The licensing and registration of persons operating in Hong Kong’s securities and futures markets is dealt with in Part V of the Securities and Futures Ordinance (SFO) which came into effect on 1 April 2003. The SFO is administered by the Securities and Futures Commissions of Hong Kong (SFC).
Part V of the SFO establishes a ‘single licence’ regime whereby a person requires only one licence or registration to conduct different types of regulated activities in Hong Kong.
The Securities and Futures Ordinance prohibits any person from carrying on a business (or holding himself out as carrying on a business) in a regulated activity unless an appropriate authorisation has been granted or an exemption or exclusion applies.
Types of Regulated Activities in Hong Kong
Currently, there are 10 types of ‘regulated activities’ in Hong Kong :
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
The Licensed Corporation
For a corporation to be licensed to carry out regulated activities in Hong Kong, section 116 (2) of the Securities and Futures Ordinance requires that it has to be either a company incorporated in Hong Kong or an overseas company registered under Part XI of the Companies Ordinance having a principal place of business in Hong Kong (i.e. branch company).
In general, Hong Kong branch offices are subject to the same legal and tax consequences as companies incorporated in Hong Kong.
In particular, the tax rate applied to profits is the same for local and foreign companies.
The main reason for preferring a Hong Kong subsidiary over a branch is that the subsidiary will be completely separate from its parent so that the parent will not be liable for the debts of the subsidiary.
Exemptions from Hong Kong Licensing Requirements
Under certain circumstances, a particular type of license may not be required for carrying the relevant type of regulated activities in Hong Kong.
The major applicable exemptions include :
incidental exemption
margin financier exemption
advising group company exemption
Incidental exemption:
* Licensed for type 1 regulated activity and carry out certain other regulated activities in Hong Kong
If you are licensed for type 1 regulated activity (dealing in securities) and you wish to carry out type 4 (advising on securities), type 6 (advising on corporate finance) and/or type 9 (asset management) regulated activity, you do not need to be licensed for types 4, 6 and 9 provided that these activities are carried out wholly incidental to your securities dealing business.
The exemption normally applies to stockbrokers who provide investment advice or manage discretionary accounts for their securities clients.
* Licensed for type 2 regulated activity and carry out certain other regulated activities in Hong Kong
If you are licensed for type 2 regulated activity (dealing in futures contracts) and you wish to carry out type 5 (advising on futures contracts) and/or type 9 (asset management) regulated activity, you do not need to be licensed for types 5 and 9 provided that these activities are carried out wholly incidental to your futures dealing business.
The exemption normally applies to futures brokers who provide investment advice or manage discretionary accounts for their futures clients
* Licensed for type 9 regulated activity and carry out certain other regulated activities in Hong Kong
If you are licensed for type 9 regulated activity (asset management) and you wish to carry out type 1 (dealing in securities), type 2 (dealing in futures contracts), type 4 (advising on securities) or type 5 (advising on futures contracts) regulated activity, you do not need to be licensed for these regulated activities provided that they are carried out solely for the purposes of you asset management business (for types 4 and 5, such asset management business must involve the management of a portfolio under a collective investment scheme).
This exemption 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.
Margin financier exemption :
If you are licensed for type 1 regulated activity (dealing in securities) you do not need separately be licensed for type 8 regulated activity (securities margin financing) to carry out securities margin financing activities for your clients.
However, you would need to satisfy a more stringent financial resources requirement in terms of paid-up capital in order to do so.
This exemption normally applies to stockbrokers who also provide margin financing facilities to their securities clients.
Advising group company exemption :
You are not required to be licensed for type 4 (advising on securities), type 5 (advising on futures contracts), type 6 (advising on corporate finance) or type 9 (asset management) regulated activity if you provide the relevant advice or services solely to your wholly owned subsidiaries, your holding company which holds all your issued shares, or other wholly owned subsidiaries of that holding company.
Dealing with professional investor exemption :
You may not be required to be licensed for futures or securities dealing activity if you act as principal and deal with “professional investors” only.
