Hong Kong is one of the world’s largest financial hubs, as seen by the exponential growth in its financial services sector, 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.
A financial services company is a specialized institution that provides financial services to both individuals and organizations.
According to the International Monetary Fund (the IMF), financial services refer to the process of how businesses or consumers acquire financial goods.
The type of services provided can range from making 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.
If you want to set up a finance company in Hong Kong, you will have to follow the normal company incorporation process.
Please refer to our article on the different types of companies and the company incorporation here for more information regarding the best company type and further guidance.
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.
All intermediaries are required to obtain a license before providing any type of financial services in Hong Kong.
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.’
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 in and advising on futures contracts, securities, and corporate finance.
All other regulated activities cannot be carried out under a temporary license.
Only in the following situations will you be exempt from obtaining a financial services license:
If your company’s regulated activities are incidental for another regulated activity for which you already have a license, then you are exempt from obtaining another license.
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 that publish investment advice on radio or television.
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.
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.
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 for carrying 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.
All authorized financial institutions are not required to register themselves to carry out leveraged foreign exchange.
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:
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:
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 minimum paid-up share capital and liquid capital that is the highest is 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.
Once all prerequisites are met, the applicant must complete and submit the application forms, supporting documents, and the non-refundable application fee either by post or in-person to the SFC.
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 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 each anniversary date of the registration date.
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.
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