SFC compliance and licensing hints – Oct 2018

You can’t have it all – Type 1 business plans

The scope of Type 1 (Dealing in Securities) activity is very broad: it includes trading stocks for clients, buying and selling mutual funds and unit trusts for clients, and the placing and underwriting of securities. However, the SFC often imposes conditions on licences, designed to limit the scope of a company’s Type 1 activities according to the business plan submitted with the licence application. For example, if a company has a condition on its Type 1 licence to only deal in collective investment schemes, it cannot trade stocks for clients. Furthermore, a company with an unconditional Type 1 licence should consider whether its existing or planned Type 1 activities fall within the scope of its business plan as filed with the SFC. If a company’s activities are not accurately described in the business plan, it should notify the SFC, in addition to ensuring that it has appropriate resources and internal control policies for any new activities.

Keep the SFC notified

Speaking of notifying the SFC, the SFC issued a reminder on 14 September 2018 about compliance with the notification requirement under paragraph 12.5 of the Code of Conduct. This reminder is different to the one issued by the SFC in May 2015 which mainly focused on the Securities and Futures (Licensing and Registration) (Information) Rules. In the latest circular, the SFC reminds licensed companies to notify it of any actual or suspected material breaches or non-compliance of any law, rules, regulations and codes administered by the SFC as soon as practical upon identification, and not after the completion of internal investigation, obtaining legal advice or taking remedial action. When it comes to actual or suspected material breaches or non-compliance, time is of the essence. Licensed companies may wish to revisit their incident identification, escalation and reporting processes.