Simmons & Simmons - LaunchPlus Hong Kong - Get Started - SFC Licensing Basic Process

3/22/22, 11:54 AM Simmons & Simmons | LaunchPlus Hong Kong | Get Started | SFC Licensing basic process
LaunchPlus Hong Kong | Get Started | SFC

Licensing basic process
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The sections below summarise the basic process for obtaining a SFC licence for your Hong
Kong management entity.
Why do I need to be licenced?

Certain activities require regulation by the HK Securities and Futures Commission (SFC) if
carried out in HK. Carrying out these activities without obtaining a SFC licence is a
criminal offence. There is also a parallel HK regulatory regime requiring banks to be
authorised by the Hong Kong Monetary Authority (HKMA). The HKMA regime is beyond
the scope of this guide.
The main activities relevant to investment managers are as follows.
Managing a portfolio of securities or futures contracts or real estate investment

scheme: managing assets belonging to another person, in circumstances involving the
exercise of discretion, is Type 9 (asset management) regulated activity. This includes
acting as sub-investment manager on a delegated basis in relation to a fund. With a Type
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9 licence, you can market the fund that you manage without needing to be separately
licensed for Type 1 (dealing in securities) regulated activity.
Dealing in securities: marketing a fund that is not managed by you is Type 1 (dealing in
securities) regulated activity.
Advising on securities: providing research and/or investment recommendations in

relation to securities, other than where such advice is provided intra group, is Type 4
(advising on securities) regulated activity.
How do I become licenced?

You will need to be “fit and proper” for the purpose of the regulated activity; see below.
The process of applying for a SFC licence requires the proper completion and
submission of certain prescribed forms. The forms required will include some or all of
the following:
Forms for the Hong Kong company - these require factual information on the business
structure, contact information, addresses, share capital, corporate and shareholding
structure, substantial shareholders, management, key personnel, associated entities,
financial resources and business history.
Forms for individuals who will be “responsible officers” - responsible officers are
representatives with sufficient authority within the licensed corporations to take
responsibility for the regulated activities that the company proposes to undertake. They
are those who actively participate in and supervise the regulated activities of the Hong
Kong company. The forms require factual information about the individual’s personal
details, contact information, proposed regulated activities, academic or vocational
qualifications and licence records.
Forms for substantial shareholders of the Hong Kong company - at the first layer,
persons who (either alone or with his associates), directly or indirectly, hold or control
10% or more of the applicant will be regarded as substantial shareholders; from the
second layer and above, persons who (either alone or with their associates), directly or
indirectly, hold shares in any other corporation which entitles them to control the
exercise of 35% or more of the voting power of the other corporation, whereby the other
corporation is entitled to (either alone or with associates), directly or indirectly, exercise
control 10% or more of the voting power of the applicant.
Forms for directors of licensed corporation and corporate substantial shareholder -

these forms require factual information on the individual’s personal details, contact
information, financial status, license records and employment records.
Supporting documents include business plan, organisation charts, operational

flowcharts, compliance procedures, business continuity plan, copy of certificate of
incorporation, copy of business registration certificate and copy of registers of members
and directors etc.
Simmons & Simmons can assist on the preparation of your application and manage the
application process for you in a seamless and integrated manner (with your fund launch).
What are the threshold conditions?

Determination of “fit and proper”
The SFC is obliged to refuse to grant a licence if a firm fails to satisfy the SFC that it, its
substantial shareholders, officers and any other person who is or is to be employed by,
or associated with, the fund manager for the purpose of the regulated activity is “**fit
and proper**”. The SFC will have regard to the following factors in assessing a
person’s fitness and properness:
Financial status or insolvency: this requirement is aimed at identifying individuals or

corporations with dubious financial status.In the case of an individual, the SFC is unlikely
to be satisfied that a person is fit and proper if he / she is an undischarged bankrupt, or
has failed to meet any judgment debts. In the case of a corporation, the SFC is not likely to
be satisfied that it is fit and proper if it is subject to receivership, liquidation or similar
proceedings; has failed to meet any judgment debt; and is unable to meet financial or
capital requirements applicable to it.
Educational or other qualifications or experience: in considering the educational or

other qualifications or experience, the SFC will take into account the nature of functions
which the person will perform. Individuals are generally expected to display an
understanding of (i) the general structure of the regulatory framework; (ii) particular
provisions and guidelines that apply to the functions they would perform; (iii) fiduciary
obligations owed to clients; and (iv) the financial products they deal in or advise on.
Ability to carry on regulated activity competently, honestly and fairly: a person has to
demonstrate the ability to carry on the regulated activity competently, honestly and
fairly, and in compliance with the relevant laws and regulations. In the case of an
individual, if he has evidenced incompetence, negligence or mismanagement, it is likely
that he would not be considered fit and proper by the SFC. In the case of a corporation, the
SFC will assess its competence with reference to its organizational structure and
personnel.
Reputation, character, reliability and financial integrity: the SFC is not likely to be
satisfied that a person is fit and proper if the person was found to be of poor reputation,
character or reliability, lacking in financial integrity or dishonest. Instances which, if
remained unexplained, might result in the person as having failed this test include being
found by a court for fraud, dishonesty or misfeasance, and convicted of a criminal offence
which is relevant to fitness and properness. In the case of a corporation, similar
considerations will be given to these events.
Continuing requirements: a person licensed under the SFO must continue to be fit and
proper once the licence has been granted.
How long does it take?

