Understanding Licensing and Registration Requirements
Navigate the complex world of financial regulation with our comprehensive guide to licensing and registration requirements under the Securities and Futures Ordinance (SFO)
Types of Regulated Activities
Schedule 5 to the SFO stipulates 13 types of regulated activities, each with detailed definitions
Type 1: Dealing in securities
Type 2: Dealing in futures contracts
Type 4: Advising on securities
Type 5: Advising on futures contracts
Type 6: Advising on corporate finance
Type 9: Asset management
Type 10: Providing credit rating services
Type 3: Leveraged foreign exchange trading
Type 7: Providing automated trading services
Type 8: Securities margin financing
Types 11, 12, and 13: OTC derivatives, clearing, depositary services
General Licensing Requirements
You need a license if you are not an authorized financial institution and:
- •You are a corporation carrying on a business in a regulated activity in Hong Kong
- •You are actively marketing services that would constitute a regulated activity if provided in Hong Kong
- •You are an individual performing a regulated function for a licensed corporation
You need registration if you are an authorized financial institution and:
- •You carry on a business of regulated activity other than Type 3 and Type 8
- •You actively market services that would constitute a regulated activity if provided in Hong Kong
- •Relevant individuals at registered institutions must be entered in the HKMA register
Note: Note: Sole proprietorship or partnership is not an acceptable form of business structure for licensing purposes.
Incidental Exemptions
You may not need separate licenses for certain regulated activities if they are performed wholly incidental to your primary licensed activity
If licensed for dealing in securities, you may be exempt from Types 4, 6, and 9 if these activities are wholly incidental to your securities dealing business.
If licensed for dealing in futures contracts, you may be exempt from Types 5 and 9 if these activities are wholly incidental to your futures dealing business.
If licensed for asset management, you may be exempt from Types 1, 2, 4, and 5 if solely for the purposes of your asset management business.
These exemptions typically apply when the activities are subordinate to your primary service. However, they may not apply if there's evidence of a distinct service, such as charging separate fees or managing assets not under your primary service.
Additional Exemptions
If licensed for Type 1 (dealing in securities), you don't need a separate Type 8 license for securities margin financing, though stricter financial requirements apply.
You need a Type 10 license if preparing credit ratings for public dissemination, but not for internal use only or for commercial credit reference agencies focusing on non-individual entities.
You may be exempt from licensing requirements when dealing with professional investors as principal in certain circumstances.
You don't need licenses for Types 4, 5, 6, or 9 when providing services solely to wholly owned subsidiaries or holding companies that own all your shares.
Professional and Special Exemptions
Solicitors, counsels, and professional accountants are exempt from Types 4, 5, 6, and 9 licensing when providing such services wholly incidental to their professional practice.
Advice given through public publications, television, or radio broadcasts is exempt from Types 4, 5, and 6 licensing requirements.
Registered trust companies have exemptions for certain activities when acting as agents for collective investment schemes or when providing services wholly incidental to trustee duties.
Financial Technology (Fintech) Considerations
Firms demonstrating genuine commitment to innovative Fintech may operate regulated activities in a confined regulatory environment with closer monitoring and supervision.
Firms managing portfolios with more than 10% composition of virtual assets must comply with additional regulatory standards imposed through licensing conditions.
Centralized platforms offering trading of at least one security token may apply for Types 1 and 7 licenses. Bitcoin Futures traded on conventional exchanges require Type 2 licensing.
Security tokens likely qualify as "securities" under the SFO, requiring Type 1 licensing for marketing and distribution unless exemptions apply.
Special Business Models
Firms dealing with private companies as defined in the Companies Ordinance may not require licensing. However, those dealing with private offshore companies likely need licensing for:
- Type 9 if granted discretionary investment authority
- Type 1 for marketing funds or securities dealing
- Type 4 for providing investment advice
Licensing is activity-based. Family offices may not need licensing if:
- Services don't constitute regulated activities
- Activities fall within available exemptions
- They operate as internal units managing family trust assets
However, family offices set up as businesses to manage securities or futures contracts may require Type 9 licensing.
Type 13 Licensing Requirement
Any depositary of an SFC-authorized collective investment scheme (CIS) at the top of the custodial chain generally requires Type 13 licensing, with exemptions for certain mandatory provident fund schemes.
Staff Licensing
Staff members of a depositary should be licensed for Type 13 if they assume oversight duties or are empowered to approve custody-related transactions. Fund administration or transfer agency services alone don't constitute Type 13 activity.
Private OFC Custodians
Intermediaries licensed for Type 1 may act as custodians of private Open-ended Fund Companies if they meet eligibility requirements, including not being subject to conditions prohibiting holding client assets.
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