Which body is the statutory regulator of Hong Kong's securities and futures markets?

The Securities and Futures Commission (SFC)

The Financial Services and the Treasury Bureau

Hong Kong Exchanges and Clearing Limited (HKEX)

The Hong Kong Monetary Authority (HKMA)

A Hong Kong bank that carries on regulated activities does so as a 'registered institution'. Which regulator is its front-line supervisor for that securities business?

The Hong Kong Monetary Authority (HKMA)

The Investor Compensation Company

The Stock Exchange of Hong Kong

Under s.114 of the SFO, a person who carries on a business in a regulated activity in Hong Kong must:

Be licensed by, or registered with, the SFC unless an exemption applies

Obtain approval from the HKMA in every case

Simply notify HKEX before starting

Register the business name with the Companies Registry only

Under Part XV of the SFO, a person becomes a 'substantial shareholder' of a listed corporation, triggering a disclosure obligation, when they become interested in:

5% or more of any class of the corporation's voting shares

Any single share, if they are a retail investor

10% or more of the corporation's total shares

3% of the corporation's non-voting shares

In deciding whether to grant a licence, the SFC applies the 'fit and proper' test. Which factor is relevant?

The applicant's financial status, competence, reputation and reliability

Whether the applicant banks with a specific institution

The applicant's political affiliation

The number of social-media followers and public endorsements the applicant has accumulated within the industry

Which activity would generally require a licence for Type 1 regulated activity (dealing in securities)?

A firm that, for a commission, receives and transmits clients' orders to buy listed shares

A company issuing and selling only its own shares to raise capital

A newspaper that publishes general share-price tables and routine market commentary for its ordinary readership

A person giving investment views to family members, not as a business

A licensed representative recommends a complex derivative product to a retail client. The Code of Conduct's suitability obligation (para 5.2) requires that the recommendation be:

Reasonably suitable for the client given their financial situation, investment experience and objectives

Treated as suitable only where the client signs a waiver giving up all rights and protections under the Code of Conduct

The product carrying the highest commission

Under the AMLO and the SFC's AML/CFT Guideline, a licensed corporation opening an account for a new client must first:

Carry out customer due diligence to identify and verify the client and any beneficial owner

Obtain the SFC's written consent

Wait 90 days before any transaction

Report the prospective client to the police as a criminal suspect before opening any account or accepting funds

Under the Management, Supervision and Internal Control Guidelines and General Principle 9, ultimate responsibility for a firm's proper controls and compliance rests with:

The most junior compliance clerk

Insider dealing under the SFO occurs when a person connected with a listed corporation deals in its securities while in possession of:

Relevant, price-sensitive information that is not generally known to the market

A rumour circulating on social media

Any information about the company at all, whether or not it is already public and whether or not it affects the price