The SFC has a performance pledge of 15 weeks for the processing of a licensing
application. However, it takes the SFC between 2 to 4 weeks to conduct a preliminary
review of, and formally accept, an application before the 15-week clock starts and the
clock stops running on each occasion that, and from the time, the SFC issues a requisition
letter until a response from the applicant to the requisition is received by the SFC.
How much will it cost?

There are various levels of cost; initial and ongoing.
Application and start-up costs: the costs of engaging a professional to assist with the
application process and the costs of establishing the legal entity and preparing any
shareholders agreement (if required) for any applicant. Come and speak to us at
Simmons & Simmons for a tailored quote that takes into account your specific licensing
needs, the number of licences being applied for, and special features/background
applicable to your application.
SFC costs: the SFC charges a fixed application fee, which is HK$4,740, per regulated
activity (except for Type 3 regulated activity) of a licensed corporation. Applications for
individuals to become licensed representatives cost HK$1,790 per regulated activity and
applications for individuals to be approved as responsible officers cost an additional
HK$2,950
Regulatory capital costs: the SFC rules require firms to maintain a minimum amount of
liquid capital and paid-up share capital which depend on the regulated activities of the
business:
If the firm is licensed for Type 9 (asset management) regulated activity and is subject to
the licensing condition that it shall not hold any client assets, the liquid capital
requirement is HK$100,000. The firm needs to maintain a 20% buffer because a SFC
notification requirement is triggered if the firm’s liquid capital falls below 120% of its
liquid capital requirement.
What legal entity do I need

The entity seeking to be licensed must be incorporated in Hong Kong or it must be an
overseas company registered as a branch with the Registrar of Companies in Hong Kong
under Part 16 of the Companies Ordinance. However, the SFC prefers Hong Kong
incorporated companies. Sole proprietorship or partnership is not an acceptable form of
business structure for the purposes of licensing.
Who are responsible officers?

The SFO requires every licensed corporation to have at least two Responsible Officers to
directly supervise the conduct of each regulated activity. Each Responsible Officer may
supervise more than one regulated activity provided there is no conflict of interest.
Responsible Officers are Licensed Representatives who are subject to additional eligibility
and approval requirements.
For each regulated activity, a licensed corporation should have at least one Responsible
Officer available in Hong Kong at all times to supervise the business and at least one of
the proposed Responsible Officers must be an “executive director”. All executive directors
must be Responsible Officers. Responsible Officers, as the name suggests, are responsible
for the business conducted by the licensed corporation. They may become personally
liable to prosecution (criminal and civil) by the SFC in relation to any breaches of the SFO.
In order for an individual to qualify as a Responsible Officer, four basic elements must be
fulfilled:
1. Academic/industry qualification - a university degree in law, economics, business,

finance or accounting would suffice;
2. Regulatory knowledge - generally, exams will need to be sat but there are certain
exemptions applicable, based on the SFC’s “pragmatic approach” for the licensing of
overseas hedge fund managers;
3. Industry experience - at least 3 years of relevant industry experience over the 6 years
immediately prior to the date of the licensing application. The experience must be
relevant to the proposed regulated business of the entity that is seeking to be
licensed. For Type 9 (asset management) regulated activity, this means experience in
asset management, proprietary trading, research, private equity, special situations
and dealing with other alternative investments;
4. Management experience – at least 2 years of proven management experience.
Pragmatic approach
The SFC has a streamlined approach to the licensing of overseas hedge fund managers.
Under the “pragmatic approach”, experience by acquired by individuals in sales,
marketing or risk management of hedge funds will be considered as experience indirectly
relevant to hedge fund management. The SFC may licence these individuals as
Responsible Officers subject to the imposition of the “non-sole” condition (pursuant to
which the individual must, when actively participating in or when directly supervising the
business for which the firm is licensed, do so under the advice of another Responsible
Officer who is not subject to the “non-sole” condition).
Further, under the streamlined approach, the SFC may exercise its discretion to exempt
an individual from meeting the local regulatory examination requirement for Responsible
Officers if the following conditions are met:
The person has over 8 years of industry experience in recognised markets (being those
identified in Parts 2 and 3 of Schedule 1 to the SFO) or the person is registered or licensed
in the UK or US for investment management or advisory business;
The firm will only service “professional investors” (as defined in the SFO);
The firm is able to confirm that regulatory and compliance support will be provided to the
person;
The person will take a post-licensing refresher course on local regulations.
How do I take on employees and do I need work