“Professional investor” is specifically defined in Part 1 of Schedule 1 to the Securities and Futures Ordinance
However, definition of “professional investor” in the Securities and Futures (Professional Investor) Rules does not apply in this exemption
Capital Requirements
Set out below are the minimum capital requirements for each type of regulated activity (if you apply for more than one type of regulated activity, the minimum paid-up share capital and liquid capital that you should maintain shall be the higher or the highest amount required amongst those regulated activities you apply for) :
Regulated activity
Minimum paid-up share capital
Minimum liquid capital
Type 1 –
in the case where the corporation is an approved introducing agent
in the case where the corporation provides securities margin financing
in any other case
Not applicable
HK$10,000,000
HK$5,000,000
HK$500,000
HK$3,000,000
HK$3,000,000
Type 2 –
in the case where the corporation is an approved introducing agent, a trader, or a futures non-clearing dealer
any other case
Not applicable
HK$5,000,000
HK$500,000
HK$3,000,000
Type 3 –
in the case where the corporation is an approved introducing agent
in any other case
HK$5,000,000
HK$30,000,000
HK$3,000,000
HK$15,000,000
Type 4 –
in the case where in relation to type 4 regulated activity, the corporation is subject to the licensing condition that it shall not hold client assets
in any other case
Not applicable
HK$5,000,000
HK$100,000
HK$3,000,000
Type 5 –
in the case where in relation to type 5 regulated activity, the corporation is subject to the licensing condition that it shall not hold client assets
in any other case
Not applicable
HK$5,000,000
HK$100,000
HK$3,000,000
Type 6 –
in the case where the corporation acts as a sponsor:
hold client assets
does not hold client assets
in the case where the corporation does not act as a sponsor:
hold client assets
does not hold client assets
HK$10,000,000
HK$10,000,000
HK$5,000,000
Not applicable
HK$3,000,000
HK$100,000
HK$3,000,000
HK$100,000
Type 7 –
HK$5,000,000
HK$3,000,000
Type 8 –
HK$10,000,000
HK$3,000,000
Type 9 –
in the case where in relation to type 9 regulated activity, the corporation is subject to the licensing condition that it shall not hold client assets
in any other case
Not applicable
HK$5,000,000
HK$100,000
HK$3,000,000
Type 10 –
in the case where in relation to type regulated activity, the corporation is subject to the licensing condition that it shall not hold client assets
in any other case
Not applicable
HK$5,000,000
HK$100,000
HK$3,000,000
Licensed Persons
Responsible officers (RO):
A licensed corporation is required to appoint two ROs who have been approved by the Securities and Futures Commission as ROs in relation to each of its regulated activities in Hong Kong.
The same individual, however, may be appointed to be a RO for more than one regulated activity.
At least one of the ROs must be an executive director (defined as a director who actively participates in, or is responsible for directly supervising, the business of a regulated activity for which a corporation is licensed.
Every executive director of a licensed corporation must be approved by the SFC as a RO in relation to the regulated activity in which he participates or supervise.
Licensed representative:
Any individual who carries on one or more regulated activities on behalf of a licensed corporation is required to apply for approval as a “licensed representative” accredited to that corporation.
A licensed representative may be accredited to more than one licensed corporation.
