Hong Kong Private Equity Licensing Issues

The regulatory regime governing the securities and futures markets in Hong Kong requires companies to be licensed by the Securities and Futures Commission (SFC) in order to carry on different types of regulated activities.

For a company to engage in activities such as dealing in securities (Type 1) or advising on securities (Type 4) in Hong Kong, it generally needs to be licensed. The term “securities” is given a wide definition under the Securities and Futures Ordinance (SFO). There are, however, some exemptions from licensing which may be available to private equity groups.

The SFC recently published an FAQ on Venture Capital Companies. This FAQ serves as a reminder that securities of a private company established in Hong Kong are excluded from the definition of “securities” in Schedule 1 of the SFO. As such if a private equity adviser confines its activities to securities of Hong Kong private companies, the private equity adviser does not need to obtain an SFC licence.

For details of this FAQ, please click here: http://www.sfc.hk/sfc/doc/EN/faqs/licensing/faq-lic-15.pdf

A private equity group may be able to take advantage of the licensing exemption for wholly owned groups. Under this exemption, a company is not required to be licensed for advising on securities if it only provides investment advice to its wholly-owned subsidiaries, its 100% holding company, or other wholly-owned subsidiaries of that holding company. Using this exemption, an overseas private equity group can structure its business by establishing a subsidiary office in Hong Kong which provides advice and recommendations to its group companies outside Hong Kong.