Oversight July 2017 - SFC circular clarifies competence requirements

The Securities and Futures Commission of Hong Kong (SFC) published a circular on 23 June 2017 (Circular) providing further guidance to licensed corporations and individuals seeking to be licensed for Type 9 (asset management) regulated activity under the Securities and Futures Ordinance (SFO), in particular on the applicability of certain competence requirements.

Under the current licensing regime, corporations and individuals are required to apply for a licence from the SFC before they can carry on Type 9 (asset management) regulated activity.  Type 9 (asset management) regulated activity is defined in Schedule 5 to the SFO to cover the provision of a service of managing (i) a portfolio of securities or futures contracts for another person and (ii) a real estate investment trust (REIT) authorised by the SFC.  There are a number of carve-outs from the definition of Type 9 regulated activity including where (a) a corporation provides such management service solely to its wholly owned subsidiaries, its parent company or other wholly owned subsidiaries of its parent company, and (b) a person licensed for Type 1 (dealing in securities) or Type 2 (dealing in futures contracts) regulated activity provides such management service wholly incidental to the Type 1 or Type 2 regulated activity, as the case may be.  For example, a Type 1 licensed securities broker exercising discretion over a broking client’s investment portfolio under a power of attorney granted by the client would be a management service wholly incidental to the securities broker’s Type 1 regulated activity and therefore the individual would not need to be separately licensed for Type 9 regulated activity.

The SFC had in the past issued guidance on the licensing of corporations and individuals for Type 9 (asset management) regulated activity.  Most noticeable is the circular “SFC Adopts a Pragmatic Approach to Licensing Fund Managers” (Pragmatic Approach) issued on 11 June 2007 which sets out certain relaxations to the SFC’s licensing requirements in respect of the licensing of hedge fund managers.

The Circular clarifies the competence requirements for existing licensed persons seeking to be licensed for Type 9 (asset management) regulated activity.

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