Competence Requirements
Generally, proposed ROs must possess the appropriate ability, skills, knowledge and experience to properly manage and supervise the corporation’s proposed regulated activities and fulfill four basic elements
A proposed licensed representative should possess a basic understanding of the market in which he is to work as well as the laws and regulatory requirements applicable to the industry and he is expected to fulfill three basic elements
Competence Requirements for ROs
Four basic elements
Can be compensated by
1)
Academic/industry qualification
Passed one of the recognised industry qualifications
Degree in accounting, business administration, economics, finance or law; or other degree (with passes in at least two courses in the above disciplines); or
Internationally recognised professional qualifications in law, accounting or finance; or
Passes in English or Chines, and Mathematics in HKCEE or equivalent plus an additional 2 years relevant industry experience; or
An additional 5 years relevant industry experience
(An applicant may apply for exemption from the recognised industry qualification requirement if he satisfies the exemptions criteria)
2)
Industry experience
Possess 3 years relevant industry experience over the 6 years immediately prior to the date of application
—
3)
Management experience
Has a minimum of 2 years proven management skill and experience
—
4)
Regulatory knowledge
Passed one of the recognised local regulatory framework papers
Applicant may apply for exemption from taking the recognised local regulatory framework paper if he satisfies the exemption criteria
Competence Requirements for a Licensed Representative in Hong Kong
Four basic elements
Can be compensated by
1)
Academic qualification
Passes in English or Chinese, and Mathematics in HKCEE or equivalent
Degree in accounting, business administration, economics, finance or law; or other degree (with passes in at least two courses in the above disciplines); or
Internationally recognised professional qualifications in law, accounting or finance; or
An additional 2 years relevant industry experience for lacking (1) or (2); or
An additional 5 years relevant industry experience for lacking both (1) and (2)
(Applicant may apply for exemption from the recognised industry qualification requirement if he satisfies the exemption criteria)
2)
Industry experience
Passed one of the recognised industry qualifications
—
4)
Regulatory knowledge
Passed one of the recognised local regulatory framework papers
Applicant may apply for exemption from taking the recognised local regulatory framework paper if he satisfies the exemption criteria
Competence Requirements for a Licensed Representative in Hong Kong
Four basic elements
Can be compensated by
1)
Academic qualification
Passes in English or Chinese, and Mathematics in HKCEE or equivalent
Degree in accounting, business administration, economics, finance or law; or other degree (with passes in at least two courses in the above disciplines); or
Internationally recognised professional qualifications in law, accounting or finance; or
An additional 2 years relevant industry experience for lacking (1) or (2); or
An additional 5 years relevant industry experience for lacking both (1) and (2)
(Applicant may apply for exemption from the recognised industry qualification requirement if he satisfies the exemption criteria)
2)
Industry experience
Passed one of the recognised industry qualifications
—
4)
Regulatory knowledge
Passed one of the recognised local regulatory framework papers
Applicant may apply for exemption from taking the recognised local regulatory framework paper if he satisfies the exemption criteria
Local Regulatory Framework Papers
Subject to exemptions, all ROs and licensed representatives must have passed one of the recognised local regulatory framework papers.
Proposed ROs or licensed representatives who are licensed in their own jurisdictions, may be able to be exempt from taking relevant regulatory framework papers in Hong Kong.
We normally will review the previous Hong Kong licensing records and the relevant details of the licensing papers so as to assist to assess as to whether any further papers will need to be taken or whether any exemptions can be applied for.
Business Structure
As part of the Hong Kong licensing application, the Securities and Futures Commissions would require information on the organisation and corporate structure of the applicant.
We usually will review your organisation chart (including all corporations and individuals and relevant percentage of holdings up to the ultimate beneficial shareholders) so as to assist us to determine what forms would need to be filed with.
Office Premises
Licensed corporations are required to have suitable office premises to conduct its regulated activities in Hong Kong.
In assessing whether an office premises is appropriate, the Securities and Futures Commissions will consider the following:
the security of the premises and whether there is a proper segregated office area;
whether essential office equipment and telecommunication systems are situated in an area accessible only by the firm’s personnel;
whether the firm has taken sufficient actions/measures to avoid confusion to its clients due to the co-existence of other forms in the same premises;
whether confidential or non-public information and client privacy will be sufficiently safeguarded against unauthorised access or leakage; and
whether the premises are always accessible for visit by regulators.
Insurance
The Securities and Futures (Insurance) Rules (“Rules”) set out the insurance requirements and the Rules. The two categories of licensed corporations which are required to take out insurance are participants of the Stock Exchange of Hong Kong Limited and licensed for type 1 regulated activity or type 2 regulated activity.
Section 4 of the Rules further provides that a licensed corporation governed by the Rules shall take out and maintain insurance for that regulated activity where the Securities and Futures Commissions has approved a master policy of insurance.
Timing And SFC’s Performance Pledge
The current performance pledge of the SFC for the processing of licensed application is 15 weeks.
