Can a holder of an original SFC type 1 license be a type 4 and the type 9 license R.O.?

May 13, 2021

Why do fund managers/asset management companies need to obtain a Type 4 license?

There is a type 1 regulated activity (Dealing in Securities) license holder who has many years of experience. This person has passed the Paper 6 of the Licensing Examination for Securities and Futures Intermediaries (HKSI LE). Can he become the RO responsible for Type 1 regulated activities (Dealing in Securities) and Type 9 regulated activities (Asset Management)? 

This question can be divided into two subsidiary questions

  • Can he become a Type 1 regulated activities (Dealing in securities) RO? 
  • Can he become a Type 9 regulated activities (Asset Management) RO?

First, to become a responsible officer for type 1 and type 9 regulated activities, you must meet the requirements of the SFC Guidelines on Competence. According to the requirements of the SFC Guidelines on Competence, as long as candidates meet the four types of requirements, along with other requirements, one then can apply to become a responsible officer. 

  • Education/Industry Qualification
  • Industry experience
  • Management experience
  • Regulatory knowledge

Education/Industry Qualifications:

Like the representatives, since this person has many years of experience, he must meet the relevant requirements.

Industry experience:

Candidates must have 3 years of relevant industry experience within 6 years before the date of application, as long as the person has 3 years of relevant industry experience in the financial industry, he/she will be able to meet the requirement. When considering whether the applicant applying to become a Responsible Officer meets the experience requirements, the SFC (Securities and Futures Commission) issued a circular on clarifying the competency requirements related to existing licensees who intend to provide asset management services, stating that the SFC will take into account the person’s accumulated work experience in the financial industry. In addition to direct securities trading experience and asset management experience, other industry experience (such as research, private equity and proprietary trading) will also be recognized as relevant experience. It should be noted that so-called industry experience does not necessarily refer to the license record in Hong Kong, accumulated experience of the license applicant in other countries or regions can also be calculated.

Management Experience:

Applicants who wants to be licensed as  Responsible Officers also need to have at least 2 years of proven management skills and experience. These management skills and experience refer to the experience of leading subordinates. Generally speaking, managing more than one subordinate is already considered management experience

Regulatory knowledge:

The so-called regulatory knowledge is measured by the results of relevant qualification examinations. If you want to engage in Type 9 regulated activities (Asset Management), you need to take the Licensing Examination (HKSI LE) Paper 6.If you want to engage in Type 1 regulated activities ( Dealing with Securities ) or Type 4 regulated activity (Advising on Securities) you are required to take the Licensing Examination (HKSI LE) Paper 2. 

Why do fund managers/asset management companies need to obtain a Type 4 regulated activity license?

Why companies engaged in asset management generally hold Type 4 regulated activity licenses at the same time are mainly due to tax and legal issues. Many companies will set up funds or other legal entities overseas to manage assets.The fund itself does not need a license, but the fund manager needs a license, and if you manage funds or assets in Hong Kong, you need to obtain an SFC asset management license. Since if assets are managed in Hong Kong, asset management companies/fund managers who charge management fees and performance fees from asset management activities need to pay profits tax to the Hong Kong government. In order to avoid paying profits tax, many companies will set up asset management companies in the Cayman Island or other overseas regions to avoid paying large amounts of profit tax. However, many asset management companies hope to operate in Hong Kong to obtain more market information and investment opportunities.The best way to do this is to set up fund managers/asset management companies in both Hong Kong and the Cayman Islands. With that said, the fund manager in Hong Kong can first entrust the Cayman Islands fund manager/asset management company to manage the fund, and then the Hong Kong fund manager/asset management company will “provide investment advice and introduces investment opportunities” to the Cayman Islands company; in this way, less profit tax will be required, whilst ensuring the appropriate exposure to investment opportunities in Hong Kong. 

Since Hong Kong asset management companies/fund managers only provide advice and introduce investment opportunities to other fund managers instead of directly trade and manage assets, nor do they have access to clients’ assets, these Hong Kong asset management companies/fund managers only need to get the Type 1 regulated activity (Dealing with Securities) license and Type 4 regulated activity (advising on securities) license instead of Type 9 regulated activity (asset management) license.

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