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Highlights of the SFC licencing requirements in Hong Kong
July 2019
PwC
Contents
Date
2
Introduction
Overview of the SFC licencing regime
Major requirements for licencing application
What you have to prepare to apply for a licence?
How PwC can help – our Service Offerings
Why PwC
Appendices
Introduction
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Introduction
Under the Hong Kong regulatory regime, companies and individuals that intend to carry on regulated activities (“RA”)in Hong Kong are required to apply for the relevant type of RA licence from the Securities and Futures Commission(“SFC”). The SFC is the regulator empowered by the Securities and Futures Ordinance (“SFO”) to oversee suchregulated activities.
Companies which intend to conduct regulated activities in Hong Kong are required to be licenced as “LicencedCorporations” (LCs), and individuals who supervise and/or carry out those regulated activities (i.e. ResponsibleOfficers and for Licenced Representatives) are also required to obtain relevant SFC licence(s) under the SFO.
The purpose of this publication is to provide an overview of the SFC licencing regime, the relevant licencerequirements, and the ongoing regulatory obligations for both the asset and wealth managers as well as any relevantindividuals. We also summarise how PwC can support asset and wealth managers on licencing application processand, fulfilling their ongoing obligations, under the relevant rules and regulations in Hong Kong.
Overview of the SFC licencing regime
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Overview of the SFC licencing regime
Depending on the nature of the business, a company and related individual should apply for one or more RA licence(s) toconduct the proposed regulated activities. RAs are defined in the SFO and comprise the following 12 types of regulatedactivities:
Type of Regulated Activities
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
Type 11 Dealing or advising in OTC derivative products #
Type 12 Providing clearing agency services for OTC derivatives transactions **
# Not yet in operation.** The new Type 12, Part 1, Schedule 5 added by the Securities and Futures (Amendment) Ordinance 2014 came into operation on1 September 2016, in so far as it relates to paragraph (c) of the new definition of excluded services in Part 2 of Schedule 5. Pleasesee paragraph (g) of the Securities and Futures (Amendment) Ordinance 2014 (Commencement) Notice 2016 (L.N. 27 of 2016).
Major requirements for licencingapplication
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Major Requirements for Licencing Application
• Hong Kong incorporated company
• An overseas company registered with the Hong Kong Companies Registry (i.e. a branch)
Demonstrate to the SFC that it is fit and in the following criteria:
• financial status or solvency
• relevant educational or other qualifications or experience
• competent, honest and fair
• reputation, character, reliability and financial integrity
• Fit and proper substantial shareholders, senior management and other employees
• A substantial shareholder not having a “close link”1 with the corporate licence applicant may be allowed to provide less information in the application form
The senior management that holds the primary responsibility for ensuring the maintenance of appropriate standards of conduct and adherence to proper procedures includes:
• directors of the corporation, • ROs of the corporation, and• MICs
• Designate one MIC for each of the eight core
• MICs of overall management oversight function and the key business line function must be ROs
• Can appoint the same MIC for more than one core function or appoint two or more individuals as MICs to jointly manage one core function
• Maintain paid-up share capital and liquid capital at all times not less than the specified amounts according to the Securities and Futures (Financial Resources) Rules
A legal structure Fit and proper criteria Substantial shareholders Senior management
Manager-in-charge of core functions (“MICs”)
Financial resources
• Appoint not less than two ROs to directly supervise the conduct of each RA being applied for
• At least one of the proposed ROs must be an executive director
Responsible officers (“ROs”)
The company is required to fulfill the following principal requirements in order to obtain a licence.
1 With reference to section 7.12 of Licencing Handbook, in particular, a “close link” is likely absent if the substantial shareholder:(a) alone, does not have a direct or indirect interest in the corporate licence applicant as described in section 6 of Part 1 of Schedule 1 to the SFO; (b) together with any of its associates, has a direct or indirect interest in the corporate licence applicant as described in section 6 of Part 1 of Schedule 1 to the SFO;(c) is and will be controlled or influenced by other existing or potential substantial shareholder(s); and (d) does not and will not have any involvement in the management and operation of the corporate licence applicant.
• All personnel carrying on regulated activities need to be licenced as a LR
• Subject to similar fit and proper requirements as ROs
Licenced representatives (“LRs”)
What you have to prepare to apply for a licence?
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Assessing the type of licences requiredA company has to obtain relevant licences from the SFC depending on the business activities planned, including nature of thebusiness, clientele (professional investor / retail investor), hold or not hold client assets. The company will also need to evaluateif they are eligible for licence exemptions such as incidental exemptions and group exemptions.
