Oversight – SFC Clarifies Licensing Regime for PE and Family Offices

The Securities and Futures Commission of Hong Kong (SFC) issued two circulars (Circulars) on 7 January 2020 in respect of licensing. The first Circular was entitled "Circular to private equity firms seeking to be licensed" (PE Circular) and the second was entitled "Circular on licensing obligations of family offices" (FO Circular). Whereas many jurisdictions have exemptions or the equivalent for either private equity houses or family offices or both, the regime in Hong Kong as set out in the overarching statute, the Securities and Futures Ordinance (SFO), has no exemption from licensing generally and whilst there are carve outs from what constitutes a regulated activity (which would otherwise trigger a license requirement), no such carve out expressly covers the activities undertaken by a private equity business or a family office as such. The carve outs are set out in each definition of the twelve different regulated activities in Schedule 5 to the SFO.

Notwithstanding the fact that the SFO was enacted in 2003, there has been resistance to licensing by both private equity houses and family offices in Hong Kong. More often than not, historically, this has been due to misconceptions about the application of the licensing regime set out in the SFO as well as the SFC's approach.