Hong Kong SFC licensing and compliance hints

Pledge over assets vs. securities of a licensed corporation

A corporation licensed with the Securities and Futures Commission (SFC) is required under section 4(3) of the Securities and Futures (Licensing) (Registration and Information) Rules, to notify the SFC within seven business days after the occurrence of various events, including “changes in the information in respect of any assets of the licensed corporation that is subject to any charge (including pledge, lien and encumbrance)”.

Pledge over the licensed corporation’s shares by a shareholder is however different and may require the SFC’s pre-approval. By virtue of section 6(1)(a)(i) of Part 1 of Schedule 1 of the Securities and Futures Ordinance, any person who has “an interest” in the shares of a licensed corporation exceeding 10%, would be regarded as a substantial shareholder. The expression “an interest” in shares can be interpreted very broadly, so, a pledgee of more than 10% shares of a licensed corporation will likely require the SFC’s approval to become a substantial shareholder before the pledge is created.

Can licensing exams be taken online outside of Hong Kong?

Yes. The Hong Kong Securities and Investment Institute has designated computer-based examination centers at which licensing exams can be taken in the following regions:

  • Mainland China: Beijing, Shanghai, Shenzhen, Xian and Wuhan; and
  • Taiwan: Taipei

Enrollment of licensing exams outside of Hong Kong is available at Securities Association of China and Securities and Futures Institute.

Provision of trade documents by electronic means

On 29 September 2020, the Securities and Futures Commission (SFC) issued a circular to provide updated guidance on intermediaries’ provision of contracts notes, statements of accounts and receipts (Trade Documents)to clients.

Under section 17 of the Securities and Futures (Contract Notes, Statements of Account and Receipts) Rules, where applicable, intermediaries are required to provide clients with one or more of the Trade Documents. In addition to the traditional means of providing paper documents, intermediaries can give clients access to the Trade Documents through their websites (Access Services) provided that the intermediaries have done the following:

  • Obtained positive, revocable consent from the clients to Access Service; and
  • Implemented adequate operational safeguards to ensure sufficient notice and access will be given to the clients.

Operational safeguards suggested by the SFC in the circular include:

  • obtaining consent to the Access Services from both existing and new clients;
  • providing further guidance on the disclosure of access arrangements and assisting clients in giving informed consent;
  • clarifying that other forms of effective electronic communications, in addition to email, may be used for notifying clients of the posting of the Trade Documents on the website; and
  • extending the minimum online retrieval period to two years for monthly statements of account and three months for other Trade Documents.

For more detail about the SFC’s suggested operational safeguards, please refer to the annex to the circular.