Incidental exemption: The company may not require a licence for certain regulated activities in case these activities areperformed incidentally to their carrying out another regulated activity for which they are already licenced. Below are someexamples of incidental exemptions:
Examples Exempted licence(s) Application
Licenced for Type 1 regulated activity and carry out certain other regulated activities
Type 4 (advising on securities);Type 6 (advising on corporate finance); and/or Type 9 (asset management) regulated activity.
Normally applies to stockbrokers whoprovide investment advice or manage discretionary accounts for their securities clients
Licenced for Type 2 regulated activity and carry out certain other regulated activities
Type 5 (advising on futures contracts); and/or Type 9 (asset management) regulated activity.
Normally applies to futures brokers whoprovide investment advice or manage discretionary accounts for their futures clients
Licenced for Type 9 regulated activity and carry out certain other regulated activities
Type 1 (dealing in securities);Type 2 (dealing in futures contracts);Type 4 (advising on securities); and/or Type 5 (advising on futures contracts) regulated activity.
Normally applies to fund managers who place trade orders to dealers or provide investment advice/research reports in the course of managing their clients’ portfolios of securities and/or futures contracts
Group company exemption: The company may be exempted from requiring a licence when providing the relevant advice or service solely to its wholly owned subsidiaries, its holding company, which holds all its issued shares, or other wholly owned subsidiaries of that holding company.
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Application documents
An applicant is required to submit various documents along with the application which will be reviewed and assessedby the SFC in order to determine the fitness and propriety of the applicant for obtaining an RA licence in Hong Kong.
The application documents focus on the following areas:
Application forms
Supplements Questionnaires
Business profile and
clientele
Financial strength and sustainability of
substantial shareholders
Management (including corporate governance,
responsible officers, and managers-in-charge of core
functions)
Risk management and internal control
measures
Details of the application forms and supplements are in Appendix 4
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Common situations leading to return of application
The SFC may return the application if it is incomplete and/or it has unresolved fundamental issues. The company may re-submit it later with additional documents and/or information for the SFC’s re-consideration and further processing. Examples of situations which may lead to return of the application are:
Insufficient proposed ROs who meet the competence requirements for each RA
Individuals not meeting the competence requirements
Not applied for the appropriate type(s) of regulated activity
Incomplete application forms / supplements / questionnaires / supporting documents
Individuals not having applied for necessary Hong Kong employment visa to carry out the proposed regulated activities
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Processing time after submitting an application
Application Expected processing time
Licenced corporation application 15 weeks
Responsible officer application 10 weeks
Normal licenced representative application 8 weeks
Provisional licenced representative application 7 business days
The time it takes to process an application may vary depending on a number of factors such as:
the types of service or product you propose to provide
the quality and completenessof your application
the quality of the supporting documents
subsequent changes made to your application concerning, for instance, business scope, substantial shareholders, responsible officers and MICs
the time taken for individual applicants to obtain Hong Kong employment visas, where applicable
the time taken for capital injection to meet the financial resources requirements
the time taken for other regulatory bodies to respond to our vetting requests, where applicable
your response time to provide any further information requested during the assessment process
the number of applications we are processing at any particular time
Source: The SFC Licencing Handbook – February 2019
The SFC provides the following estimate of application processing time. Please refer to Appendix 2 for details on licencing fee.
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Ongoing obligation
There are ongoing statutory obligations imposed on licenced corporations and licenced individuals after being licenced.
Licenced corporations and licenced individuals have to comply with all applicable provisions of the SFO and its subsidiary legislation as well as the codes and guidelines issued by the SFC.
Licenced corporations and licenced individuals may have to notify or obtain prior approval from the SFC for different types of changes. You may refer to Appendix 3 of this document for some examples of changes that require notification or prior approval.
How PwC can help
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How PwC can help – our service offerings
Feasibility study support1
• Assess the relevant SFC licences to be obtained, including any licence exemptions which the manager may qualify for.
• Help management to assess compliance with fit and proper criteria and competency requirements set by theSFC for licenced corporation, any individual applicants (i.e. responsible officers, licenced representatives and MICs), aswell as the substantial shareholders.
• Advise management on relevant licence requirements, and ongoing regulatory obligations, for both licencedcorporation and any relevant individuals (i.e. responsible officers, licenced representatives and MICs).
Support in preparation and submission of application
• Provide advice to management on preparing application documents, we will aid management in identifying a completeset of documentation that is required to be submitted to the SFC to support the application.
• Assist management to compile the required licence application documents (e.g. application forms,questionnaires, supplements, relevant supporting documents etc.) prior to submission to the SFC.
• By keeping track of ongoing regulatory developments we can advise management on any implications to theirapplication resulting from new measures and rules introduced by the SFC (for example, manager-in-charge regime,substantial shareholders identification, bank accounts opening and visa applications).
Support to be provided after submitting the licence application documents
• Provide support to management to understand and analyse the enquiries raised by the SFC after submitting the application documents.
