in relation to any loan obtained by it;
- any accrued interest payable by it to any other person;
- any accrued expenses incurred by it;
- any tax payable by it, less any tax prepared by it, to the extent that the tax payable and the tax prepaid are of the same description and levied by the same taxation authority;
- any provision made by it for contingent liabilities; and
- any provision made by it for floating losses in respect of open positions held for its own account; and any other liabilities provided for in accordance with generally acceptable accounting principles,
but excluding the following:
- any approved subordinated loan; and
- any liability that it is not required to be settled within the next 12 months and is secured by a first legal charge on immovable property beneficially owned by it and used in carrying on the regulated activity for which it is licensed, to the extent that the net realizable value of that property equals such liability (“exempted liability”) (s53(2) of the FRR).
The Company must understand the above concept very clearly. In particular, the Company should be aware that any shareholders’ loans made to the Company would need to be either (i) capitalised into share capital (with an amounts exceeding the nominal amount being the premium on share allotment; (ii) validly released or discharged; or (iii) be approved as an approved subordinated loan.
Please refer to Schedule 5 for further information in connection with approved subordinated loans.
Submission of financial resources returns
As long as the Company is subject to the condition that it does not hold client assets, it will only be required to submit semi-annual financial resources returns to the SFC (c.f. monthly returns). Such returns shall include:
- the Company’s liquid capital computation, as at the end of the 6 month period;
- the Company’s required liquid capital computation, as at the end of the 6 month period;
- an analysis of the Company’s profit and loss account;
- an analysis of the Company’s clientele, as at the end of the 6 month period; and
- an analysis of the assets under the Company’s management (in respect of Type 9 regulated activities), as at the end of the 6 month period.
The submission of the semi-annual financial resources returns shall be made by an online communication system, i.e. e-FRR System of the SFC through https://efrr.sfc.hk.