SFC 1-12 License Requirements Compared: Which Fits Your Business?
Introduction
Setting up a financial institution in Hong Kong requires an appropriate SFC license. The SFC issues 12 types of licenses under the Securities and Futures Ordinance, each covering different regulated activities. This guide compares the core business scope, capital requirements, responsible officer criteria, and ongoing compliance duties across Types 1 through 12, and offers practical suggestions based on common business models.
Business Scope by License Type
Each license type authorises a specific regulated activity. Here’s a high-level summary:
| License Type | Regulated Activity |
|---|---|
| Type 1 | Dealing in securities |
| Type 2 | Dealing in futures contracts |
| Type 3 | Leveraged foreign exchange trading |
| Type 4 | Advising on securities |
| Type 5 | Advising on futures contracts |
| Type 6 | Advising on corporate finance |
| Type 7 | Providing automated trading services |
| Type 8 | Providing securities margin financing |
| Type 9 | Asset management |
| Type 10 | Credit rating services |
| Type 11 | Providing clearing services for securities |
| Type 12 | Providing clearing services for futures contracts |
Capital Requirements
The minimum paid-up capital varies by license type. For example, Type 1 (dealing in securities) requires HK$5 million minimum paid-up capital, while Type 9 (asset management) requires HK$5 million as well. Some types, like Type 6 (advising on corporate finance), have no specified minimum capital. However, for Types 11 and 12 (clearing services), the capital requirements are higher, reflecting the systemic risk involved.
Responsible Officer Criteria
Each corporation must appoint at least two responsible officers (ROs) to oversee its regulated activities. ROs must satisfy the SFC's fit and proper criteria, including having relevant industry experience and passing the relevant local regulatory examinations. The SFC assesses ROs on their competence, character, and financial soundness.
Ongoing Compliance Obligations
Once licensed, firms must comply with ongoing obligations such as: - Maintaining adequate financial resources - Implementing and maintaining effective internal controls - Reporting certain matters to the SFC (e.g., changes in key personnel) - Conducting annual audits and submitting audited financial statements - Complying with the SFC's code of conduct and other regulatory requirements
These obligations apply across all license types, but the specific details may differ based on the activities performed.
Choosing the Right License
The appropriate license depends on your business model. For example: - Securities brokerage and dealing: Type 1 is required, and often combined with Type 4 (advising) if the firm provides investment advice to clients. - Asset management: Type 9 is needed if you manage funds or portfolios on behalf of clients. Many asset managers also apply for Type 1 to execute trades for clients. - Virtual asset trading: If the firm operates a platform for trading virtual assets, it must apply for Type 7 (automated trading services) and possibly Type 1, subject to SFC's guidance. Note that specific rules for virtual assets are evolving. - Corporate finance advisory: Type 6 is for advising on mergers, acquisitions, and corporate restructurings. - Leveraged FX trading: Type 3 is required.
Firms should assess their planned regulated activities and consider combining licenses to meet their needs. It is also important to plan for adequate capital and staffing resources well in advance.
Conclusion
Understanding the differences among SFC license types 1 through 12 is crucial for a smooth licensing process. By aligning your business model with the appropriate license, you can avoid unnecessary delays and ensure ongoing compliance. For more detailed guidance on any specific license, consult the SFC's official requirements or seek professional advice.