The performance pledge for processing licensing representatives and RO applications are 8 weeks and 10 weeks respectively.
The above timing does not include the amount of time required for preparation of the materials.
The duration required for preparation will depend on the preparedness and responsiveness of the client and normally this would take approximately 2-4 weeks.
The location of the client may have a factor on this timing.
Recent Licensing Experience
We regularly assist and make submissions to the Securities and Futures Commissions on behalf of clients for obtaining of licenses to carry out regulated activities in Hong Kong
Selected licensing work:
recently advised a US headquartered financial-services firm in connection with its establishment of a Hong Kong subsidiary or branch for the set up of a futures contracts dealing practice in Hong Kong and the establishment of its leveraged foreign exchange business in Hong Kong
recently advised on the approval for change of substantial shareholder and approval of new nominated responsible officer of a fund management and securities advisory firm following its acquisition by a Thai private banking group
recently advised on the approval for change of substantial shareholders following the global merger of our client, an independently-owned private capital investment management firm, with a locally-based private investment group
recently advised on the approval to carry out asset management and securities advisory services in connection with a US-based group focusing on global energy and investments funds, which we were also advising in connection with its Chapter 21 listing on the Hong Kong Stock Exchange
recently advised on the merger of Hong Kong offices of a Taiwanese financial services and securities firm (which we assisted in setting up) with the Hong Kong subsidiary of another listed Taiwanese financial group
Reference Materials
The Securities and Futures Commissions has issued various rules, codes and guidelines that is relevant to licensed corporations. Some of these attached for reference and include:
guideline on competence (of corporations and licensed individuals);
code of conduct for persons licensed by or registered with the SFC;
management, supervision and internal control guidelines for persons licensed by or registered with the SFC;
fund manager code of conduct;
fit and proper guideline
licensing information booklet
Charltons
Charltons’ extensive experience in corporate finance makes us uniquely qualified to provide a first class legal service
Extensive initial public offering and listing experience
Representative offices in Shanghai, Beijing and Yangon
“Boutique Transactional Law Firm of the Year” by Asian Legal Business 2017
“Boutique Firm of the Year”awarded to Charltons by Asian Legal Business for the years 2002, 2003, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014 and 2015 and 2016.
“Hong Kong Best National Firm for Work-Life Balance” by Euromoney Legal Media Asia Women in Business Law Awards 2017, 2018 and 2019.
“Hong Kong’s Top Independent Law Firm”awarded to Charltons in the Euromoney Legal Media Group Asia Women in Business Law Awards 2012 and 2013
“Corporate Finance Law Firm of the Year in Hong Kong”awarded to Charltons in the Corporate INTL Magazine Global Award 2014
“Equity Market Deal of the Year”awarded to Charltons in 2011 by Asian Legal Business for advising on the AIA IPO
Excellent links and networks with law firms worldwide.
Julia Charlton was named the;“Capital Markets Lawyer of the Year – Hong Kong”in the Finance Monthly Global Awards 2014.
Julia Charlton was named a;“Leading Lawyer”;by Asia Law & Practice for the years 2002, 2003, 2006, 2007, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018 and 2019.
Julia Charlton was also named a;“Leading Advisor”by Acquisition International for 2013.
“Asian Restructuring Deal of the Year” 2000awarded to Charltons by International Financial Law Review for their work with Guangdong Investment Limited.
Julia Charlton was a Finalist of Veuve Clicquot Business Woman Award 2018 Hong Kong
Finalist for China Law & Practice’s “Deal of the Year (M&A)” 2007 for their work on Zijin Mining Group Co Ltd.’s bid for Monterrico Metals plc.
Practice Areas
Capital Markets
Global offerings and GDRs
IPOs and Placings
Listing on the Hong Kong, Shanghai, Shenzhen, London and Luxembourg stock exchanges
Corporate and Commercial
Mergers and Acquisitions
Joint ventures
Stock exchange advisory
Corporate governance
Stock options
Employment law
Securities
Compliance and disclosure
Dealing and advisory authorisations in Hong Kong and Mainland China
