As the main offshore and non-offshore center of the Asian financial market, Hong Kong is an important bridgehead for mainland financial institutions seeking overseas development.
Compared with the difficulty in applying for financial licenses in the mainland, the Hong Kong securities and futures markets adopt an access system. Any group or individual conducting regulated activities must apply for a license from the Hong Kong Securities and Futures Commission. As long as they meet the requirements of the Hong Kong Securities and Futures Commission, they can apply for licenses from No. 1 to 10. After being awarded the license, they become licensed persons as required by the Hong Kong Securities and Futures Commission.
In addition, in 2020, the Hong Kong Securities and Futures Commission (hereinafter referred to as the "Hong Kong SFC") announced that it had issued the first license to a virtual asset trading platform in Hong Kong. In accordance with the "Position Paper: Regulating Virtual Asset Trading Platforms", it announced a regulatory framework applicable to virtual asset trading platforms that provide trading services for at least one security token. The regulatory framework includes strict standards in terms of asset custody, network security, anti-money laundering, market supervision, accounting and auditing, product due diligence and risk management.
This article will review the existing financial licenses in Hong Kong and the supervision and license applications for virtual asset trading platforms.
Hong Kong Financial License
The Hong Kong Securities and Futures Commission has stipulated a total of 12 regulated activities, which means that in order to engage in the following 12 related activities, one must obtain the corresponding financial license in order to legally carry out the corresponding financial activities in Hong Kong.
Among them, licenses for Type 11 and Type 12 regulated activities related to over-the-counter derivatives have not yet been implemented.
Licence Type
Hong Kong's 12 types of financial licenses
There are 10 types of license plate real-world applications
How to apply
There are two ways to obtain a Hong Kong financial license: direct application and acquisition.The advantages and disadvantages of the two methods are summarized below for reference.
Method 1: Apply directly
The direct application method requires the following seven elements to be met, as shown in the table. The important parts will also be listed below to show the specific requirements in detail.
Company Requirements
Companies established in Hong Kong must have a simple shareholder structure, the identity of the ultimate beneficiary/actual controller, and the shareholders and directors must meet the "suitable person requirements".
During the application process, the financial status and character of major shareholders and directors will be carefully verified in the form of a form. Among them, a major shareholder is a person who holds more than 10% of the shares of the licensed company, or a person who holds 35% of the shares of a company that controls the licensed company.
Funding requirements
This also includes proof of shareholder's source of funds and legality, funding requirements for the planned business, and legal requirements for registered capital.
对于财务状况的定期汇报也是有明确要求的。一般情况下持牌法团须每月向证监会呈交财政资源申报表；第4、5、6、9以及10类牌照及其牌照受到不得持有客户资产的条件所规限的法团，只须每半年呈交财政资源申报表。
Personnel requirements
The main thing is that the law requires at least one "responsible officer RO" to manage the company, but when applying for a license, or after being granted a license to operate in the future, the Hong Kong Securities and Futures Commission requires at least two "responsible officers RO" to be employed.
Among them, ROs are divided into big and small brands. Big brand ROs are those who have been in the position before and have relevant licensed RO experience. Small brand ROs are those who have passed the relevant HKSI examinations and have relevant industry experience.
Taking the data of No. 9 RO-2017 as an example, the monthly salary of a pure listing without participating in the company's management and operation is about 5-6 Hong Kong dollars, which depends on experience and bargaining power. If you need to participate in the company's operation and management, the monthly salary will be as high as 10 Hong Kong dollars.
Method 2: Acquisition
Generally, the acquisition of non-listed licensed companies in Hong Kong by private enterprises from the mainland mainly involves the Securities and Futures Ordinance at the Hong Kong legal level.
If the licensed company is a listed company, it will also touch upon the Listing Rules and the Takeover Code. The acquisition of a Hong Kong licensed company is essentially a "change of the major shareholder of the licensed company". The specific process is as follows:
1. The licensed company submits an application to the Hong Kong Securities and Futures Commission to change or increase the major shareholder. The key to the application is the Securities and Futures Commission's review of the identity of the licensed company's major shareholders. Each level of companies and individuals identified as major shareholders and the company's directors must fill out an application form and file it with the Securities and Futures Commission.
2. The acquiring entity must provide relevant asset certificates, usually asset certificates or financial statements issued by a bank. The acquiring entity must ensure that it has sufficient financial strength to fulfill the acquisition contract and can guarantee the subsequent development of the licensed company.