permits?
Note that in Hong Kong, employment is not "at will". Although there is no requirement
for a written contract, certain mandatory terms will be implied by law.
Any person, other than those who have the right of abode in Hong Kong, must obtain a
work visa before taking up employment in Hong Kong. Simmons & Simmons can advise
on the necessary steps and assist on the process.
What are the ongoing requirements for an authorised

firm?
A SFC licensed corporation is subject to certain on-going obligations and notification
requirements.
On-going obligations
Document
Audited Accounts
Notification Time Limit
Within four months after the end of each financial year.
Comment
If the licensed corporation ceases to carry on all of the regulated activities for which it is
licensed, it should submit to the SFC, its audited accounts and other required documents,
made up to the date of cessation, not later than four months after the date of cessation.
Document
Financial Resources Return
Monthly (no later than three weeks after the end of the month) except for those
corporations licensed for only Type 4, Type 5, Type 6 and/or Type 9 regulated activities
and are subject to the condition that they shall not hold client assets, in which case, semi-
annually.
Comment
N/A
Document
Business and Risk Management Questionnaire
Within four months after financial year end
Comment
N/A
Document
Annual Return
Within four months after each anniversary date of the licence.
Comment
Failure to submit the annual return before the due date could result in suspension and
revocation of the licence.
Document
Payment of Annual Fee
Within one month after each anniversary date of the licence.
Comment
Surcharge on the outstanding amount and possible suspension and revocation of licence.
Notification events and Changes
Types of change/event
Cessation of business
Notification on time limit
At least seven business days in advance for intended cessation of business
Ceased to act as a licensed representative
Within seven business days
Ceased to act as a responsible officer
Change in name
Change in business address
At least seven business days in advance for intended change in business address
Change in director or his particulars
Change in complaints officer or his particulars
Change in share capital or shareholding structure
Change in contact information
Change in bank accounts
Change in associated entity or its particulars

Change in auditor’s name
Give notice of a motion to change auditor in general meeting
Within one business day
Change in executive officer or his particulars
This note serves as an introduction to the Hong Kong licensing regime and is not
exhaustive. We are happy to advise further on any of the issues highlighted above.
This document (and any information accessed through links in this document) is provided for information
purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or
refraining from any action as a result of the contents of this document.
Key contacts
Devarshi Rolfe Hayden

Saksena Partner Hong Kong, Hong Kong SA
Partner London, United Kingdom
© Simmons & Simmons LLP 2022.
All rights reserved.

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3/22/22, 11:54 AM Simmons & Simmons | LaunchPlus Hong Kong | Get Started | SFC Licensing basic process

LaunchPlus Hong Kong | Get Started | SFC

RETURN TO LAUNCHPLUS HONG KONG > GET STARTED

Why do I need to be licenced?

The main activities relevant to investment managers are as follows.

Managing a portfolio of securities or futures contracts or real estate investment

Advising on securities: providing research and/or investment recommendations in

How do I become licenced?

Forms for directors of licensed corporation and corporate substantial shareholder -

Supporting documents include business plan, organisation charts, operational

What are the threshold conditions?

Financial status or insolvency: this requirement is aimed at identifying individuals or

Educational or other qualifications or experience: in considering the educational or

How long does it take?

How much will it cost?

What legal entity do I need

Who are responsible officers?

1. Academic/industry qualification - a university degree in law, economics, business,

The person will take a post-licensing refresher course on local regulations.

How do I take on employees and do I need work

What are the ongoing requirements for an authorised

Notification Time Limit

Within four months after the end of each financial year.

Financial Resources Return

Notification Time Limit

Business and Risk Management Questionnaire

Notification Time Limit

Within four months after financial year end

Notification Time Limit

Within four months after each anniversary date of the licence.

Payment of Annual Fee

Notification Time Limit

Within one month after each anniversary date of the licence.

Notification events and Changes

Notification on time limit

At least seven business days in advance for intended cessation of business

Ceased to act as a licensed representative

Notification on time limit

Within seven business days

Ceased to act as a responsible officer

Notification on time limit

Within seven business days

Notification on time limit

Within seven business days

Change in business address

Notification on time limit

Change in director or his particulars

Notification on time limit

Within seven business days

Change in complaints officer or his particulars

Notification on time limit

Within seven business days

Change in share capital or shareholding structure

Notification on time limit

Within seven business days

Change in contact information

Notification on time limit

Within seven business days

Change in bank accounts

Notification on time limit

Within seven business days

Change in associated entity or its particulars

Notification on time limit