The past two years has seen a dramatic acceleration in the growth of the payments industry both globally and within Hong Kong. With the rise of e-commerce and changes in consumption patterns during COVID-19 pandemic restrictions, the dynamics in the payments industry are rapidly changing as businesses and consumers pivot to digital payments, e-wallets and other electronic payment methods.

Usage of RMB in global payments has reached a record high.

Payments using the renminbi, as the currency is also known, jumped to a record 3.2% of market share, according to data from the Society for Worldwide Interbank Financial Telecommunications, breaking through its previous high set in 2015 that came on the back of a currency devaluation in a bid to increase exports.” (Yuan’s Global Popularity Keeps Rising With Usage at Record High,,17 Feb 2022)

As one of Mainland’s principal trading partners, Hong Kong is best placed to facilitate the growing use of RMB in international trades.

Hong Kong has taken up a crucial role in offshore RMB settlement, handling much of the world's offshore RMB payment, remittance and settlement transactions which have displayed a momentum of growth.” (Hong Kong: A Leading Financial Hub of Offshore RMB, Financial Services Development Council, 8 Apr 2020)

We have seen an influx of global remittance businesses using Hong Kong as a regional hub to facilitate RMB cross-border payment flows.

Below, we identify important issues to consider in cross-border remittance business structures to ensure compliance with Hong Kong’s regulatory regime. We also look at the impact of electronic payments on trade receivables financing and the relevant legal and regulatory considerations to ensure an effective and legally valid financing structure.


There are several parties involved in a typical payment remittance process, each taking on a different responsibility and function. Each party needs to assess whether its activity triggers the licensing requirements under Hong Kong’s MSO regime. The main purpose of the MSO licensing regime is to safeguard against the risk of MSOs being used as a conduit for laundering proceeds from crimes committed outside Hong Kong.

A “money service operator” generally refers to a business that exchanges or remits money under Hong Kong law. If a person operates or wishes to operate a service of exchanging or remitting money in Hong Kong as a business, it is required to apply for a licence. It is an offence to operate a money service without a licence.

The MSO licensing regime is prescribed in the AMLO, which is Hong Kong’s primary AML legislation. The AMLO governs AML obligations applicable to financial institutions, including MSOs, banks, licensed corporations, insurers, insurance agencies and stored value facility (SVF) licensees.

MSOs are required under the AMLO to obtain a licence and adhere to customer due diligence and record-keeping requirements.

Licensing is only required where services are being operated “in Hong Kong as a business”. While this is a question of fact and degree, relevant considerations may include:

  • whether a bank account is opened in Hong Kong for the purpose of operating a money service
  • whether there is a fixed place of business in Hong Kong – it is relevant to consider the length of time and the frequency of the activities in Hong Kong
  • to the extent the entity has any employees / agents in Hong Kong, where the business decisions are made, and
  • whether the entity actively promotes or markets its services in Hong Kong and whether Hong Kong customers are being targeted.

Merger of payment processors and payment gateways

In each payment remittance structure, it is important to assess which party is the “money service operator” (which may, depending on the structure, be the payment processor that effectively arranges for the issuing bank to pay the merchant) and which party is the payment gateway (which is usually a technology company that facilitates communications among the parties using technologies such as API (application programming interface) integration).

However, we see many payment technology companies assuming part or all of the payment processor’s role as they continue to tweak and upgrade their technologies to provide ever faster and more integrated services to their merchant customers. We have also seen an increase in merging activities in the market, which means the line between these two roles is increasingly blurred. It is critical to analyse on a case-by-case basis the actual fund and payment instructions flow in relation to a particular entity’s business to ensure compliance with all regulatory requirements.

Will the offering of foreign exchange (FX) forward services trigger any Type 3 (leveraged FX trading) regulated activity requirements under the SFO?

In providing enhanced FX services to a MSO customer (involving a forward element[1]), it is important for the MSO to consider if such service triggers the need for a Type 3 licence.

When offering money remittance services, MSOs may also intend to offer value-added FX services for the existing remittance customers.

By way of illustration, a MSO customer may be an e-merchant operating on an online marketplace, who needs to settle amounts due to its suppliers in RMB in two months, using USD it earns from selling to the overseas markets. To lock in a particular FX conversion rate to manage its FX risk exposure, the MSO e-merchant customer will need to lock in the RMB-USD conversion rate to hedge its FX exposure for income derived from underlying trade transactions between the booking date and the settlement date. Such arrangement will typically involve an agreement between the MSO and the e-merchant customer to buy or sell a particular currency by “delivering at an agreed future time an agreed amount of currency at an agreed consideration”, which falls within the ambit of the definition of a “leveraged foreign exchange contract” under the SFO and therefore triggering potential SFO licensing issues.

Are there any other licensing regimes that MSOs need to be reminded of?

If a MSO intends to provide leveraged FX services as defined under the SFO or other enhanced FX services, it may also need to consider if such services trigger SVF and trust or company service provider (TCSP) licensing requirements.

Under the PSSVFO, a person must not issue a SVF unless such facility is authorised by the HKMA.

Under the AMLO, the two criteria which trigger the TCSP licence requirement are:

  • the offering of trust and/or company services by a company, and
  • the carrying on of such activities by the company in Hong Kong as a business.

Whether these other licences are applicable will depend on each MSO’s business model and the actual services offered to their customer base. In general, the key factors to consider are:

  • if the MSO is holding money as a trustee, custodian or agent on behalf of the customers, and
  • if the services can be construed as merely incidental to its money remittance business.