• Advise management on recommended changes and enhancements, to relevant documentation, to address enquiries raised by the SFC.
3
2
Why PwC
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DatePresentation Title
We know Asset and Wealth Managers
We have a dedicated Asset and Wealth Management Team of over 15,000 people globally
with a view to bringing relevant values to our clients
We possess SFC regulatory expertise
We possess ample understanding of regulatory
inspections and have extensive experience in advising licenced
corporations and asset managers on SFC rules and
regulations
We have a global network & infrastructure
We have a global reach of 250,000 people with the ability
to draw on people and knowledge from 158 countries
We have an experienced knowledgeable team
Our team is constructed of individuals experienced across
the relevant areas of this review so that we can pull on Subject Matter Experts as and when
required
We have a systematic approach
We have a systematic and proven approach to conducting a regulatory review based on our client experiences and our discussions with the regulator
Why PwC
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Helen Li
Partner, Financial Services Risk and Regulation
Hong Kong
+852 2289 2741
helen.l.li@hk.pwc.com
Your PwC Contacts
Arthur Mok
Director, Financial Services Risk and Regulation
Hong Kong
+852 2289 1160
arthur.sw.mok@hk.pwc.com
Timothy Lam
Senior Manager, Financial Services Risk and Regulation
Hong Kong
+852 2289 5474
timothy.hm.lam@hk.pwc.com
Priscilla Wong
Manager, Financial Services Risk and Regulation
Hong Kong
+852 2289 3193
priscilla.oy.wong@hk.pwc.com
Carlyon Knight-EvansPartner, Financial Services Risk and Regulation
Hong Kong
+852 2289 2711
carlyon.knight-evans@hk.pwc.com
Michael Atkinson
Senior Manager, Financial Services Risk and Regulation
Hong Kong+852 2289 1119michael.ma.atkinson@hk.pwc.com
Appendices
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Appendix 1 – Minimum paid-up share capital and liquid capital requirements
Regulated activity Minimum paid-up share capital (HK$)
Minimum Liquid capital (HK$)
Type 1 –(a) in the case where the corporation is an approved introducing agent
or a trader(b) in the case where the corporation provides securities margin
financing(c) in any other case
Not applicable
$10,000,000
$5,000,000
$500,000
$3,000,000
$3,000,000
Type 2 –(a) in the case where the corporation is an approved introducing
agent10, a trader or a futures non-clearing dealer(b) in any other case
Not applicable
$5,000,000
$500,000
$3,000,000
Type 3 –(a) in the case where the corporation is an approved introducing agent(b) in any other case
$5,000,000$30,000,000
$3,000,000$15,000,000
Type 4 –(a) in the case where in relation to Type 4 regulated activity, the
corporation is subject to the licencing condition that it shall not hold client assets
(b) in any other case
Not applicable
$5,000,000
$100,000
$3,000,000
Type 5 –(a) in the case where in relation to Type 5 regulated activity, the
corporation is subject to the licencing condition that it shall not hold client assets
(b) in any other case
Not applicable
$5,000,000
$100,000
$3,000,000
Source: The SFC Licencing Handbook – February 2019
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Regulated activity Minimum paid-up share capital (HK$)
Minimum Liquid capital (HK$)
Type 6 –(a) in the case where the corporation acts as a sponsor:
- hold client assets- not hold client assets
(b) in the case where the corporation does not act as a sponsor:- hold client assets- not hold client assets
$10,000,000$10,000,000
$5,000,000Not applicable
$3,000,000$100,000
$3,000,000$100,000
Type 7 $5,000,000 $3,000,000
Type 8 $10,000,000 $3,000,000
Type 9 –(a) in the case where in relation to Type 9 regulated activity, the
corporation is subject to the licencing condition that it shall not hold client assets
(a) In any other case
Not applicable
$5,000,000
$100,000
$3,000,000
Type 10 –(a) in the case where in relation to Type 10 regulated activity, the
corporation is subject to the licencing condition that it shall not hold client assets
(b) in any other case
Not applicable
$5,000,000
$100,000
$3,000,000
Source: The SFC Licencing Handbook – February 2019
Appendix 1 – Minimum paid-up share capital and liquid capital requirements
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Appendix 2 – Licencing fees
Type of application Type of RA Application fee amount (HK$)
Licenced corporation Types 1, 2, 4, 5, 6, 7, 8, 9, 10
Type 3
$4,740 per RA
$129,730
Temporary licenced corporation Types 1, 2, 4, 5, 6, 10 $4,900 per RA
Licenced representative Types 1, 2, 4, 5, 6, 7, 8, 9, 10
Type 3
$1,790 per RA
$2,420
Provisional licenced representative Not applicable $800 per application
Temporary licenced representative Types 1, 2, 4, 5, 6, 10 $1,850 per RA
Approval to become responsibleOfficer
Types 1 through 10 $2,950 per RA
(This fee is payable on top of the application fee for becoming a normal licenced representative)
Source: The SFC Licencing Handbook – February 2019
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Appendix 3 – Ongoing obligation, after being licenced
1) Certain changes that require notification
Types of change/events Applicable to Notification time limit
Cessation of business LC, LR, RI At least 7 business days in advance forintended cessation of business
Ceased to act as a licenced representative LC, LR Within 7 business days
Ceased to act as a responsible officer LC, RO Within 7 business days
Change in name LC, LR, RI, SS, AE Within 7 business days
Change in business address LC, RI
AE
At least 7 business days in advance forintended change in business address
Within 7 business days
Change in director or hisparticulars
LC, RI, AE Within 7 business days
Change in complaints officer or his particulars LC, RI Within 7 business days
Change in emergency contact person or his particulars LC, RI Within 7 business days
Change in share capital or shareholding structure LC, RI, SS, AE Within 7 business days
Change in contact information LC, LR, RI, SS, AE Within 7 business days
Abbreviations:LC: Licenced corporation; LR: Licenced representative; RO: Responsible officer;
RI: Registered institution; SS: Substantial shareholder; AE: Associated entity.
