SFC licensing and compliance hints: seven takeaways from the new Licensing Handbook

In addition to what we covered in our last newsletter about the licensing of private equity firms, we have the following seven takeaways from the new Licensing Handbook which was issued in February 2019:

(1) Regulated activities: Providing financial training or sharing general investment knowledge (in a classroom setting or online) generally does not require an SFC licence. However, if it involves recommending specific stocks to “students” or inducing them to trade securities, the training institution, trainer and/or website content provider may need to be licensed. In order to be licensed for Type 9 (asset management) activity, an applicant must satisfy the SFC that it has discretionary investment authority to make investment decisions for its clients.

(2) RO applications: When assessing RO applications, the SFC considers the applicant’s experience and proposed duties as an RO. If the applicant claims to have gained the experience while working for a “dormant company”, such “experience” may not be counted as relevant industry experience as part of the competence assessment. The SFC will only approve ROs who have relevant experience and who have sufficient authority to supervise the business of regulated activities. 

(3) Substantial shareholders: Substantial shareholder applications should now be simpler as the SFC will require less information from a substantial shareholder that does not have a “close link” to the corporate licence applicant / licensed company. 

(4) Extensions: Applications for extension of financial year-end or extension of deadline for submission of audited accounts should be submitted at least one month before the original year-end or deadline. 

(5) ROs of exchange participants: The SFC requires licensed companies that are also exchange participants to have at least two Hong Kong based responsible officers.

(6) Online portal: In addition to individual applications, all notifications and annual returns (for companies and individuals) must now be submitted online. 

(7) Training confirmations: As part of the annual return, companies now need to confirm that they have (i) implemented training programmes to meet the training needs of licensed individuals, (ii) evaluated training programmes at least once during the previous calendar year, and (iii) maintained sufficient records of training programmes and the CPT activities undertaken by each licensed individual. Each individual also needs to confirm that he or she has undertaken the required number of CPT hours and retained sufficient records of CPT activities during the previous calendar year.