Obtaining a Financial Services Licence in Hong Kong

In Hong Kong, an intermediary needs a valid licence to conduct financial services regulated activities. The regulated activities include securities dealing; futures dealing; leveraged foreign exchange trading; advising on corporate finance, securities and futures; securities margin financing; providing automated trading services; and asset management.

This guide provides an introduction to the requirements, exemptions, application procedure, and other related information for a person interested in obtaining such a licence. Note that the information provided here is for general guidelines only and it is not meant to replace professional advice.

Who should obtain a licence?

Under the Securities and Futures Ordinance (SFO) of Hong Kong, the following are considered regulated activities by the Securities and Futures Commission (SFC) of Hong Kong:

1. Dealing in securities
2. Dealing in futures contracts
3. Leveraged foreign exchange trading
4. Advising on securities
5. Advising on futures contracts
6. Advising on corporate finance
7. Providing automated trading services
8. Securities margin financing
9. Asset management services

Any corporation (including an authorized financial institution) that intends to carry out any of the regulated activities listed above in Hong Kong will need to apply for a licence.

Any individual who intends to carry out any of the regulated activities listed above on behalf of a licenced corporation will need to apply for a Representative s licence. A licenced representative can be accredited to more than one licenced corporation.

Any licenced representative who is responsible for supervising a licenced corporation that carries out any of the regulated activities will need to be approved as a “responsible officer” of the licenced corporation.

Note that for a business entity, a sole proprietorship or a partnership is not an acceptable form of business structure for the purpose of obtaining the financial services licencing.

Any overseas corporation or individual carrying on a business outside Hong Kong that is of the same nature as a regulated activity can apply for a temporary licence to carry on the same business in Hong Kong. However, certain regulated activities such as leveraged foreign exchange trading, providing automated trading services, securities margin financing and asset management services cannot be carried out under a temporary licence. In addition, under the temporary licence the applicant cannot hold client assets. The temporary licence will be granted only for 3 months at any given time and for not more than 6 months in total within any period of 24 months.

Exemptions from holding a licence

The following exemptions apply:

• Incidental Exemption: You are exempt from licencing requirements for certain regulated activities if they are incidental to another regulated activity for which you are already licenced. For instance, assume that you are a stockbroker licenced for dealing in securities and as part of your investment advisory services, you offer securities or corporate finance advice to your clients. In this case, you are exempt from applying for a separate licence for “advising on securities” or “advising on corporate finance” as these activities are incidental to your securities dealing business.
• Securities dealer – margin financier exemption: If you are an individual or corporation and hold a licence for dealing in securities, you need not be separately licenced for carrying out securities margin financing activities for your clients. Authorized financial institutions, irrespective of whether they are registered for dealing in securities or not, are not required to be registered to carry out securities margin financing activities.
• Dealing with professional investor exemption: You are not required to be licenced for futures or securities dealing activity if you act as principal and deal only with professional
  investors (as defined in Schedule I of the SFO).
• Advising group company exemption: You are exempt from the licencing requirement if you provide investment advisory services solely to your wholly owned subsidiaries or to your holding company that holds all your issued shares or to other wholly owned subsidiaries of the holding company.
• Professional exemption: Accountants, lawyers and trust companies that offer advice on securities, futures contracts, asset management or corporate finance are exempt from the licencing requirement provided the advice given is incidental to their professional practice. The exemption also applies to journalists and broadcasters who offer investment advice through publications or television/radio broadcasts.
• Leveraged foreign exchange trading exemption: Authorized financial institutions are not required to register in order to carry out leveraged foreign exchange trading.

Licence Application Procedure

The following pre-requisites apply before you can proceed with the licence application filing in Hong Kong.

The applicant must satisfy the Fit and Proper Criteria set out by the SFC. The SFC will examine the fitness and propriety of the person (if the applicant is an individual); the corporation and any of its officers, employees and shareholders (if the application is made by a corporation); or the institution, its shareholders, directors, chief executive, managers and executive officers (if the application is made by an authorized financial institution). The SFC will consider the applicant’s

• Financial status or solvency,
• Educational or other qualifications or experience in relation to the nature of the functions to be performed
• Ability to carry on the regulated activity competently, honestly and fairly, and
• Reputation, character, reliability and financial integrity

The applicant must demonstrate that it has strong internal compliance systems and must satisfy the SFC Compliance Guidelines. In this regard, the applicant must ensure that it has a proper business, structure, good internal control systems and qualified personnel to effectively handle the business.

If a corporation makes the application, it must be a company that has been incorporated in Hong Kong or an overseas company registered with the Companies Registry of Hong Kong. Note that a sole proprietorship or a partnership structure cannot be used for this purpose. To learn about how to register a private limited company in Hong Kong, refer to Hong Kong Company Setup guide. For foreign company registration, please refer to Foreign Company Registration Options in Hong Kong.

If a corporation or an authorized financial institution makes the application, it must employ at least two responsible officers in respect of each regulated activity for which the corporation or institution is seeking to be licenced. The same individual can be appointed to be a responsible officer for more than one regulated activity provided he is found to be “fit and proper” and that there is no conflict in the roles assumed.

At least one of the proposed responsible officers must be an executive director of the corporation or institution. Both of the responsible officers must hold a representative's licence for the relevant regulated activity. The SFC will examine if the proposed officers possess appropriate ability, skills, knowledge and experience to effectively manage and supervise the corporation s business of regulated activities.

Depending on the type of regulated activity, the applicant must maintain a minimum paid-up share capital and liquid capital as prescribed by the Securities and Futures (Financial Resources) Rules. If there is an application for more than one type of regulated activity, the minimum paid-up share capital and liquid capital that is to be maintained shall be the highest amount required amongst the various regulated activities for which the application is being submitted.

If the applicant is applying for a licence to deal in securities, future contracts or securities margin financing, the applicant must take out and maintain insurance against specific risks for a specified amount. The SFC will approve a master policy of insurance suitable for the applicant based on various factors. Applicants who are not exchange participants and who do not hold client assets are exempt from this requirement.

Once you have decided to apply for a licence, completed application forms along with supporting documents and a non-refundable application fee must be submitted either by post or in person to the SFC. A successful application is usually processed within 2-4 months. The SFC will issue a written notification of the approval and a licence or certificate of registration will be mailed to you thereafter. Note that any incomplete or incorrect submission will result in delayed processing. The licence or certificate of registration will indicate:

• Your name
• Your Central Entity number
• Effective date of your licence or registration
• Types of regulated activity that you are licenced or registered to conduct
• The conditions imposed on your licence or registration, if any
• In the case of licenced representatives, the licenced corporations that you are accredited for as a principal

The licence must be displayed on the office premises at all times. If you have more than one place of business, a certified copy of your licence must be exhibited in a prominent place at each of your other places of business. All licenced or registered individuals, corporations and authorized financial institutions should pay annual licence fees within one month after each anniversary date of their licences or registrations.

Rejected applications

If you have met the necessary requirements, submitted all the necessary documents and provided accurate information in your application, there is no reason for the SFC to reject you. If however, you fail to meet the statutory requirements, the SFC has the right to reject your application. However, before rejecting your application, the SFC will give you an opportunity to provide an explanation for your case. If your application is still rejected, you can file an appeal within 21 days of your application being rejected with the Securities and Futures Appeals Tribunal. The review process can take up to several weeks.

Simple and straightforward business licencing

Applying for a financial services licence in Hong Kong is relatively simple and straightforward. Although you can apply for the licence on your own, it is strongly advised that you should engage a professional services firm to save time and resources.