Hong Kong’s Securities and Futures Commission (SFC) requires individuals and entities involved in ten “regulated activities” to be license by or registered with the SFC. As the gatekeeper of standards for individuals and corporations seeking to enter the securities and futures markets of Hong Kong, the SFC is enshrined with the role of granting licenses to those who are appropriately qualified and can demonstrate their fitness and properness to be licensed under the Securities and Futures Ordinance (SFO) and maintain a public register of licensed persons and registered institutions. The SFC also participates in monitoring the on-going compliance of licensing requirements by licensees, substantial shareholders of licensed corporations, directors of licensed corporations and substantial shareholders. The SFC also initiates policies on licensing issues.
The SFO prohibits any person from carrying on a business (or holding himself out as carrying on a business) in a regulated activity unless an appropriate authorisation has been granted or an exemption or exclusion applies.
The following are the current types of regulated activities supervised by the SFC:
- Type 1: dealing in securities
- Type 2: dealing in future contracts
- Type 3: leveraged foreign exchange trading
- Type 4: advising on securities
- Type 5: advising on futures contracts
- Type 6: advising on corporate finance
- Type 7: providing automated trading services
- Type 8: securities margin financing
- Type 9: asset management
- Type 10: providing credit rating services
In order to retain flexibility to accommodate new products and services, section 142 of the SFO entitles the Financial Secretary to amend the list of regulated activities and their definitions set out in Schedule 5 of the SFO. In recent years, the SFC has been working on the establishment of a regulatory regime to govern Hong Kong’s over-the-counter derivatives market, and it is considered that this will lead to the introduction of two new regulated activities which would require licensing with the SFC, namely:
- Type 11: dealing or advising in OTC derivative products
- Type 12: providing clearing agency services for OTC derivatives transactions
Any corporation carrying on one or more regulated activities must apply to the SFC for a licence. Only companies incorporated in Hong Kong or an overseas company registered with the Companies Registry of Hong Kong can be licensed to carry on a regulated activity.
Any individual who carries on one or more regulated activities on behalf of a licensed corporation is required to apply for approval as a ‘licensed representative’ accredited to that corporation. A licensed representative may be accredited to more than one licensed corporation.
If a licensed representative ceases to act for on behalf of the licensed corporation to which he is accredited, he has a period of 180 days to apply for the transfer of his accreditation to a new licensed corporation. If he does not apply for transfer of his accreditation within the 180 day period, his licence will be deemed to have been revoked on his ceasing to act for the licensed corporation.
If a licensed representative ceases to act for his principal, the principal must notify the SFC within 7 days and the representative must return his licence to the SFC within the same period. Failure to comply by the principal, or failure to comply without reasonable excuse by the representative, is an offence liable on conviction to a fine.
We have helped many clients obtain their licence or registration and advise on licensing requirements and available exemptions and on-going obligations of licensed or registered entities. A licensing application to the SFC would typically involve the submission of completed prescribed forms together with supporting documents (including, inter alia, business plan, compliance manual, template client agreement, organisation charts, workflow diagrams, resume and licensing record of proposed responsible officers etc.) and the payment of prescribed licensing application fee. Submissions would also need to be made in respect of the fit and properness of each proposed responsible officer and substantial shareholder of the corporation proposed to be licensed.