Hong Kong SFC License Essentials: A Comprehensive Overview

Are you planning to engage in the financial service industry in Hong Kong? If so, the SFC license is an indispensable element you cannot afford to overlook. It serves as a fundamental permit that enables individuals and businesses to conduct their operations within the legal framework of Hong Kong’s dynamic financial sector.

Dive into our enlightening blog to uncover all the vital details about the SFC license, including the comprehensive process for obtaining one.

What is an SFC license?

An SFC license refers to an official permit issued by the Securities and Futures Commission (SFC).

This license grants entities the legal permission to engage in regulated activities within the securities and futures industry in Hong Kong.

Please note that the requirement to obtain an SFC license applies to both local and foreign companies.

What are the types of SFC licenses?

The SFC issues various types of licenses depending on the specific regulated activities an entity intends to undertake. Companies engaged in multiple activities may require multiple licenses to comply with regulatory requirements.

It’s essential to identify the appropriate license based on your company’s specific activities to ensure compliance with Hong Kong’s securities and futures regulations.

Some of the common types of SFC licenses and the regulated activities associated with them include:

Type 1: Dealing with securities

This license is required for entities involved in the buying or selling of securities, which include financial instruments like stocks, bonds, or debentures, either on behalf of clients or for their own accounts.

Type 2: Dealing in futures contracts

Entities wishing to engage in trading futures contracts in Hong Kong must obtain this license. Futures contracts can involve various underlying assets such as agricultural products, energy commodities, metals, or currencies.

Type 3: Leveraged foreign exchange trading

This license is necessary for those engaged in leveraged foreign exchange trading activities, which include activities like forex (foreign exchange) brokerage or providing a trading platform for leveraged forex trading.

Type 4: Advising on securities

Entities providing guidance on securities investments to clients, such as financial advisory firms or investment advisory companies, require this license.

Type 5: Advising on futures contracts

Entities offering advice on futures contracts, including research, analysis, and tailored trading strategies for various asset classes like commodities, currencies, or equity index futures, must obtain this license.

Type 6: Advising on corporate finance

This license is needed for entities offering strategic advice and assistance in complex financial activities, including mergers and acquisitions (M&A), capital raising, and restructuring, to corporations, investors, and other entities.

Type 7: Providing automated trading services

Entities offering automated trading services, such as algorithmic trading or electronic trading platforms, are required to have a Type 7 license.

Type 8: Securities margin financing

This license is necessary for entities engaged in securities margin financing activities, which involve providing loans or credit facilities to clients for trading in securities.

Type 9: Asset management

Entities managing portfolios of securities or futures contracts on behalf of clients need to obtain this license. It covers activities related to asset management and investment.

Type 10: Providing credit rating services

Entities providing credit rating services, which assess the creditworthiness of issuers of financial instruments, require a Type 10 license.

Key requirements for obtaining an SFC license

Entities seeking an SFC license in Hong Kong must fulfill several requirements, including:

Fit-and-proper criteria

Before applying for an SFC license, the company’s directors, substantial shareholders, and key personnel must demonstrate that they are “fit and proper” to conduct regulated activities.

This evaluation considers factors such as financial stability, integrity, competence, and relevant experience.

Additionally, the SFC conducts thorough background checks on these individuals, including the review of criminal records, credit histories, and any past regulatory or legal issues.

Business plan and financial resources

The company is required to present a comprehensive business plan that outlines its proposed activities, organizational structure, and business model. This plan should include details regarding the types of regulated activities the company intends to undertake.

Furthermore, the company must satisfy the minimum financial requirements specified by the SFC, illustrating that it possesses adequate capital and resources to operate responsibly and sustainably.

Compliance policies and responsible officers

The company must establish and maintain robust compliance policies and procedures that detail how it intends to adhere to all relevant SFC regulations and obligations.

Additionally, the company is obligated to appoint at least one Responsible Officer (RO) who holds an SFC license. The RO assumes the responsibility of overseeing the licensed activities and must meet fit-and-proper criteria while possessing relevant experience.

Record-keeping and regulatory reporting

The company is mandated to maintain precise and complete records of its business activities, transactions, and client information in accordance with SFC regulations.

Furthermore, it must submit regular reports to the SFC, including financial statements, regulatory filings, and notifications of significant events, as required by the regulatory framework.

Ongoing compliance

The company is responsible for ensuring ongoing compliance with all relevant SFC regulations, which include the following aspects:

• Disclosure and transparency: The company must maintain transparency in its dealings with clients and investors, providing accurate and timely information as required by SFC rules.
• Anti-Money Laundering (AML) measures: The company must implement effective AML measures in accordance with SFC guidelines to prevent financial crime.
• Annual inspection and examination: The SFC may conduct inspections and examinations of the company on an annual basis. These assessments aim to evaluate compliance with regulatory standards and the terms of the SFC license.

These key requirements collectively form the foundation for companies seeking to obtain an SFC license in Hong Kong. Fulfilling these criteria is essential for compliance with regulatory standards and ensuring the responsible operation of financial services within the jurisdiction.

How to obtain an SFC license in Hong Kong?

To secure an SFC (Securities and Futures Commission) license for your company, you need to navigate an evaluation process conducted by the SFC to determine your company’s eligibility for licensing.

The following procedure outlines the steps you should follow to facilitate a successful registration with the SFC:

Step 1: Determine the type of licenses

Identify the type of SFC license that your company requires based on the specific regulated activities it intends to conduct.

Common types of SFC licenses include

• Type 1 (Dealing in Securities);
• Type 2 (Dealing in Futures Contracts);
• Type 4 (Advising on Securities); and
• Type 9 (Asset Management).

Step 2: Prepare for the assessment process

Ensure that your company’s directors, substantial shareholders, and key personnel meet the SFC’s fit-and-proper criteria.

Additionally, you must appoint at least one Responsible Officer for each type of license your company intends to apply for. The ROs must meet fit-and-proper criteria and possess relevant experience.

Step 3: Gather the necessary documents

You can refer to the list of key requirements provided in the previous section for more detailed information. In general, the required documents include:

• Detailed description of your business plan (e.g., activities, organizational structure, model, etc.);
• Financial records or statements as specified by the SFC;
• A comprehensive compliance policies and procedures as per SFC regulations;
• Records of your business activities, transactions, and client information; among other things.

Step 4: Submit the license application

Submit your application along with the required documents and application fee. The fee amount may vary depending on the type of license and the complexity of your application.

Step 5: Wait for review

The SFC will review your application, assess your company’s compliance with regulatory requirements, and conduct background checks on key individuals. This process may take several months, and the SFC may request additional information or clarification during this time.

If your application is approved, the SFC will issue the license for your company. Each licensed Responsible Officer will also receive their individual RO license.

Once you obtain the SFC license, your company is responsible for ongoing compliance with all relevant SFC regulations. This includes regular reporting, maintaining records, and adherence to regulatory requirements.

Conclusion

In general, the SFC license is the authorization that every business involved in regulated activities should have. While it seems to be overwhelming at first, getting to know the rope can ensure a smooth SFC register for your business.

If your business is still not ready for the license, let us help you with the incorporation, feel free to contact us at service@bbcincorp.com

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