How to Open a Finance Company in Hong Kong

Hong Kong is one of the world's largest financial hubs, as seen by the exponential growth in its financial services industry, which has contributed to the country's Gross Domestic Product and increased from 13% in 2004 to approximately 20% in 2018.

This article will discuss the scope of financial services, what a financial company is, and outline the process of opening a finance company in Hong Kong.

What is a Finance Company?

A financial services company is a specialized institution that provides financial services to both individuals and organizations.

Before making your business plan, it's important to conduct market research, research the financial companies in Hong Kong, find out what customers want, and check out the competition.

According to the International Monetary Fund (IMF), financial services refer to the process of how businesses or consumers acquire financial goods.

The type of services provided can range from making personal loans to individuals and businesses, advice regarding the management, making and investment of money, and trading shares on the stock market.

Examples of finance companies include banks, brokerage firms, insurance companies, foreign exchange services, asset management, hedge fund management companies, and credit card companies.

The finance company business model you choose will depend on your interests and/or expertise and how much you are willing to invest.

What is a Business Plan

The business plan maps your course, convinces investors, and might be needed for permits.

Detail your business model, target market, competitive advantage, marketing strategy, financial projections, and the experience of your management team.

It should also include details on your operational plan, such as office space and staffing requirements.

How Can You Open a Finance Company In Hong Kong?

If you want to set up a finance company in Hong Kong, you will have to follow the normal company incorporation process.

However, as finance companies are subject to additional regulations established to protect consumers, a financial services license needs to be obtained.

For more information regarding obtaining other types of business licenses in Hong Kong, please refer to our article here at Air Corporate.

Who Needs a Financial Services License In Hong Kong?

All intermediaries are required to obtain a license before providing any type of financial services in Hong Kong.

A list of activities regulated by the Hong Kong Securities and Futures Commission (SFC) under the Securities and Futures Ordinance  include:

• Securities margin financing 
• Automated trading services
• Asset management services
• Advising on future contracts
• Dealing in futures contracts
• Advising on securities
• Dealing in securities
• Advising on corporate finance
• Leveraged foreign exchange trading

It requires planning and understanding regulations to build a successful finance business.

What Is a Licensed Representative?

If your company is involved in any of the regulated activities mentioned earlier, you will need to apply for a financial services license.

The individual responsible for managing and organizing these activities on behalf of a licensed company must hold a representative's license.

All licensed representatives supervising a licensed company carrying out the regulated activities require the company's approval to act as a ‘responsible officer.'

What If It's an Overseas Company?

An overseas corporation or an individual carrying out business outside Hong Kong can apply for a temporary license to run the business in Hong Kong if the nature of their activity is similar to the regulated activities. 

A temporary license is only granted for not more than six months in total within any period of 24 months and for three months at any time.

However, this only applies to dealing with and advising on future contracts, securities, and corporate finance.

All other regulated activities cannot be carried out under a temporary license.

Who Is Exempt From a Financial Services License?

Only in the following situations will you be exempt from obtaining a financial services license:

Incidental Exemption

If your company's regulated activities are incidental to another regulated activity for which you already have a license, then you are exempt from obtaining another license.

Professional Exemption

All lawyers, accountants, and trust companies that advise on securities, asset management, corporate finance, or future contracts are not required to obtain a license only if the advice given is incidental to their professional practice.

Moreover, the exemption is also available to broadcasters and journalists who publish investment advice on radio or television.

Professional Investor Exemption

If you act as a principal and only deal with professional investors, you must not obtain a license for dealing in securities or futures. 

For more information regarding who qualifies as professional investors, please refer to Schedule I of the SFO.

Advising Company Group Exemption

Suppose you provide investment advisory services only to your subsidiaries or to your own holding company that holds all issued shares or any other owned subsidiary of the holding company.

In that case, you are exempt from obtaining a license.

Dealing In Securities/Margin Financing Exemption

Suppose you or your business already hold a license for dealing in securities.

In that case, you will not be required to obtain another license to carry out activities involving securities margin financing on behalf of your clients.

However, authorized financial institutions that may or may not have a license for dealing in securities are not obliged to register to offer securities margin financing services to their clients.

Leveraging Foreign Exchange

All authorized financial institutions are not required to register themselves to carry out leveraged foreign exchange.

How Can I Get a Financial Services License In Hong Kong?