In addition, businesses that wish to capitalise on the growth in the PRC market should ensure that they understand the key PRC legal issues relating to cross-border payment remittance in structuring a compliant model, and other general cross-border regulatory issues such as potential data transfer issues.

PRC law perspective: how does it work in the Mainland?

Mainland-based payment services operators continue to expand to leverage the Mainland’s huge cross-border trade and payment flows.

At a very high level:

  • cross-border remittance is generally permitted in China if it is substantiated by a legitimate underlying trade
  • a cross-border payment remittance licence is required in China if such service is provided to PRC individuals or businesses directly (eg where a Hong Kong licensed MSO onboards PRC customers directly)
  • currently, most offshore payment services providers (Providers) tap into the PRC market by adopting one of the three models:
    • acquiring a PRC licensed Provider directly
    • cooperating with an onshore Provider, either through
      • entering into a tripartite agreement together with the onshore Provider and the PRC customer. The onshore Provider will onboard the PRC merchant as its client and share information relating to the PRC merchant’s customers with the offshore Provider. The offshore Provider may also onboard the PRC merchant as its client to facilitate the information flow under this model, or
      • entering into a bilateral agreement with the onshore Provider and the PRC customer, or
    • cooperating with an onshore bank that is willing to and capable of facilitating the relevant fund flow and data transfer.

Each of these three models has its own merits but also carries varying levels of legal, compliance and operational risks.


The recent boom in digital and electronic payments has brought interesting solutions for trade receivables financing. We highlight below some key market developments and legal issues.

Online platforms for trading and assignment of receivables

The rise of electronic transactions has resulted in increasing demand for liquidity in the trading and assignment of account receivables. Platforms that fund such activity must examine extensive legal and regulatory considerations, including whether the activities undertaken by the parties (including the platform operators and platform users) trigger any financial licensing requirements in Hong Kong such as:

  • the MSO regime
  • TCSP regime under the AMLO
  • the money lenders licensing regime under the Money Lenders Ordinance, and
  • the regulated activities licensing regime under the SFO.

Legal issues relating to assignment of account receivables

How to effect and perfect an assignment of receivables?

Receivables constitute a chose in action, capable of being assigned under Hong Kong law from an assignor to an assignee by way of either (i) a legal assignment or (ii) an equitable assignment.

A valid legal assignment must satisfy each of the following three elements:

  • the assignment must be absolute – that is, an assignment by which the entire interest of the assignor in the account receivable is transferred unconditionally to the assignee and placed completely under the assignee’s control
  • the assignment must be in writing and signed by the assignor, and
  • written notice of the assignment must be given to the debtor.

An assignment which does not satisfy all three elements for legal assignment above may qualify as an equitable assignment.

In general, one of the key differences between a legal and equitable assignment (where notice of the assignment is not given to the debtor) is that an equitable assignee has to rely on the first assignor (the original creditor of the underlying account receivable) to sue the defaulting debtor of the underlying account receivable.

How to ensure that a sale and purchase of an account receivable is a “true sale” (rather than a secured loan) to address potential money lender licensing issues?

Generally, a legal true sale is the means by which the beneficial interest in assets is transferred from a seller (Seller) to a purchaser so that the assets which are the subject of the sale will not be available to the general creditors of the Seller upon the insolvency of the Seller.

An arrangement may be re-characterised as being of a different legal nature from that which it purports to be. If a purported sale of receivables fails to meet the “true sale” requirements, there is a risk that the payment of the purchase price may be re-characterised as a loan by the courts in the event of the Seller’s insolvency, and the result is that the proposed sale will be re-characterised as a security assignment.

This re-characterisation risk has significant implications in cases where the Seller is incorporated in a jurisdiction where security assignments must be registered since the re-characterisation may lead to the security being void against the Seller’s liquidator (such that the “lender” becomes an unsecured creditor of the Seller).[2]

Any legal and regulatory risks applicable to the platform operator in the event of a debtor’s default?

A remittance platform may assist, in its capacity as a MSO, to collect and remit funds to the Purchaser on maturity of the underlying account receivable as a servicer (Servicer).

If this is applicable, the legal documentation between the platform and its clients should clearly state its role as the Servicer and the legal relationship between the parties. The MSO should also observe the relevant MSO regulatory requirements for all client monies to be held in designated MSO client account(s).

Potential restrictions on the assignment of trade receivables

Any proposed trade financing must also consider whether there are any legal prohibitions on the transfer of account receivables, which may be found in:

  • the agreement creating the receivable (such as the purchase order) – in such cases, the parties need to consider an alternative legal structure that achieves a similar commercial objective as an assignment, and
  • any relevant insurance policy (which may exclude assigned account receivables from the scope of protection).


Hong Kong in recent years has made great strides in adopting cashless payment solutions. Fast-evolving technologies, together with a noticeable shift in consumer habits and increasing demand for online payments and e-commerce, create ample opportunities as well as regulatory risks for Providers.

Digital payments also make it easier for corporates to make available their trade and account receivables for financing purposes, but the relevant legal and regulatory issues must be considered to ensure an effective and legally valid financing structure.

With the greater volume of e-commerce trades and cross-border online payment remittances, there has been a rising demand for legal services relating to domestic and cross-border licensing and regulatory compliance issues, cybersecurity, data privacy as well as anti-money laundering issues. Please contact us if you have any questions.