Licensing, Registration and Subsidiary Legislation
This topic turns the section 114 licensing requirement into a working regime: who must be licensed, the fit-and-proper test the SFC applies, the roles of licensed representatives and responsible officers, the Managers-In-Charge framework, continuous professional training, and the subsidiary rules on client assets, records and capital that are made under the SFO. It is a large, detailed area and carries substantial exam weight.
Who is licensed: corporations, representatives and responsible officers
There are three core roles. A licensed corporation (LC) is the firm licensed to carry on one or more regulated activities. A licensed representative is an individual licensed to carry on a regulated activity on behalf of, and accredited to, a particular LC. A responsible officer (RO) is a representative who has additionally been approved by the SFC to supervise the regulated activity. Every LC must appoint at least two ROs for each regulated activity it conducts, and at least one RO must be an executive director available to supervise the business at all times. Banks that conduct regulated activities are 'registered institutions' rather than licensed corporations, with individuals acting as 'relevant individuals'; the HKMA is their front-line supervisor, but SFC conduct standards still apply.
The fit-and-proper test
The SFC will only license or register a person it is satisfied is 'fit and proper', and the person must remain fit and proper throughout. Section 129 of the SFO directs the SFC to have regard to matters including the person's financial status or solvency; educational or other qualifications, experience and competence; ability to carry on the activity competently, honestly and fairly; and reputation, character, reliability and financial integrity. For a corporation, the fitness of its officers, substantial shareholders and any related entities is also relevant. The test is holistic and ongoing—a licensee who ceases to meet it can be disciplined or have the licence revoked.
Competence and Continuous Professional Training (CPT)
To satisfy the competence limb an individual applicant must generally meet the SFC's academic or industry-qualification and relevant-experience requirements and pass the recognised local regulatory examinations (Paper 1 being the core one). Competence must be maintained: licensed individuals must undertake Continuous Professional Training each year to keep their knowledge of the market and its regulation current, including an element specifically on regulatory compliance and ethics. The exact number of annual CPT hours and the compliance/ethics minimum were revised under the SFC's updated CPT regime, so learn the purpose (keeping knowledge and conduct standards current) and verify the current hour requirements against the live SFC guidelines rather than memorising a figure that may have changed.
Managers-In-Charge (MIC) and senior-management accountability
Under the MIC regime an LC must identify the individuals who are principally responsible for managing each of eight Core Functions and provide the SFC with their details and an up-to-date management-structure chart. The eight Core Functions are: overall management oversight; key business line; operational control and review; risk management; finance and accounting; information technology; compliance; and anti-money-laundering and counter-terrorist-financing. The SFC normally expects the Managers-In-Charge of the Overall Management Oversight function and of the Key Business Line function to be approved as responsible officers. The regime does not create new licences; it makes senior accountability explicit and dovetails with GP9 and the internal-control guidelines.
Client assets: the Client Money and Client Securities Rules
Client assets must be strictly segregated from the firm's own. The Securities and Futures (Client Money) Rules require an LC to pay client money into a segregated client account with an authorised financial institution (generally within one business day of receipt) and restrict when money may be withdrawn from it. The Securities and Futures (Client Securities and Securities Collateral) Rules require client securities received in Hong Kong to be held in safe custody in a segregated account or registered in the client's (or the firm's nominee's) name, and permit their use—for example depositing a client's securities collateral with a third party as security for the firm's own obligations—only within tight limits and generally only with the client's standing authority. These rules give effect to GP8.
Records, capital, temporary licences and how the topic is tested
Two further sets of subsidiary rules recur. The Securities and Futures (Keeping of Records) Rules require an LC to keep its business and transaction records for at least seven years (note this differs from the five-year AML retention period). The Securities and Futures (Financial Resources) Rules impose minimum paid-up capital and liquid-capital requirements that vary by regulated activity and by whether the firm holds client assets—the precise figures are periodically revised, so learn the principle (capital scales with activity and client-asset exposure) rather than a fixed number. A temporary licence is a short-term licence for a visiting overseas practitioner serving professional investors, not a route around the full regime. In the exam, expect factual recall on the two-RO minimum, the s.129 fit-and-proper factors, the eight MIC Core Functions, the segregation rules, and the seven-year record-keeping period, plus applied questions distinguishing when a licence (or a particular Type) is needed.
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