New Licensing Forms and Mandatory Electronic Filings Required by the SFC

The Securities and Futures Commission (SFC) now requires licence applications to be made with the new licensing forms introduced on 11 February 2019. Annual returns and notifications to the SFC must be submitted electronically through the SFC Online Portal.

NEW SFC LICENSING FORMS

The SFC’s introduced the following six new licensing forms:

Form

Designed for

A

Corporate licence applicants

B

Existing licensed corporations

C

Registered institution applicants and existing registered institutions

D

Substantial shareholder applicants

E

Approved substantial shareholders

F

Associated entities of intermediaries

The SFC has stated that the new forms are designed to assess the fitness and properness of new applicants by focusing on four major areas: (i) business profile and clientele; (ii) financial strength and sustainability of substantial shareholders; (iii) management (including corporate governance, responsible officers and managers-in-charge of core functions); and (iv) risk management and internal control measures.

Among the changes introduced in the new forms, corporate applicants are required to provide a projection of their operating expenses incurred in the first six months after receiving their licence so that their financial soundness can be assessed. If the corporate applicant cannot cover its projected expenses with its excess liquid capital during that period, it must provide a plan to demonstrate that additional funding would be available. Another change was that substantial shareholders of the applicant may need to provide the SFC with only basic information in relation to their identity when they apply for approval. The SFC has stated that this is justified in cases where the applicant and the substantial shareholder have a remote relationship, such as in large groups with complex shareholding structures. Lastly, where the new forms require disclosure of investigations, disciplinary actions and civil litigation against the applicant, emphasis is placed on recent (within the past five years) or significant matters.

Additionally, the SFC has published two self-assessment questionnaires for corporate applicants to match their business profiles with the types of regulated activities and evaluate the soundness of their risk management and internal control measures. The questionnaires allow the SFC to identify regulatory issues at an early stage by obtaining information about corporate applicants’ business profiles and confirmation of the internal control policies and procedures they have in place. One questionnaire is for all types of businesses. The other questionnaire is for specific business models: asset management, dealing in securities or futures, securities margin financing and electronic or automated trading services (applicants that engage in any of these activities should use the specific business profile questionnaire instead of the general business profile questionnaire).

MANDATORY ELECTRONIC SUBMISSIONS OF ANNUAL RETURNS AND NOTIFICATIONS

All annual returns and notifications must be submitted electronically using the SFC Online Portal. Licensees are required to confirm in their annual returns that they have complied with the continuous professional training (CPT) requirements for the previous calendar year. According to the SFC’s Guidelines on Continuous Professional Training, licensed representatives must undertake a minimum of 5 CPT hours per calendar year for each regulated activity he or she engages in other than Type 7 regulated activity (providing automated trading services).

Licensed corporations and registered institutions should keep sufficient records on the programmes and continuous professional training activities undertaken by the licensed representatives or relevant individuals they engage. Such records must be kept for a minimum of 3 years and made available for inspection upon request by the SFC or the Hong Kong Monetary Authority.

Solicitor, Charltons Law, Hong Kong

With a background in banking and debt capital markets in London and Hong Kong, Kim joined boutique corporate law firm, Charltons, in 2003 and focuses on Hong Kong corporate finance regulation, including IPOs, listed company regulatory compliance, SFC licensing, funds, and debt capital markets.  Her main interest is the development of Hong Kong regulation to facilitate Hong Kong’s continued growth as Asia’s premier international finance centre.  Key areas of interest currently include continued broadening of access to Hong Kong’s stock exchange, crypto assets, crowd-funding, fintech, virtual banking and green banks.