Deacons
  November 30, 2004 - Hong Kong

Hong Kong: Temporary Licensing for Carrying On SFC Regulated Activities

If a foreign fund company does not have any affiliates in Hong Kong, and it seeks to carry on SFC regulated activities in Hong Kong for a short period of time, it will need to apply for a temporary licence from the SFC. A temporary licence holder may only carry on one or a combination of the following activities: • Type 1 (dealing in securities); • Type 2 (dealing in futures contracts); • Type 4 (advising on securities); • Type 5 (advising on futures contracts); and • Type 6 (advising on corporate finance). Note that asset management (Type 9) is not one of the permitted activities. The temporary licence holder is also prevented from holding client assets in carrying on the above regulated activities. One of the temporary licence application requirements is for the applicant corporation to have a business registration in Hong Kong, which means that the applicant corporation would need to establish and register either a branch or a subsidiary company in Hong Kong. An applicant corporation may not be able to satisfy this requirement by setting up a representative office in Hong Kong because a representative office by nature cannot conduct any business in Hong Kong, and therefore cannot carry on any regulated activities. The business registration would trigger profits tax liability for the subsidiary company or branch for any profits it generates in Hong Kong. Therefore applying for a temporary licence may prove to be a cumbersome exercise if the foreign fund company only intends to carry on regulated activities in Hong Kong for couple of months. Temporary licensing for individuals is a more common arrangement. Often an overseas affiliate of a Hong Kong licensed entity will send a member of staff to Hong Kong for a few days to meet up with clients or contacts in Hong Kong. It is the SFC’s view that if a foreign fund expert’s meeting with clients is limited to expressing macro-economic views and does not refer to any specific funds or securities, he/she may not need to have a licence. However, where the fund expert talks about the investment strategy of any particular client’s portfolio, he/she may be treated as providing investment advice. According to the SFC, provided that a Hong Kong licensed entity which sponsors the foreign visitor has a Type 4 (advising on securities) or Type 5 (advising on future contracts) licence, the foreign expert may obtain a temporary Type 4 or 5 licence which will cover his advisory activities. However, where the Hong Kong entity only has a Type 9 licence, a temporary licence is not available. In these circumstances the fund expert may apply for a conditional “itinerant” Type 9 representative licence. Readers should note that merely being accompanied by an SFC registered person when meeting clients will not exempt the visitor from the licensing requirement if the visitor will be conducting regulated activities.


Read full article at: http://www.deacons.com.hk/eng/knowledge/knowledge_206.htm