Hong Kong SFC licensing and compliance hints

Can legal and compliance teams help senior management with SFC disclosure questions?

Of course they can help but many people have been involved in incidents in their past of which the legal and compliance department team members cannot possibly be aware. This means that before anyone, including the president or CEO of a company, signs any regulatory personal disclosure document prepared by anyone else, they must read the document very carefully themselves and be given an opportunity to raise questions in a very confidential environment and revise the responses if need be.

SFC notifications of cessation and gardening leave

Clients are sometimes confused about when a responsible officer (RO) or other member of staff who goes on gardening leave prior to the cessation of their employment, ceases conducting regulated activity for the purposes of the timing of the various cessation related SFC notifications. Under s126(4)(a) of the Securities and Futures Ordinance, the approval of an individual as an RO is deemed to have been revoked if s/he ceases to act as a licensed representative. Since staff members who are on gardening leave no longer perform work duties, their approval as an RO has already been revoked by operation of law. This means that once an RO or other staff member is on gardening leave, the person and the licensed corporation each need to submit SFC notifications within seven business days, and include an updated organisational chart. If the RO is also a Manager-In-Charge/Emergency Contact Person/Complaints Officer, this will need to be reflected in the chart.

SFC notification when RO is appointed to board

If an RO is also appointed to the board of directors of the company, a “Supplement Form – Individual’ will need to be submitted to the SFC by the company and the individual within seven business days of the appointment. They can use the same form and the RO will only need to fill in the “directorship and business interest” and “fitness and properness” sections.

Corporate structure changes – SFC steps

SFC pre-approvals

Under the Securities and Futures Ordinance, any person who/which (whether on their own or with their “associates”), has (i) a greater than 10% direct interest; or (ii) a 35% or more indirect interest, in an SFC licensed corporation, is considered a “substantial shareholder”. This means that if a change in a firm’s shareholding structure will lead to the firm having a new substantial shareholder, the new substantial shareholder will have to have obtained pre-approval from the SFC before the transaction can close. As part of this process, each of the directors of a new corporate substantial shareholder applicant will also need to complete SFC forms.

SFC post-notifications

Whether or not the change in the shareholding structure requires the SFC’s pre-approval, the licensed corporation will need to notify the SFC of the change within seven business days.