This article is intended for individuals or registered institutions considering applying for an SFC License in Hong Kong. The Securities and Futures Commission (SFC) regulates the securities and futures markets in Hong Kong. As per the Securities and Futures Ordinance (SFO), firms in Hong Kong that carry out any business that pertains to a Regulated Activity need to obtain the relevant license for such activity.
Additionally, even if you are an individual carrying out or responsible for supervising such Regulated Activity, you need the appropriate SFC license in Hong Kong.
The licenses are granted by the Hong Kong Securities and Futures Commission (SFC).
In this article, we will examine the top 10 FAQs about applying for an SFC License in Hong Kong.
1. What Are the Various Regulated Activities Under the Securities and Futures Ordinance?
As per Schedule 5 of SFO, the following qualify as a Regulated Activity:
- 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. This includes hedge funds, private equity firms, and other investment firms that manage portfolios on behalf of clients.
- Type 10 – Providing Credit Rating Services
In addition to the above, the following activities in connection with the over-the-counter derivatives market are classified as a Regulated Activity and need an SFC license:
- Type 11 – Dealing or advising in OTC derivative products
- Type 12 – Providing clearing agency services for OTC derivatives transactions
2. What Are the Exemptions Granted by SFC?
Each Regulated Activity has a set of prescribed exemptions.
A company can be eligible for incidental licensing exemption — you are exempted from obtaining a license for a particular Regulated Activity if such an activity is wholly incidental to another Regulated Activity for which you have a license.
Suppose you have obtained a license for Type 1 activities, and you want to carry out activities that fall within Type 4 and Type 6.
You don't need a separate license, provided such activities are completely incidental to the Type 1 business you are carrying out.
A company carrying out a Regulated Activity can also be eligible for a group company exemption, provided such a company is carrying out the Regulated Activity solely for its wholly-owned subsidiaries, its holding company, or other wholly-owned subsidiaries of that holding company.
3. What Kind of Companies Can Apply for an SFC License?
The applicant should be a company incorporated in Hong Kong or an overseas company that is registered with the Hong Kong Companies Registry.
4. What Are the Specific Factors Considered for Granting an SFC License to a Company?
The applicant should be ‘Fit and Proper' before it can be granted an SFC license.
The following factors are considered to assess Fitness and Properness:
- Financial status or solvency
- Relevant educational or other qualifications or experience
- Competent, honest, and fair
- Reputation, character, reliability, and financial integrity
To determine whether the applicant meets licensing requirements, the SFC can refer to several regulations, circulars, and codes such as:
- Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission
- Fund Manager Code of Conduct
- Corporate Finance Adviser Code of Conduct and the Management, Supervision, and Internal Control Guidelines
The applicant should have fit and proper shareholders and senior management.
The senior management is primarily responsible for maintaining the standards of conduct within the corporation.
The applicant should also fulfill the minimum paid-up capital and liquid capital requirement depending on the type of Regulated Activity they wish to carry out.
Additionally, the applicant should also appoint at least two Responsible Officers (ROs) to supervise the business carrying out the Regulated Activities.
Out of the ROs, at least one of the ROs should be an executive director.
Moreover, one of the ROs should be available at all times to supervise the business.
Anyone from the company who's carrying out Regulated Activities should be a ‘licensed representative'.
5. What is the Application Procedure for Obtaining an SFC License?
You need to fill out the application form available here and also pay the prescribed fees.
Additionally, you need to submit several supporting documents and licensing requirements, such as:
- Business plan with details on how you propose to carry out the Regulated Activity
- Information about the corporate structure, directors, and substantial shareholders
- Group organization structure chart
- Copy of the latest audited financial statements of the company and the holding companies
- Copy of the group financial statements
6. I Am an Individual Who Wants to Carry Out a Regulated Activity. How Can I Obtain an SFC License?
For those who want to be licensed persons, you can obtain a license as a ‘licensed representative' or a ‘Responsible Officer' by clearing the exams offered by the Hong Kong Securities Institute.
By taking licensing examinations, the regulatory and industry knowledge of the applicants will be tested.
Additionally, the Guidelines on Competency provide the regulatory regime of a Responsible Officer that include relevant industry experience.
Please note that as a Responsible Officer, you will also be responsible for supervising a licensed corporation's activities.
7. Apart From the ROs, Do I Need to Appoint Anyone Else for the Overall Management of the Licensed Entity?
Yes, since 2017, SFC has also required licensed entities to appoint a Manager-in-Charge (MIC).
A MIC is part of a licensed corporation's senior management and can be a director or a RO.
MICs can be located within Hong Kong or overseas.
Ideally, every licensed corporation should have at least one MIC responsible for a Core Function of such a licensed corporation.
However, one MIC can also manage multiple Core Functions.
Similarly, if needed, a single Core Function can be managed by more than one MIC.
The Core Functions are:
- Overall Management Oversight
- Key Business Line
- Operational Control and Review
- Risk Management
- Finance and Accounting
- Information Technology
- Compliance; and
- Anti-Money Laundering and Counter-Terrorist Financing
8. How Soon Can I Expect to Receive the SFC License?
While it is not possible to indicate the exact timeline, it typically takes SFC 15 days to process an application for an entity's SFC license.
It takes eight weeks for a licensed representative to process the application and ten weeks for a responsible officer.
9. What Is the Difference Between SFC Type 1 and Type 2 License?
The SFC in Hong Kong issues various licenses to regulate activities in the securities and futures markets. Here's a breakdown of SFC Type 1 and Type 2 Licenses:
- SFC Type 1 License (Dealing in Securities): This license authorizes a firm or individual to buy and sell securities for their own account. Securities can include stocks, bonds, warrants, and other financial instruments. It's important to note that a Type 1 license holder cannot handle client orders or hold client assets.
- SFC Type 2 License (Dealing in Futures Contracts): This license allows a firm or individual to trade futures contracts for their own account. Futures contracts are agreements to buy or sell an asset at a predetermined price on a specific future date. Similar to a Type 1 License, a Type 2 License holder cannot manage client funds or handle client futures orders.
10. Are There Any Ongoing Obligations on Licensed Entities/Licensed Individuals?
Yes, both licensed corporations and individuals must comply with the various directions/guidelines issued by the SFC and the relevant provisions of the SFO.
This includes adhering to anti-money laundering and counter terrorist financing ordinance. Moreover, certain types of changes, such as changes in name or business address, will require SFC's prior approval.
Doing all the paperwork on your own to obtain the SFC license can be challenging. Even a single mistake can prove too costly.
But you don't have to struggle alone — the experts at Air Corporate are here to help.
We can clarify all your doubts about the SFC license and the specific requirements and guide you through the process. For any questions, drop us a line at [email protected].
