The Securities and Futures Commission (SFC) is responsible for administering the Securities and Futures Ordinance (SFO), which governs the securities and futures market in Hong Kong.
Under the SFO, the following 10 activities constitute regulated activities which require licensing unless specifically exempted:
- Type 1: Dealing in securities
- Type 2: Dealing in futures 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
Examples of the above regulated activities can be found on the SFC's website.
Any individual or firm who carries on, or holds himself or itself as carrying on, a business in or from Hong Kong in any of the above regulated activities shall be appropriately licensed with the SFC, notwithstanding that the activity itself is being carried on from a place outside of and to the public in Hong Kong.
Any applicant firm which proposes to carry on one or more regulated activities must either be incorporated in Hong Kong or be registered as a non-Hong Kong company with the Hong Kong Companies Registry for its application to become a licensed corporation with the SFC.
Individuals who carry on one or more regulated activities shall have been granted a license by the SFC as a licensed representative and be accredited with a licensed corporation. For each regulated activity, at least two responsible officers approved by the SFC must be appointed to directly supervise the conduct of each regulated activity. Of these responsible officers, at least one must be an executive director of the licensed corporation and shall be available at all times to supervise each regulated activity (such requirements need not be fulfilled by the same individual). There are no strict residency requirements for responsible officers, but given that at least one must be able to supervise a regulated activity at all times, the SFC will expect both responsible officers to be resident in Hong Kong.
In reviewing an individual’s application for a SFC license, the SFC will consider whether such individual meets its fit and proper requirement and its competence requirement. Firm applicants will, in addition to satisfying those requirements applicable to individuals, also need to satisfy capital requirement.
Fit and proper requirement
Both individual and firm applicants will have to satisfy and prove to the SFC that they are fit and proper to be licensed for the regulated activity they intend to carry on. In assessing whether an individual or firm applicant is fit and proper, the SFC will consider the following criteria:
- Financial status or solvency;
- Educational or other qualifications or experience having regard to the nature of the functions to be performed;
- Ability to carry on the regulated activity concerned competently, honestly and fairly; and
- Reputation, character, reliability and financial integrity
For individual applicants, the above matters will be considered in respect of the person. For firm applicants, the above matters will be considered in respect of the firm, its substantial shareholders and its officers.
In determining whether a firm applicant is competent to carry on any regulated activity, the SFC will consider the firm’s organizational structure and combined competence of its personnel. To this end, a firm applicant shall satisfy and prove to the SFC that it has a proper business structure, good internal systems and qualified personnel to manage the risks associated with the carrying on of its business.
For individual applicants, the SFC will expect such individual to have a basic understanding of the market in which he or she works, as well as of its applicable laws and regulatory requirements. In general, such individual will need to satisfy the SFC that he or she meets the following criteria:
- Has passed one of the recognized industry qualifications;
- Possesses three years of relevant industry experience within the six years immediately prior to the date of application;
- Possesses a minimum of two years proven management skill and experience; and
- Has passed one of the recognized local regulatory framework papers.
It should be noted that the above-mentioned recognized industry qualification and local regulatory framework papers should be relevant to the regulated activities to be performed by the individual and shall be obtained not more than three years prior to the date of application.
Exemptions to the above-mentioned criteria may be granted by the SFC on a case-by-case basis and shall depend on a number of factors, including the applicant’s history of industry qualifications from another jurisdiction (i.e., the US, Australia, the UK, Canada and Japan) or possession of a certain number of years of relevant experience.
Depending on the type and number of regulated activity to be carried on by a firm applicant, it will have to maintain at all times certain minimum paid-up share capital and liquid capital. As of the date of this article, the paid-up share capital minimum ranges from zero to HK$30 million and the liquid capital minimum ranges from HK$100,000 to HK$15 million.
A number of prescribed forms from the SFC will have to be completed, together with any supplements thereto (if any) in support of the application, and the relevant application fee will have to be submitted to the SFC for a licensing application. For firm applicants and in respect of the supplements to its SFC application, these will include 1) the structure diagram outlining the shareholding structure of the firm applicant; 2) the compliance manual; and 3) the business plan, of which will be of particular important to SFC’s assessment, setting out in detail the proposed business activity, operational and risk management procedures. Typically, a firm’s application will take between four and nine months to process, depending on the quality of information submitted and the SFC’s requisitions with respect to the application.
SFC licensing applications for individual applicants are to be made jointly by the individual and the licensed corporation to which he or she proposes to become accredited. This places upon the licensed corporation the responsibility for formally verifying that the information in an individual’s application is neither false nor misleading.
Depending on the circumstances of the individual or firm applicant, the SFC may impose conditions to the license granted. For firms, such conditions may include that they only serve “professional investors” (high net worth investors), or that they do not hold client assets. For individuals, such conditions may include that they pass recognized local regulatory framework paper within six months of obtaining their application approval.