Highlights of the SFC licencing requirements in Hong Kong · • Hong Kong incorporated company • An overseas company registered with the Hong Kong Companies Registry (i.e. a branch)

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.


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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


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


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.

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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

[email protected]

Your PwC Contacts

Arthur Mok

Director, Financial Services Risk and Regulation

Hong Kong

+852 2289 1160

[email protected]

Timothy Lam

Senior Manager, Financial Services Risk and Regulation

Hong Kong

+852 2289 5474

[email protected]

Priscilla Wong

Manager, Financial Services Risk and Regulation

Hong Kong

+852 2289 3193

[email protected]

Carlyon Knight-EvansPartner, Financial Services Risk and Regulation

Hong Kong

+852 2289 2711

[email protected]

Michael Atkinson

Senior Manager, Financial Services Risk and Regulation

Hong Kong+852 2289 [email protected]

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




Not applicable

$5,000,000

$100,000

$3,000,000


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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



(a) In any other case

Not applicable

$5,000,000

$100,000

$3,000,000




Not applicable

$5,000,000

$100,000

$3,000,000


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)


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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.


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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


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DatePresentation Title


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


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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:

Documents

Highlights of the SFC licencing requirements in Hong Kong · • Hong Kong incorporated company • An overseas company registered with the Hong Kong Companies Registry (i.e. a branch)