Only information published in the annual report

HKSI Licensing Examination Paper 1 (Regulation) Practice Test

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Sample practice questions

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1. Regulatory Overview
Which body is the statutory regulator of Hong Kong's securities and futures markets?
- a.The Financial Services and the Treasury Bureau
- b.The Securities and Futures Commission (SFC)
- c.Hong Kong Exchanges and Clearing Limited (HKEX)
- d.The Hong Kong Monetary Authority (HKMA)
Answer: b
Explanation: The SFC is the independent statutory body established under Part II of the SFO to regulate Hong Kong's securities and futures markets. The HKMA regulates banks, HKEX operates the exchanges and clearing houses, and the FSTB is a government policy bureau.
2. Regulatory Overview
A Hong Kong bank that carries on regulated activities does so as a 'registered institution'. Which regulator is its front-line supervisor for that securities business?
- a.The Investor Compensation Company
- b.The Stock Exchange of Hong Kong
- c.The Hong Kong Monetary Authority (HKMA)
- d.The Companies Registry
Answer: c
Explanation: Banks that carry on regulated activities are registered institutions, and the HKMA is their front-line regulator under a memorandum of understanding with the SFC. SFC conduct standards such as the Code of Conduct still apply to their securities business.
3. The Securities and Futures Ordinance
Under s.114 of the SFO, a person who carries on a business in a regulated activity in Hong Kong must:
- a.Be licensed by, or registered with, the SFC unless an exemption applies
- b.Obtain approval from the HKMA in every case
- c.Simply notify HKEX before starting
- d.Register the business name with the Companies Registry only
Answer: a
Explanation: SFO s.114 prohibits any person from carrying on (or holding out as carrying on) a business in a regulated activity unless they are a licensed corporation or an authorised institution registered with the SFC. Breach is a criminal offence.
4. The Securities and Futures Ordinance
Under Part XV of the SFO, a person becomes a 'substantial shareholder' of a listed corporation, triggering a disclosure obligation, when they become interested in:
- a.Any single share, if they are a retail investor
- b.5% or more of any class of the corporation's voting shares
- c.10% or more of the corporation's total shares
- d.3% of the corporation's non-voting shares
Answer: b
Explanation: Part XV of the SFO sets the substantial-shareholder threshold at 5% of a class of voting shares. Notification is required within 3 business days of the triggering event and again on crossing each whole percentage level up or down.
5. Licensing and Registration
In deciding whether to grant a licence, the SFC applies the 'fit and proper' test. Which factor is relevant?
- a.Whether the applicant banks with a specific institution
- b.The applicant's political affiliation
- c.The applicant's financial status, competence, reputation and reliability
- d.The number of social-media followers and public endorsements the applicant has accumulated within the industry
Answer: c
Explanation: The Fit and Proper Guidelines require the SFC to consider an applicant's financial status and solvency, qualifications and experience (competence), and reputation, character, reliability and financial integrity. Commercial or political preferences are irrelevant.
6. Licensing and Registration
Which activity would generally require a licence for Type 1 regulated activity (dealing in securities)?
- a.A company issuing and selling only its own shares to raise capital
- b.A newspaper that publishes general share-price tables and routine market commentary for its ordinary readership
- c.A firm that, for a commission, receives and transmits clients' orders to buy listed shares
- d.A person giving investment views to family members, not as a business
Answer: c
Explanation: Receiving and transmitting client orders in listed securities for a commission is dealing in securities (Type 1) and requires a licence. An issuer selling only its own securities, incidental media reporting and non-business private views fall outside the licensing net.
7. Business Conduct and Client Relations
A licensed representative recommends a complex derivative product to a retail client. The Code of Conduct's suitability obligation (para 5.2) requires that the recommendation be:
- a.Approved by HKEX in advance
- b.Treated as suitable only where the client signs a waiver giving up all rights and protections under the Code of Conduct
- c.Reasonably suitable for the client given their financial situation, investment experience and objectives
- d.The product carrying the highest commission
Answer: c
Explanation: Paragraph 5.2 requires that when making a recommendation or solicitation, the intermediary ensures its suitability for the client in all the circumstances. The suitability obligation is also incorporated into the client agreement through the mandatory Suitability Clause.
8. Business Operations, Internal Controls and AML
Under the AMLO and the SFC's AML/CFT Guideline, a licensed corporation opening an account for a new client must first:
- a.Carry out customer due diligence to identify and verify the client and any beneficial owner
- b.Obtain the SFC's written consent
- c.Wait 90 days before any transaction
- d.Report the prospective client to the police as a criminal suspect before opening any account or accepting funds
Answer: a
Explanation: The Anti-Money Laundering and Counter-Terrorist Financing Ordinance requires customer due diligence (CDD): identifying and verifying the customer and beneficial owners and understanding the purpose of the relationship, on a risk-based approach, with enhanced due diligence for higher-risk clients such as politically exposed persons.
9. Business Operations, Internal Controls and AML
Under the Management, Supervision and Internal Control Guidelines and General Principle 9, ultimate responsibility for a firm's proper controls and compliance rests with:
- a.The firm's senior management
- b.The SFC's enforcement division
- c.The most junior compliance clerk
- d.The external auditor
Answer: a
Explanation: General Principle 9 (Responsibility of senior management) and the Internal Control Guidelines place ultimate responsibility for maintaining appropriate standards of conduct, controls and compliance on the firm's senior management.
10. Market Misconduct
Insider dealing under the SFO occurs when a person connected with a listed corporation deals in its securities while in possession of:
- a.A rumour circulating on social media
- b.Any information about the company at all, whether or not it is already public and whether or not it affects the price
- c.Only information published in the annual report
- d.Relevant, price-sensitive information that is not generally known to the market
Answer: d
Explanation: Insider dealing turns on a 'connected person' dealing while in possession of 'relevant information': specific, price-sensitive information not generally known that, if known, would likely materially affect the price. Publicly available information cannot found the offence.