Application of SFC License in Hong Kong

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Silas Moody
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1 Application of SFC License in Hong Kong Highlights of the Regulatory Requirements Updated as of January 2012

2 1. Introduction Under the Hong Kong regulatory regime, companies which intend to carry on Regulated Activities ( RA ) in Hong Kong are required to apply for the relevant type(s) of RA license from the Securities and Futures Commission ( SFC ). During the application process, an applicant is required to submit various documents (e.g. business plan overview, internal control and compliance policies, information on responsible officers and executive directors etc. ) to the SFC, which will be reviewed and assessed by the SFC in order to determine the fitness and propriety of the applicant for obtaining a RA license in Hong Kong. 2

3 2. Overview of the SFC Licensing Regime Companies which intend to conduct regulated activities in Hong Kong are required to be licensed as Licensed Corporations under Section 116 of the Securities and Futures Ordinance ( SFO ). The SFC is the regulator empowered by the SFO to oversee such activities. Under the SFO, individuals who supervise and carry out those regulated activities (i.e. Responsible Officers) are also required to obtain the relevant licenses. 3

4 2. Overview of the SFC Licensing Regime Depending on the nature of the business, a company should apply for one or more RA licenses to conduct its proposed business. RAs are defined in the SFO and comprise the following 10 types of 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 4

5 2. Overview of the SFC Licensing Regime The principal requirements which are required to be fulfilled are highlighted below. a) Legal Structure A Hong Kong incorporated company or an overseas company registered with the Hong Kong Companies Registry (i.e. a branch). b) Fit and Proper Criteria An applicant needs to demonstrate to the SFC that it has proper business structure, internal controls and qualified personnel etc. to undertake the regulated activities. Such assessment will be undertaken by the SFC with reference to the business plan, internal control documentation, compliance policies etc. submitted by the applicant. c) Substantial Shareholders All substantial shareholders (i.e. those holding more than 10% interest or voting rights) are required to fulfill the fit and proper criteria stipulated by the SFC. 5

6 2. Overview of the SFC Licensing Regime d) Responsible Officers At least two Responsible Officers are required for each regulated activity. An individual applies for as a Responsible Officer needs to possess relevant academic/industry qualification and experience and pass the local regulatory framework paper. e) Licensed Representatives All personnel carrying on regulated activities need to be licensed as a Licensed Representative. Licensed Representatives are subject to similar but less stringent qualification and experience requirements as compared to those applicable to Responsible Officers. f) Financial Resources An applicant needs to maintain sufficient financial resources. Depending on the types of license, the minimum paid-up share capital of an applicant may vary, ranging from zero to HK$30 million. In addition, all Licensed Corporations are subject to a variable regulatory capital requirement (known as Liquid Capital ). 6

7 2. Overview of the SFC Licensing Regime For purposes of obtaining a license, an applicant is required to submit relevant information and prescribed forms to the SFC describing, inter alia, its proposed business plan, shareholding structure, organisation set-up, internal control and compliance systems, and financial position. In addition, it also needs to demonstrate the fitness and propriety of its substantial shareholders, directors and Responsible Officers etc. 7

8 3. Our Services The principal roles undertaken by us in license application projects are the provision of ongoing regulatory advice as well as documentation and technical support to our clients throughout the application process. In this regard, the scope of work may include, inter alia, the identification of potential issues that may arise during the application process, drafting of the business plan and other key documents, and providing comfort to management on the quality and content of the documents submitted to the SFC. In summary, we can assist our clients with the following specific matters: Provide preliminary advice to management on the regulatory approval process and the types of RA license(s) required; Assist in identifying and capturing the regulatory issues / hurdles that may arise during the application process; 8

9 3. Our Services In summary, we can assist our clients with the following specific matters (Cont d): Advise on the key areas considered by the SFC in granting the RA license (e.g. business plan, financial resources projections etc.); Preparation of documentation for submission to the SFC. In this regard, we can make reference to the documentation which is currently available within the organisation and tailor it to a standard acceptable by the SFC; Preparation of appropriate cover letters in support of the application; Work with management in responding to the queries raised by the SFC during their review of the application documents; and Accompany management to meetings with the SFC in order to discuss any issues and concerns arising from the approval process. We would be delighted to have the opportunity to meet with you to further discuss our regulatory service offerings and in particular how we could tailor them in order to meet your specific circumstances and needs. 9

10 Contact For more information about our services, please feel free to contact the following person or your usual contacts: Adams Chan Partner, Regulatory Advisory Services : : adams.wf.chan@hk.pwc.com This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers Limited, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it PricewaterhouseCoopers Limited. All rights reserved. In this document, refers to PricewaterhouseCoopers Limited which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.

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