SFC licensing and compliance hints – May 2014

Keeping the SFC informed: When we advise clients that certain matters need to be notified to the SFC under the Securities and Futures (Licensing and Registration) (Information) Rules, often the reaction is “Why? We do not even have to do that for our home regulator!” or “This is too minor; we do not want to waste the SFC’s time”. The Information Rules do not contain any de minimis exemptions so licensed corporations, licensed individuals and substantial shareholders have no choice but to comply, within the relevant time frames, whenever something relevant occurs. The SFC does not usually prosecute for occasional breaches of these requirements by reason of oversight but failure to comply, especially if such failures are repeated, can mean the company having to adopt additional internal procedures and may affect the SFC’s risk rating for the person or licensed entity.

Reportable directorships – no borders: The Information Rules do not set any geographical boundaries in respect of a licensed individual’s reportable directorships, partnerships or proprietorships. Therefore, any such appointment or involvement whether in Hong Kong or elsewhere needs to be notified to the SFC on time with the relevant explanations.

SFC fines intermediary for Macau licensing breaches: Subsequent to the SFC circular of 28 January 2014 (reported in our February newsletter), which reminded licensed corporations of the need to comply with local laws in conducting cross-border business, the SFC has reprimanded and fined two related securities / futures houses a total of HK$1.7 million for conducting unauthorised financial activities in Macau. The firms were conducting securities business and providing services to clients in respect of trading in the Hong Kong market without any local authorisation to do so, in breach of Macau law. The SFC said that failure to comply with Macanese law is a breach of paragraph 12.1 of the Code of Conduct and also affected the licensees’ fitness and properness. The SFC said “the contravention of the laws of Macau has called into question the reputation, character and reliability” of the licensees.

Crowdfunding update: In our November 2013 newsletter we identified the regulatory and licensing issues in relation to crowdfunding in Hong Kong. The SFC has since issued a public statement confirming its position on licensing. First principles apply: if a person is soliciting investments into “securities” from third parties, a licence will be required. The SFC also pointed out to potential crowdfunding investors various risks involved in crowdfunding investment. See the SFC’s press release.