Source: The SFC Licencing Handbook – February 2019
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Appendix 3 – Ongoing obligation, after being licenced
1) Certain changes that require notification (Continued)
Types of change/events Applicable to Notification time limit
Significant changes in nature of business carried on and types of services provided
LC, RI Within 7 business days
Significant changes in business plan LC, RI Within 7 business days
Changes in Managers-In-Charge of Core Functions (MICs)(including any new appointment and cessation of appointment)
LC Within 7 business days
Changes in certain particulars of MICs LC Within7 business days
Change in bank accounts LC, AE Within 7 business days
Change in associated entity or its particulars LC, RI, AE Within 7 business days
Change in insurance policy maintained under the Securities and Futures (Insurance) Rules
LC Within 7 business days
Change in auditor’s name LC, RI Within 7 business days
Give notice of a motion to change auditor in a generalmeeting, etc. (see section 154 of the SFO)
LC andAE which is not an
authorised financial institution
Within 1 business day
Change in executive officer or his particulars RI, AE Within 7 business days
Change in status of any authorization to carry on a regulated activity by authority or regulatory organization in Hong Kong or elsewhere
LC, LR, RI Within 7 business days
Source: The SFC Licencing Handbook – February 2019
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DatePresentation Title
Appendix 3 – Ongoing obligation, after being licenced
2) Certain changes that require prior approval
Types of change Applicable to Fee required
Addition of regulated activity LC, LR, RI Yes
Reduction of regulated activity LC, LR, RI Yes
Modification or waiver of licencing or registration condition LC, LR, RI Yes
Modification or waiver of “fit and proper” requirements LC, LR RI Yes
Change of financial year end LC, AE Yes
Adoption of period exceeding 12 months as financial year LC, AE Yes
Extension of deadline for submission of audited accounts LC, AE Yes
Submission to act as Sponsor LC No
New premises to be used for keeping records or documents LC Yes
Becoming a substantial shareholder of a licenced corporation LC, SS Yes
Addition of accreditation LR Yes
Transfer or addition of accreditation LR Yes
Licenced representative becoming responsible officer LR Yes
Substantial change in particulars which necessitates the grant of a new certificate or registration
RI Yes
Source: The SFC Licencing Handbook – February 2019
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Appendix 4 – Application documents
Application forms Designed for
A Application for Licence – Corporation
B Post-licence Application by Licenced Corporation
C Application for New Registration and Post-registration Applications
D New Substantial Shareholder Application
E Notification by Substantial Shareholder
F Notification and Application by Associated Entity
With effect from 11 April 2019, applicants need to submit below application forms, supplements andquestionnaires for their licencing application:
Application Forms
Supplements Designed for
A Information on Corporation
B Personal Information
C Responsible Officer or Temporary Licenced Representative
D Bank Accounts and Financial Information
E Manager-In-Charge of Core Functions
Questionnaires Designed for
A General Business Profile and Internal Control Summary
B Specific Business Profile and Internal Control Summary
Supplements
Questionnaires
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Appendix 4 – Application documents
If you Please submit
Are a corporation which is notcurrently licenced and would like to apply for a new licence
• Form A• Supplement A and B (as appropriate)• Supplement C (at least 2 responsible officers should be nominated), D and E• Questionnaire A• Questionnaire B (if applicable)• Application fee
Are an authorised institution and would like to apply for registration to become a registered institution
• Form C• Copies of application forms for approval to become an executive officer
submitted to the HKMA (at least two executive officers should be nominated)• Application fee
Common documents required for a new licencing application:
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