FINANCIAL LAW AND

REGULATIONS
WEEK 7

Licensing and Subsidiary Legislation

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 Licensing Regime
The Licensing Regime of SFC – Part V
- an individual engaging in a regulated
activity for a licensed corporation
(as his principal) has to be licensed
and becomes a licensed representative
- unlicensed individuals are prohibited to
use certain titles such as stockbroker and
securities adviser (ss. 139)

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 Licensing Regime
Responsible Officer

- a licensed representative may apply as responsible

officer and is approved by SFC with reference to his
being fit and proper and has sufficient authority within
the licensed corporation

- At least two responsible officers for each regulated

activities in every licensed corporation

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 Licensing Regime
Responsible Officer
- A licensed corporation shall not carry
on any regulated activity unless every
executive director is approved by the
SFC as a responsible officer

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 Licensing Regime
Executive Officer
- An executive officer is a responsible
officer of a licensed corporation, as a
director who is responsible for
supervising the business of a regulated
business
- Or, an executive officer of a registered
institution
- Or, a director of an associated entity
responsible for supervising the handling
of client assets of the intermediary.

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 Licensing Regime
Registered Institutions
- are authorized financial institutions
applying to engage in regulated activities
- SFC shall refer their applications to the
Hong Kong Monetary Authority for
advice on granting certificates of
registration

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 Licensing Regime
Exemptions
- Accountants, lawyers and trust companies
providing advice on securities, futures contracts,
assets management or corporate finance will
continue to be exempted from licensing
requirements provided that the advice given is
wholly incidental to their professional practice or
the discharge of their duties.

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 Fit and proper
Fit and Proper Guidelines
- apply to persons:
(a) an individual who applies for licence
or is licensed under Part V of the SFO
(b) a licensed representative who applies
for approval or is approved as a
responsible officer

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 Fit and proper
Fit and Proper Guidelines
- apply to corporations
(c) a corporation which applies for licence
or is licensed under Part V of the SFO
(d) an authorized financial institution which
applies for registration or is registered

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 Fit and proper
Fit and Proper Guidelines
- apply to persons
(e) whose name is entered in the register
maintained by the HKMA
(f) applies to act as an executive officer
of a registered institution

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 Fit and proper
Fit and Proper Criteria
SFC takes into consideration
- financial status
- education, qualifications, experiences
- abilities to act efficiently, honestly, fairly
- reputation, character & financial integrity

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 Fit and proper
Financial Status
A fit and proper corporation should not be
- subject to receivership, insolvency
proceedings
- failing to meet any judgment debt
(obligations to clients)
- unable to meet financial and capital
requirements applicable to it
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 Fit and proper
Financial Status
A fit and proper corporation should
- comply with capital requirements
(Financial Resources Rules)
- failing to meet any judgment debt
- unable to meet financial and capital
requirements applicable to it

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 Fit and proper
Ability to Carry on the Regulated Activity
Competently, Honestly and Fairly
A fit and proper corporation should not
- have management that fail to meet
the fit and proper guidelines
- fail to perform the regulated activities
efficiently and effectively

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 Fit and proper
Ability to Carry on the Regulated Activity
Competently, Honestly and Fairly
A fit and proper corporation should not
- have key personnel who fail to meet
the fit and proper guidelines
- have failed to perform regulated activities
efficiently and effectively
An intermediary is expected to demonstrate
its competence in accordance with
Guidelines on Competence
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 Fit and proper
Financial Status
A fit and proper individual should not be
- involved in bankruptcy proceedings or in
managing an insolvent corporation
- unable to meet any judgment debt

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 Fit and proper
Competence and Capability
A fit and proper individual should not be
- under 18 years of age
- failing to perform regulated activities
efficiently and effectively

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 Fit and proper
Ability to Carry on the Regulated Activity
Competently, Honestly and Fairly.
A fit and proper person should not
- have been a mentally ill patient
- have evidence of incompetence,
negligence and mismanagement
of regulated activities

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 Fit and proper
Reputation, Character, Reliability and
Integrity
The SFC is not likely to be satisfied that
a person is fit and proper if an individual
(i) found by a court for fraud, dishonesty
(ii) convicted of a criminal offence
(iii) censured by regulatory body

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 Fit and proper
Reputation, Character, Reliability and
Integrity
(iv) restricted from carrying on any trade
which requires authorization by law
(v) disqualified by court as a director
(vi) found guilty of market misconduct or
failed to abide by codes and guidelines
of the SFC

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 Fit and proper
Reputation, Character, Reliability and
Integrity

(vii) a director, substantial shareholder or

involved in the management of a
corporation that was
(1) wound up ; (2) guilty of fraud
(3) not met obligations to clients
and compensation funds
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 Fit and proper
Reputation, Character, Reliability and
Integrity
The SFC is not likely to be satisfied that
a corporation or an authorized financial
institution is fit and proper if it:
(a) was found to be of poor reputation and
lacking in financial integrity
(b) has been served with a winding up
petition
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 Fit and proper
Continuing Requirements
- A person licensed or registered under
the SFO, or a relevant individual or an
executive officer of a registered institution
must continue to be fit and proper.
- SFC may take disciplinary actions if
the person is guilty of misconduct or
is not a fit and proper person to remain
the same type of regulated person
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Capital Requirements
 The SFC has made the Financial Resources
Rules (‘FRR’) which specify requirements as
to the amount of capital which should be
maintained by licensed corporations
(registered AFIs will have requirements set
by HKMA)

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Securities and Futures (Client
Securities) Rules
 The SFC is empowered to make rules
regarding the holding of and dealing with
client securities and collateral by an
intermediary or its associated entity or by any
persons acting on their behalf. The SFC has
made the Securities and Futures (Client
Securities) Rules under s.148.

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Securities and Futures (Client
Money) Rules
 The SFC is empowered to make rules for the
holding of and dealing with clients’ money by
licensed corporations (not AFIs) and their
associated entities. The breach of the rules
will be an offence. The SFC has made the
Securities and Futures (Client Money) Rules
under s.149.

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Securities and Futures (Keeping of
Records) Rules
 The SFC is empowered to make rules for:
- the keeping of records by intermediaries
(including registered institutions); and
- the keeping of records by their associated
entities of the intermediaries’ clients’ assets
received or held by them.
 The SFC has made the Securities and
Futures (Keeping of Records) Rules under
s.151.
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 Class work
 With reference to the Enforcement Report by
SFC in Aug 2008, what is the recent
prosecution strategy of SFC in its
enforcement practice? (comment on the 1st
criminal case)
 With reference to the Enforcement Report by
SFC in Aug 2008, discuss the issues related
to the reported cases about two investment
banks.
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