3. The CSRC will focus on reviewing whether the acquiring company has the qualifications to become a major shareholder of a licensed company.
Is the acquired company in the same industry? If the acquired company is in the financial industry, it is relatively suitable. If the acquired company is in other industries, a complete and reasonable business plan is required.
Will the business model of the licensed company change significantly after the change in equity structure? Will there be any conflict of interest?
For example, if the acquiring company is a private equity fund management company in the Mainland, then it is engaged in exactly the same business as the acquired company. The CSRC will consider whether there is a possibility of cross-trading between the two, whether there is a possibility of market manipulation, and whether the interests of one party's investors will be harmed to benefit the other party.
Therefore, it is necessary to establish a complete risk control system and isolation measures, and the staffing should be reasonable and sufficient.
Ongoing responsibilities after the acquisition of a licence
1. The company must maintain the qualifications of a fit and proper person and comply with all applicable provisions of the Securities and Futures Ordinance and its subsidiary legislation.
2. The company must submit audited accounts and financial returns regularly. If there are any changes in the company's business, it must notify the CSRC within a specific time limit.
Risks of Acquisition
1. Licensed company debt and creditor claim risks.
2. Sunk costs in the acquisition process. The transaction process involves a lot of time, capital and manpower costs.
3. The acquisition price of the target assets is too high. In recent years, with more and more mainland companies competing to acquire Hong Kong licensed companies, the market competition is fierce, and the prices of existing licensed companies that can be acquired have soared sharply in recent years.
4. Hong Kong policy risks. The latest circular from the Hong Kong Securities and Futures Commission indicates that the Hong Kong Securities and Futures Commission will not encourage such arrangements and will question whether the senior management of licensed corporations has properly supervised the regulated activities of the corporations and properly managed the risks involved in their businesses. Licensed corporations and responsible persons may be subject to sanctions, including public reprimands and license revocation.
Maintenance after obtaining the license
Regular declaration
After obtaining a license, a licensed corporation is required to submit a financial resource declaration form to the SFC every month.
对于持有第4、5、6、9、10号牌照，或者受到不得持有客户资产的条件规限的持牌法团只需每半年提交财政资源申报表。
Pay annual fee
To become a licensed corporation, an annual fee of HK$4740 must be paid for each license.
The annual fee for license No. 3 is different from others and is HK$129730.
Virtual Asset License
Applicant
Since November 2019, 11, the Hong Kong Securities and Futures Commission has begun to regulate virtual asset trading platforms (i.e. central virtual asset trading platforms) that provide virtual asset trading, settlement and delivery services and have control over investor assets.
Companies operating a central virtual asset trading platform in Hong Kong and intending to provide trading services for at least one security token on its platform may apply to the SFC for licenses for Type 1 and Type 7 regulated activities.
According to the licensing and registration provisions of the Hong Kong Securities and Futures Ordinance, any person engaging in regulated activities must apply for a license from the Hong Kong Securities and Futures Commission.
Hong Kong financial licenses are classified from 1 to 10, of which Category 1 is securities trading, including providing stock and stock option trading/brokerage services for customers, buying and selling bonds for customers, buying and selling mutual funds and unit trust funds for customers, allocating and underwriting securities. Category 7 is providing automated trading services, including operating an electronic trading platform that matches customer buy and sell orders.
【Precautions】
The SFC will not accept licence applications from platforms that only provide trading services in a direct peer-to-peer market where investors typically retain control of their own assets (whether fiat currency or virtual assets).
If a platform conducts virtual asset transactions for clients (including transmitting buy and sell instructions) but does not itself provide automated trading services, the SFC will not accept their license applications.
Scope of supervision
Once a platform is licensed, its infrastructure, core appropriate person qualifications and virtual asset trading activities should be considered as a whole. Although non-security token trading activities are not "regulated activities", as long as the platform is involved in security token trading activities (even if it only accounts for a small part of its business), the SFC's regulatory scope covers all relevant aspects of the platform's operations.
Application conditions
Regulatory Sandbox
Once a virtual asset trading platform operator is licensed, it will be placed in the Hong Kong Securities Regulatory Commission's regulatory sandbox. This generally means that more frequent reporting, monitoring and review will be required. Through strict supervision, the Hong Kong Securities Regulatory Commission will be able to highlight areas where operators should improve their internal controls and risk management.