The Hong Kong Securities and Futures Commission ("SFC") is an independent statutory body established under the Securities and Futures Ordinance ("SFO") to administer the securities and futures markets including the licensing of market participants and the regulation of offers of securities. In Hong Kong, any person carrying on regulated activities (as described below) has to be licensed or registered with the SFC unless specific exemptions are provided. Part V of the SFO promulgated a single licensing regime where each licensed corporation needs only one licence to carry on different types of regulated activity for which it is licensed (except for companies engaged in securities margin financing which may only undertake that single activity).
There are nine types of regulated activity under the SFO and they are :-
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 and margin financing
Type 9 – Asset management
Each of the above types of regulated activity is defined in Schedule 5 of the SFO.
Types of licences
Under this new licensing regime, there are two types of licences :-
- Corporate Licences for corporate intermediaries
- Representative Licences for their representatives
Any corporation carrying on one or more regulated activities must apply to the SFC for a licence. Sole proprietorships and partnerships cannot apply to be licensed. It is possible for a corporation to be licensed for one or more regulated activities provided there is proper segregation or a "Chinese Wall" between the different activities or functions carried out by the corporation, no conflicts of interest exist and there are no other regulatory provisions preventing the multiple activities.
The corporation must have at least two responsible officers to supervise each regulated activity it is licensed to carry on, and at least one of the responsible officers must be an executive director. There must be also at least one responsible officer who is available at all times to supervise the business of the regulated activity for which the relevant corporation is licensed; in other words, at least one responsible officer must be resident in Hong Kong.
Every executive director of a licensed corporation who is an individual must be approved by the SFC as a "responsible officer" in relation to the regulated activity in question and must obtain a representative licence.
Application Procedures for licences
The SFC has issued a set of prescribed forms which need to be submitted together with any relevant documents and an application fee.
When applying to become a licensed corporation, amongst other things, the applicant also has to satisfy the SFC that it has a proper business structure, good internal control systems and qualified personnel to ensure proper management of the risks that it will encounter in carrying on its proposed business as detailed in its business plan. The Guidelines on Competence, Code of Conduct for Persons Licensed by or Registered with the SFC and Management, Supervision and Internal Control Guidelines for Persons Licensed by or Registered with the SFC published by the SFC provide the applicant with further details on what the SFC will look at.
When applying to become a licensed representative and to be approved as a responsible officer, amongst other things, the applicant should have sufficient authority to supervise the business of regulated activity within the licensed corporation and the applicant should also prove to the SFC that he/she possesses appropriate ability, skills, knowledge and experience to properly manage and supervise the corporation’s business of regulated activities.
In addition, the SFC will take into account whether the applicant is fit and proper. Section 129 of the SFO provides that in considering whether a person is fit and proper for the purposes of licensing, the SFC shall, in addition to any other matter that the SFC may consider relevant, have regard to the following :-
- 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.
The above criteria serve as the fundamental basis when the SFC considers each licence application and further details of the criteria may be found in the Fit and Proper Guidelines and the Guidelines on Competence published by the SFC.
If you wish to know more about the licensing application procedure or if you have any questions relating to securities and futures regulations, lawyers in our Corporate Commercial Department will be happy to assist you with any inquiries you may have.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.