What is the difference between an SFC license and HKMA registration in Hong Kong?
In Hong Kong, the statutory organization responsible for regulating the securities and futures markets is the Securities and Futures Commission (SFC).
The Securities and Futures Ordinance, which came into effect on April 1, 2003, grants the SFC regulatory authority over the securities and futures markets in Hong Kong, including the important function of "licensing and regulating intermediaries engaged in regulated activities". According to the Securities and Futures Ordinance, unless exempted, anyone who carries on a regulated activity in the securities and futures markets or in the non-bank retail leveraged foreign exchange market in Hong Kong, or who holds themselves out as carrying on such activities, must obtain a license or registration from the SFC in accordance with the relevant provisions of the Securities and Futures Ordinance, or they will be committing a serious offense.
Schedule 5 of the Securities and Futures Ordinance specifies ten categories of regulated activities.
In brief, if a company or individual wants to engage in regulated activities such as securities trading, futures contracts trading, or asset management, they must obtain the qualifications from the SFC to conduct such regulated activities.
This qualification is divided into two types:
Obtaining an SFC license to become a licensed corporation or licensed person;
Registering to become a registered institution or registered person, that is, obtaining the so-called HKMA license in the industry.
So how do you determine which type of license to apply for?
According to sections 116 and 117 of the Securities and Futures Ordinance, non-licensed financial institutions become licensed corporations (LCs) once they apply for and obtain a license from the SFC.
Individuals who are engaged in regulated activities under a licensed corporation are known as licensed representatives (LRs) after obtaining a license issued by the Securities and Futures Commission (SFC).
After being approved by the SFC, the licensed representative becomes a responsible officer (RO) responsible for supervising regulated activities.
According to section 119 of the Securities and Futures Ordinance, a recognized financial institution that has been registered with the SFC is referred to as a registered institution (RI).
Employees of registered institutions who engage in regulated activities and whose names are entered in the Securities Industry Record of the Hong Kong Monetary Authority (HKMA) are referred to as relevant individuals (ReI).
A licensed representative or relevant person affiliated with a registered institution, who has applied to and received approval from the Monetary Authority to serve as the executive officer (EO) of the registered institution.
The main difference between SFC and HKMA licenses is whether the corporation or affiliated corporation is a recognized financial institution.
So, what is a recognized institution?
A recognized institution refers to licensed banks, restricted-license banks, and deposit-taking companies.
In simple terms, it refers to banks. Companies registered in Hong Kong or overseas companies registered with the Hong Kong Companies Registry are considered non-recognized institutions.
Why are recognized institutions registered with the SFC instead of applying for a license?
According to the Banking Ordinance, the Hong Kong Monetary Authority (HKMA), also known as the Monetary Authority, is responsible for granting, suspending, and revoking the recognition status of recognized institutions. It has general discretionary powers to decide whether to approve or reject applications for recognition to conduct banking or deposit-taking business in Hong Kong.
The HKMA is the statutory regulatory body for the banking industry in Hong Kong, while the Securities and Futures Commission (SFC) is the primary regulatory body for the securities industry in Hong Kong. Therefore, if a bank wishes to engage in securities business regulated by the SFC, it needs to register with the SFC. The registration process involves the bank submitting application materials to the HKMA, which then reviews and forwards them to the SFC for registration. Banks engaged in securities business regulated by the SFC are jointly supervised by the HKMA and the SFC, with the HKMA remaining the frontline regulatory body.
Therefore, banks conducting securities business register with the SFC as registered institutions, rather than being directly regulated and licensed by the SFC as licensed corporations.
The differences between the two can be summarized in the table below:
|Corporate Category||SFC Qualification Category||Employee License Category||Regulatory Authority|
|Non-Recognized Institution||Licensed Corporation||Licensed Individual||SFC|
|Recognized Institution||Registered Institution||Relevant Individual||HKMA and SFC|
Lastly, complaints against a licensed corporation or licensed individual are handled by the SFC. Complaints against registered institutions or relevant individuals are the responsibility of the HKMA.
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