Ranked 5th globally and 3rd in the Asia-Pacific region, Hong Kong is a leading financial center according to the Global Financial Centers Index. International companies operating under a strict financial system are attracted by its simplified procedures and favorable business environment. In order to operate successfully in this sector, you need to obtain an HKMA license with some rare exceptions that are in accordance with the law. Below is a detailed discussion of the registration criteria, consequences, and non-compliance, as well as possible exceptions. In addition, it is necessary to familiarize yourself with Hong Kong’s regulatory framework.
Regulatory Authorities Overview
Hong Kong’s financial services are governed by four main regulatory bodies, each tasked with overseeing different segments of the market:
- Securities and Futures Commission (SFC)
- Insurance Authority (IA)
- Mandatory Provident Fund Schemes Authority (MPFA)
- Hong Kong Monetary Authority (HKMA)
Banking services operate under a distinct licensing system managed by authorized institutions, which include banks and deposit-taking bodies. These institutions, when offering financial services, fall under the strict supervision of the HKMA. This section has introduced the foundational elements of Hong Kong’s regulatory framework, setting the stage for a deeper exploration of the financial services industry in the following section.
License Requirements for Financial Activities
To engage in services such as investment, loan, or deposit transactions in the banking, investment, or insurance sector, you need to have a Hong Kong virtual bank license. There are several types of financial activities that require licensing, which are defined by the Securities and Futures Commission (SFC), namely:
- Transactions in securities and futures contracts.
- Advising on securities and futures contracts.
- Advising on corporate finance matters.
- Automated trading services.
- Asset management.
- Leveraged foreign exchange trading.
- Margin financing of securities.
- Provision of credit rating services.
Individuals planning to engage in such activities as a corporation must obtain a representative’s license for legal entities. In addition, it is possible to apply for a temporary license valid for 3 to 6 months for foreign persons who want to carry out any activity listed on the Hong Kong Stock Exchange. They must register as a non-Hong Kong company with the Companies Registry (CR), such as a branch of an international company.
Exemptions from Hong Kong Financial License Requirements
Certain activities are exempt from requiring a Hong Kong financial license, allowing operation within specific parameters without the need for formal licensing. These exemptions include:
Dealing with Professional Investors
Direct dealings in securities and futures as a principal or agent with licensed entities or individuals are exempt, as specified in the Securities and Futures Ordinance (SFO), schedule 1, chapter 571.
Group Company Advice
Offering financial advice to a company or group you own shares in does not necessitate a license.
Activities Integral to Another Regulated Activity
Holding a license for a regulated activity negates the need for an additional license when offering advice integral to your primary licensed business.
Professional Advice
Professionals such as accountants, lawyers, or trust company advisors providing advice related to their primary profession are exempt.
Securities Margin Financing
License holders for securities dealing are not required to obtain an additional license for client margin financing activities.
Leveraged Foreign Exchange Trading
Authorized institutions regulated by the HKMA are exempt from needing a separate license for foreign exchange trading activities.
HKMA License in Hong Kong and MSB License in Canada
When considering a HKMA license, you should consider identity verification and financial stability assessment. In addition, the experience in financial activities, the purity of the historical record, compliance and risk management, capital requirements and liquidity will be reviewed. Equally important will be the appointment of responsible officials, a well-developed business plan, and so on.
In turn, the MSB license in Canada requires physical presence, registration with a financial authority, and compliance with strict identification and reporting standards. It is important that the team has no criminal record, as well as other staff, as well as monitoring of transactions, and financially knowledgeable management. So, in both cases, special attention is paid to the reliability of work, financial security, and compliance with legal standards. Of course, there are several differences and peculiarities.
Requirements
- Directors must provide identity information, such as passports for foreigners or identity cards for Hong Kong residents.
- The SFC will assess any history of financial instability, including debts or bankruptcy.
- Applicants need proven experience relevant to the financial activities they wish to undertake.
- It’s crucial that applicants have not been involved in malpractices or are not blacklisted.
- Companies must demonstrate effective compliance and risk management systems.
- Activities may have specific minimum capital and liquidity standards, detailed in the Securities and Futures (Financial Resources) Rules, Schedule 1, Chapter 571N.
- At least two individuals must be nominated as responsible officers, possessing the necessary licenses and qualifications to oversee regulated activities.
- A detailed plan covering the initial six months of operation, including how the company intends to meet financial obligations and potential funding sources.
- Certain regulated activities require insurance coverage to operate legally.
Hong Kong Financial License Application Timeline
After submitting all necessary documents and meeting the criteria, obtaining a Hong Kong financial license typically spans 2 to 4 months, varying by the intended financial activity. Upon approval, the license details include:
- The licensee’s full name or company name.
- Registration number.
- License issuance date.
- Regulated activity category.
- Any applicable conditions.
Enforcement of HKMA License Compliance
The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) are tasked with ensuring adherence to financial regulations. They conduct audits, demand relevant documentation, and, if they find violations related to the scope of a HKMA license, impose sanctions based on the severity of the infraction. Penalties can include:
- Revoking or suspending the license.
- Imposing financial penalties.
- Requiring improvements in internal controls and risk management.
- Legal actions leading to the liquidation of assets or invalidation of transactions.
Criminal charges, with the SFC handling lesser offenses and the Department of Justice addressing more severe crimes, potentially leading to fines of up to 10 million Hong Kong dollars and imprisonment for up to 10 years.
FAQ
What are the main regulatory bodies that regulate financial services in Hong Kong?
First of all, the central regulatory authorities that supervise these services are the HKMA (Hong Kong Monetary Authority), the Securities and Futures Commission (SFC), the IA (Insurance Authority), and the MPFA (Mandatory Provident Fund Authority).
What financial activities require a Hong Kong license?
The types of activities that require a license include trading in securities and futures contracts, securities and futures advisory, corporate finance advisory, automated trading services, asset management, foreign exchange trading with leverage, margin financing of securities, and credit rating services.
Are there any exemptions from obtaining a Hong Kong financial services license?
Yes, some exceptions exist, including working with professional investors providing advice within a group company. This also applies to activities necessary for other regulated activities, professional advice from certain professionals such as accountants or lawyers, margin financing by licensed securities dealers, and leveraged foreign exchange trading by authorized institutions.
What can those who do not comply with all the requirements of financial legislation face?
First, failure to comply with the requirements may result in revocation or suspension of the license, fines, and requirements to strengthen internal control. In addition, it can lead to court orders to liquidate or void transactions, as well as criminal prosecution with fines of up to HK$10 million and up to 10 years in prison, depending on the severity of the offense.
