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Print articleSFC Proposes Revisions to Entry Requirements and Competency Standards for Intermediaries and Individual Practitioners
January, 2021 - Deacons
On 11 December 2020, the Securities and Futures Commission (SFC) released its consultation paper regarding proposals to update the entry requirements for persons seeking to be licensed to engage in regulated activities, and ongoing competency standards for intermediaries and individual practitioners (e.g. responsible officers (ROs), licensed representatives (LRs), executive officers (EOs) and relevant individuals (ReIs)). Below, we have captured some of the key proposals, in particular, those that will have an effect on the asset management industry.
- Minimum academic qualification requirements for individuals have been raised and the scope of recognised industry qualifications (RIQs) have been broadened. Importantly, in addition to the currently recognised disciplines of accounting, business administration, economics, finance, and law, the SFC proposes to accept academic qualifications of degree holders in all other disciplines, subject to meeting new requirements as outlined in the proposed revised Guidelines on Competence.
- A full exemption from obtaining RIQs for temporary licence applicants has been introduced. Under the current test of competence, some temporary licence applicants may be required to obtain RIQs. The SFC considers it appropriate to remove this requirement given that individual temporary licence applicants need to satisfy the SFC that they have already been carrying on a regulated activity (RA) outside Hong Kong and thus they should already possess industry knowledge of that particular RA.
- The SFC proposes to revise its approach to assessing whether an individual possesses sufficient experience and is prepared to undertake a case-by-case analysis of relevant industry experience accumulated by individuals throughout their overall career history. In particular, the SFC has dedicated specific sections in the proposed Guidelines on Competence relating to asset management, discretionary account management and private equity, summarised as follows:
i.
A broader range of industry experience will be considered relevant when considering RO applications for those seeking accreditation to private fund managers. Experience which is indirectly relevant such as sales, marketing and risk management of funds will also be considered, but such an individual will likely be imposed with the “non sole” condition on their licence.
ii.
In relation to discretionary account management, the SFC may consider industry experience acquired on a wholly incidental basis as relevant to asset management. For example, the discretionary account management experience acquired by an RA 1 LR/RO who conducts such management activities wholly incidental to their conduct of dealing activities may be considered as relevant industry experience when applying to carry on asset management.
iii.
An individual with experience such as conducting research, valuation and due diligence of companies in related industries, among other experience, will be regarded as having relevant industry experience for carrying on activities relating to private equity.
- The SFC has clarified that management experience for ROs refers only to “hands-on” experience. Therefore, experience gained from managing purely administrative functions (e.g. human resources) will not suffice.
In addition to the above, the SFC has provided guidance to corporations which engage in certain activities such as managing authorized funds. For example, when the SFC is assessing a corporation’s compliance competency, a key element the SFC will consider when addressing conflicts of interest arising from the corporation or its group of companies carrying on multiple types of RAs concurrently (e.g. advising on corporate finance, securities research and asset management activities), is whether or not there are appropriate policies and procedures on “Chinese walls” including the “wall crossing procedure” and other control procedures.
The current continuous professional training (CPT) requirements require an individual to undertake a minimum of five CPT hours per calendar year for each RA undertaken. Going forward the SFC proposes to base the CPT requirements on an individual rather than activity basis. In relation to CPT requirements, the SFC proposes a minimum of 10 CPT hours per year for LRs and ReIs and 12 hours per year for ROs and EOs. Furthermore, each individual practitioner will be required to attend at least five CPT hours on topics directly relevant to the RAs in which they engage. Ethics and compliance is also brought to the forefront with individual practitioners having to complete no less than two CPT hours on such topics per year.
The SFC has proposed to implement the revised guidelines on competence and CPT at least six months after their publication and no earlier than 31 December 2021, allowing some time for intermediaries in the industry to prepare and adjust their internal guidelines accordingly.
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