Before applying for a financial services license, the following requirements need to be met:

1. Satisfying the "Fit and Proper Criteria" Set Out by the SFC

The Fit and Proper Criteria test allows the SFC to evaluate the fitness and proprietary of the applicant.

If the applicant is an individual, then the person will be examined, and if the applicant is a corporation, then all of its officers, shareholders, and employees will be examined by the SFC.

Moreover, if the applicant is an institution, its managers, directors, and chief executive will be examined.

In their examination, the SFC will evaluate the applicant on the following basis:

• Their financial status and solvency
• Their educational qualifications or experience concerning the nature of the functions to be performed
• Their ability to carry out the regulated activities in a competent, fair, and honest manner. 
• Their reputation, character, reliability, and financial integrity

2. Satisfying the SFC Compliance Guidelines

Here, the applicant must ensure strong internal compliance systems and a concrete business structure with a qualified team to run the business.

3. The Applicant Company Must Be An Incorporated Company In Hong Kong

If the applicant is a company, it must be incorporated in Hong Kong or be an overseas company registered with the Hong Kong Companies Registry. 

It is important to note that a sole proprietorship or a partnership structure cannot obtain a financial services license.

4. The Applicant Company Or Institution Must Employ A Minimum Of Two Responsible Officers For Each Regulated Activity

The applicant must employ at least two responsible officers for each regulated activity that needs a license.

The same individual can be appointed as a responsible officer for more than one regulated activity.

The requirements for a responsible officer are set out below:

• They must be ‘fit and proper.'
• There must be no conflict with other roles assumed.
• At least one of the two officers must be an executive director of the company or institution.
• They must hold a representative license for the respective regulated activity.

The SFC will evaluate whether the proposed officers are skilled, knowledgeable, and experienced enough to manage the company or institution's regulated activities effectively

5. The Applicant Is Required to Maintain the Minimum Paid-Up Share Capital and Liquid Capital

The minimum paid-up share capital and liquid capital are outlined in the Securities and Futures (Financial Resources) Rules.

Suppose the applicant is applying for a license for more than one of the regulated activities.

In that case, the highest minimum paid-up share capital and liquid capital are to be maintained.

6. If Applying for a License to Deal in Securities, Futures Contracts, or Security Margin Financing, the Applicant Must Have Specific Risks Insured.

The applicant must take out and maintain insurance against specific risks for a specific amount.

The SFC will then approve an insurance policy that is suitable for the applicant.

However, all applicants who are exchange participants and do not hold client assets are exempt from this requirement.

The Application

Once all prerequisites are met, the applicant must complete and submit the application forms, supporting documents, and the non-refundable application fee to the SFC either by post or in person.

If your application is successful, it will be processed within two to four months.

After that, the SFC will issue written approval of the license or certificate of registration, which will be mailed to you. Any mistakes, errors, or incomplete application forms will result in delayed processing.

The Licence/Certificate of Registration

The certificate/license will include the applicant's name, central entity number, date of registration, types of licensed, regulated activities, the conditions imposed on the license, and will mention any licensed representatives.

The applicant must display the license at all office premises at all times.

There is also an annual license fee that needs to be paid within one month after the registration date on each anniversary.

What If My Application Gets Rejected?

Your application will only be rejected if you fail to meet the requirements and prerequisites set out by the SFC.

However, you will be given a chance to explain your reasons for not meeting the requirements.

If the application is still rejected, then you can file an appeal with the Securities and Futures Appeals Tribunal within 21 days of the rejection date.

Final Words

• A financial services company is a specialized institution that provides financial services to both individuals and organizations.
• To obtain a license, you must be an incorporated company in Hong Kong or an overseas company that holds a temporary license to conduct business in Hong Kong.
• Hong Kong's Securities and Futures Commission, similar to the United States Securities and Exchange Commission, has a list of regulated activities in Hong Kong
• There are specific circumstances where you may be exempt from obtaining a license
• To obtain a license, you must meet the prerequisites before filing the application 
• After a successful application, you will be given the license/certificate of registration, which you have to display at every office
• If your application gets rejected, you can file an appeal within 21 days of the rejection date

Thinking of starting your own finance industry?

Looking to avoid all these pitfalls that seem to be just non-stop?

Register your company with Air Corporate today, and our experts will help you get your finance business off the ground in Hong Kong in less than 48 hours.