SFC Type 1 vs Type 4 Licence: Key Differences for Applicants
Overview of Type 1 and Type 4 Licences
When seeking to operate in Hong Kong's securities market, firms must obtain the appropriate SFC licence. Two common licences are Type 1 (dealing in securities) and Type 4 (advising on securities). Each has distinct requirements and compliance obligations, and the choice depends on your intended business model.
Capital Requirements
Type 1 licence holders are subject to paid-up capital and liquid capital requirements. Specifically, a Type 1 licensee must maintain a minimum paid-up capital of HK$5 million and a minimum liquid capital of HK$3 million. In contrast, Type 4 licence holders are not subject to a specific paid-up capital or liquid capital requirement, though they must still meet general financial resources rules.
Responsible Officers and Competency
Both licence types require at least two Responsible Officers (ROs), one of whom must be an Executive Director. For Type 1, the ROs must demonstrate competence in dealing in securities. For Type 4, they must demonstrate competence in advising on securities. The SFC assesses an individual's academic qualifications, industry experience, and regulatory examinations when determining competency.
Compliance Obligations
Both Type 1 and Type 4 licences are subject to the SFC's Code of Conduct and other relevant rules. However, the specific obligations differ based on the regulated activity. For instance, Type 1 licensees have obligations related to client order handling and best execution, while Type 4 licensees must ensure that advice is suitable and adequately disclosed. Both must implement robust internal controls and compliance procedures.
Choosing Based on Business Model
The choice between Type 1 and Type 4 should align with your business model. If your firm executes trades in securities for clients, a Type 1 licence is necessary. If your firm provides investment advice without executing trades, a Type 4 licence is appropriate. Some firms may need both licences to cover a full range of services.
Related Guidance
For a step-by-step application process, refer to our guide on SFC Type 1 Licence Application. For a comprehensive overview of all licence types, see SFC Licence Types 1–12.