SFC licensing and compliance hints – Jul 2018

MIC regime on inspection agenda

According to the latest SFC Annual Report (2017-18), during the last financial year, the SFC conducted 301 risk-based on-site inspections (312 in 2016-17), including thematic inspections on a range of issues. The SFC has enhanced the case management system and implemented a new risk assessment system to seek to improve the efficiency of inspections. The SFC will review firms’ compliance with the MIC regime during upcoming inspections as one of its strategic proprieties.

Another strategic priority is to release a revamped version of the Business and Risk Management Questionnaire for collection of data on licensed corporations’ business activities and risk exposures.

Licence applications meet performance pledge

According to the annual report, all new corporate, provisional representative and normal representative applications met the SFC’s performance pledges of 15 weeks, 7 business days and 8 weeks respectively. However, applications that had unresolved fitness and properness issues, outstanding vetting requests, applicants failing to provide essential information, or requests by applicants to delay the final approval were excluded from the statistics.

1% of applications for approval of responsible officers and 3% of applications for transfer of accreditation did not meet the performance pledges of 10 weeks and 7 business days respectively. This was mainly due to unexpected complications such as increases in the SFC’s workflow resulting in resourcing difficulties, but the consequential delay were usually short according to the annual report.

Buying a licensed entity – having your cake and eating it?

When a firm decides to acquire the shares of an existing company (and, if it’s an SFC licensed corporation, obtain the SFC’s approval of any new substantial shareholders) in preference to buying the assets of the business from the existing company and having them transferred into its own corporate vehicle (and, if the business is SFC regulated, getting the corporate vehicle licensed), it is impossible to do so without also automatically inheriting all the warts and skeletons of the existing company. In other words, the existing company (and therefore its owners) remains accountable for all problems it has ever had (including legal and regulatory issues) even if they occurred under a prior shareholder. This means that unless it is really worth taking over responsibility for all the prior sins of a company, it may be better to simply set up a new company to acquire the assets and start anew.