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The licensing regime under the Securities and Futures Ordinance

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The licensing regime under the Securities and Futures Ordinance

7. APPROVAL CRITERIA

Part V sets out various criteria to be met by an applicant for a corporate or representative licence. The most important of these is that the SFC must be satisfied that the applicant is a fit and proper person to be licensed for the regulated activity (Sections 116(3) and 120(3)). Section 129 sets out matters to be taken into account by the SFC in determining an applicant’s ‘fitness and properness’ which include the applicant’s financial status, qualifications and experience, ability, reputation, character, reliability and financial integrity. The SFC’s Fit and Proper Guidelines and Guidelines on Competence made under Section 399 SFO provide further details as to the matters considered by the SFC in determining the fitness and properness of an applicant.

In addition to fitness and properness, the SFC is also required to consider certain other matters, including, in the case of corporations, their ability, if licensed, to comply with the financial resources rules and the adequacy of their insurance coverage in respect of prescribed risks (Section 116(3)).

APPROVAL CRITERIA FOR CORPORATIONS

Competence

The SFC must be satisfied that a licensed corporation has a proper business structure, good internal control systems and qualified personnel to ensure the proper management of risks.

Financial Resources

Depending on the type(s) of regulated activity for which a corporation is licensed, it must maintain at all times paid-up share capital and liquid capital in amounts at least equivalent to those specified in the Securities and Futures (Financial Resources) Rules. If a corporation applies to be licensed for more than one regulated activity, the minimum paid-up share capital and liquid capital that must be maintained is the highest amount required among those regulated activities. A table summarising the minimum paid-up share capital and liquid capital requirements for each type of regulated activity is set out at Annex B to this note.

Insurance

The Securities and Futures (Insurance) Rules (the ‘SFIR’) set out the insurance requirements applicable to corporations licensed for certain regulated activities. A corporation licensed for regulated activity Type 1 (dealing in securities), Type 2 (dealing in futures contracts) or Type 8 (securities margin financing) is required to take out and maintain insurance against specific risks for specified amounts when the SFC approves a master policy of insurance applicable to it. Licensed corporations who are not exchange participants or whose licences are subject to a condition that they may not hold client assets are exempt from this requirement (section 3 of the SFIR).

APPROVAL CRITERIA FOR LICENSED REPRESENTATIVES

A person applying to be approved as a licensed representative (other than a responsible officer the approval requirements for which are detailed at section 8 below) must demonstrate that he has the requisite basic understanding of the market in which he is to work as well as the laws and regulatory requirements applicable to the industry. In assessing a person’s eligibility to be licensed as a representative, the SFC will have regard to the three basic elements mentioned in the table set out at Annex C to this note.

8. RESPONSIBLE OFFICERS

In addition to requiring persons carrying on regulated activities to obtain a ‘representative licence’, Part V also introduces a ‘responsible officer’ concept. In relation to each regulated activity for which a corporation is licensed, there must be at least one ‘responsible officer’ of the licensed corporation who is available at all times to supervise the business of the regulated activity (Section 118(1)).

Every licensed corporation is required by Section 125 to have at least 2 persons who have been approved by the SFC as ‘responsible officers’ in relation to each of its regulated activities. At least one of those persons must be an executive director (defined as a director who actively participates in, or is responsible for directly supervising, the business of a regulated activity for which a corporation is licensed (Section 113(1)) of the licensed corporation. In addition, every executive director of a licensed corporation is required to be approved by the SFC as a ‘responsible officer’ in relation to the regulated activity in which he participates or supervises.

Approval Criteria for Responsible Officers

An individual applying for approval as a licensed representative and a responsible officer is required to demonstrate that he has sufficient authority to supervise the business of the regulated activity within the licensed corporation. The individual must also possess appropriate skills, knowledge and experience to properly manage and supervise the relevant regulated activity and must meet the requirements set out in the table at Annex D.

Additional competence requirements apply if a person wishes to be licensed to conduct regulated activities in relation to matters falling within the ambit of a particular code issued by the SFC, e.g. the Codes on Takeovers and Mergers and Share Repurchases or the Code on Real Estate Investment Trusts.

9. REGISTERED INSTITUTIONS

9.1

Authorised financial institutions (ie. banks, restricted licence banks and deposit taking companies authorised under the Banking Ordinance) are required to be registered with the SFC if they wish to carry on one or more regulated activities, with the exception of Type 3 (leveraged foreign exchange trading) and Type 8 (securities margin financing) activities (Section 119(1)). An authorised financial institution may therefore carry out regulated activities Types 3 and 8 without being registered under the SFO.

Applications for registration from authorised financial institutions are referred by the SFC to the Hong Kong Monetary Authority (the ‘HKMA’)(Section 119). The HKMA will then advise the SFC as to whether it considers the applicant to be a fit and proper person for registration for the relevant regulated activity. Any registration of an authorised financial institution by the SFC may be made subject to reasonable conditions.

9.2

Executive Officers of Registered Institutions

Section 125(2) of the SFO requires that a registered institution must have complied with Section 71D of the Banking Ordinance in appointing at least 2 executive officers responsible for directly supervising the conduct of each business conducted by the registered institution that constitutes a regulated activity. Those executive officers are further required to be in compliance with the provisions of Section 71C of that Ordinance.

The HKMA’s prior written consent is required before a person may become an executive officer of a registered institution (Section 71C Banking Ordinance). Such approval is subject to the HKMA being satisfied that the person is a fit and proper person to be an executive officer of the institution and has sufficient authority within it to be an executive officer. The HKMA’s consent may be made subject to such conditions as it considers proper.

The SFO further requires that, in relation to each regulated activity for which a registered institution is registered, there must be at least one executive officer of the registered institution available at all times to supervise the business of such regulated activity (Section 119(8)).

9.3

Relevant Individuals of Registered Institutions

Section 20 of the Banking Ordinance requires registered institutions to register with the HKMA the following information:

  1. the name and business address of every ‘relevant individual’;
  2. the capacity in which each ‘relevant individual’ is engaged in relation to a ‘regulated function’ in a regulated activity;
  3. the date on which each relevant individual was first so engaged; and
  4. such other particulars as the HKMA thinks fit.

A ‘relevant individual’ of a registered institution is an individual who performs any ‘regulated function’ in a regulated activity for or on behalf of, or by an arrangement with, the institution, other than work ordinarily performed by an accountant, clerk or cashier.

A ‘regulated function’ is any function performed for or on behalf of, or by an arrangement with, the registered institution relating to the regulated activity, other than work ordinarily performed by an accountant, clerk or cashier.

Section 119(8) SFO further requires that any person whose name is registered under Section 20 of the Banking Ordinance must be a fit and proper person to be engaged in the relevant regulated activity.

9.4

Fitness and Properness

The fitness and properness of registered institutions, their executive officers and relevant individuals is considered and determined by the HKMA having regard to the criteria set out in Section 129 SFO and the SFC’s Fit and Proper Guidelines and Guidelines on Competence.

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Опубликовано:

2014-10-16