Hong Kong type 9 licence (asset management) applications

By Carl Miao, AllBright Law Offices
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As China’s financial reform and global engagement deepens, accompanied by an increasing demand for cross-border investment and financing, domestic asset management institutions are actively expanding their operations abroad. Hong Kong, a prominent international financial hub, naturally emerges as the primary destination for numerous asset management institutions venturing overseas.

According to Hong Kong’s Securities and Futures Ordinance, with a few specific exemptions, entities engaging in asset management activities within the territory must pursue a type 9 licence (asset management) from the Hong Kong Securities and Futures Commission (SFC).

Many significant players in China’s financial landscape, including state-owned financial conglomerates, large and medium-sized brokerage firms, and publicly offered fund management companies, have long held type 9 licences. Notably, in recent years, an increasing number of private equity fund managers and professional investment institutions have also flocked to Hong Kong to secure licences, strategically positioning themselves to expand their overseas operations.

Advantages of a type 9 licence

Private fund managers holding the type 9 licence find themselves backed by Hong Kong’s reputation for rigorous financial regulation, a credential that greatly facilitates the execution of their operations. This endorsement not only streamlines the process of establishing accounts with financial institutions like banks and brokerage firms, but also garners a certain degree of recognition from domestic regulatory bodies.

Moreover, the requisites of a type 9 licence necessitate a tangible operational presence within the city, including personnel and physical premises. This strategic establishment and subsequent management of overseas funds through a Hong Kong-based asset management company effectively mitigate the onshore tax implications associated with foreign business revenue.

Qualifications for application

Carl Miao, AllBright Law Offices
Carl Miao
Senior Partner
AllBright Law Offices

Those seeking a type 9 licence must be local limited companies registered under the Hong Kong Companies Ordinance or registered non-Hong Kong companies. Applicant companies need to possess a suitable organisational structure, robust internal control systems and qualified personnel to effectively manage potential risks associated with their business operations. To ensure eligibility, they must confirm the authenticity and implementation of their internal control systems through an internal control system questionnaire. This step prepares them to confidently navigate the SFC’s ongoing compliance inspections of licensed corporations. During the licence application phase, intermediaries provide a compliance manual, which applicants should tailor to their specific circumstances to create a comprehensive and actionable guide.

Preparation for application

To initiate preparing for a licence application, the author recommends focusing on six key areas:

(1) Structure. Initiating the preparatory work for a licence application begins with establishing the appropriate structure. This entails a case-by-case analysis based on the applicant’s unique situation and business objectives, while considering factors such as the composition of ultimate shareholders, the potential establishment of intermediary companies, and strategic planning for other overseas ventures.

(2) Personnel. The SFC sets detailed requirements for staffing within a licensed Hong Kong asset management company and the appropriateness of staffing is a central focus of the SFC’s evaluation. Key personnel for a licence application include: the company’s director; at least two responsible officers (ROs) possessing the required professional qualifications; licensed representatives; managers-in-charge of core functions (MICs); complaints officers; emergency contact persons; and support staff for middle and back-office functions, among other roles.

For mainland China-based private equity fund managers, a crucial decision involves choosing between assigning an executive team from the mainland or recruiting local professionals within the Hong Kong market to assemble the management team for the Hong Kong-licensed asset management company.

Both approaches have advantages and disadvantages, and a combination of the two can facilitate the creation of a diverse management team. Challenges faced by such a team include addressing the compliance of part-time work in both places, determining the feasibility of mainland executives being stationed in Hong Kong, and ensuring the independence of the Hong Kong-based management team.

(3) Business. Applicants for licences are required to submit a comprehensive business plan questionnaire to the SFC that details their specific circumstances. This questionnaire covers various aspects including the nature of the business, asset categories, investment strategies, business scale, client distribution and sources, and sales channels.

(4) Budget. To secure a type 9 licence, applicants must meet specific financial criteria set by the SFC. For entities without client assets, there’s no requirement for paid-up share capital, and a minimum of HKD100,000 (USD12,800) in liquid capital is needed.

For those with client assets, a minimum of HKD5 million in paid-up share capital and HKD3 million in liquid capital is mandated. Applicants are expected to demonstrate financial readiness to cover operating expenses during the initial six months post-licensing. These expenses encompass staff salaries, office rentals, office supplies, service fees for external consultants (lawyers, compliance experts and secretarial firms), audit fees and annual fees.

(5) Workplace. The SFC stipulates that licensed asset management companies must operate from secure and independent office spaces, and also review the floor plan of the applicant’s office premises.

(6) Intermediary service provider. Engaging a reputable intermediary service provider can help applicants achieve better results with less effort. It not only addresses immediate needs but also strategic plans for future business expansion, offering comprehensive legal services covering fund establishment, project investments, transactions and ongoing legal compliance after licence acquisition.

On completing the above-mentioned preparatory phase, applicants need to complete various application forms, questionnaires and provide supporting documentation. The SFC responds with multiple rounds of written feedback and may conduct telephone inquiries on applicants’ responses. Applicants and intermediary service providers should co-operate closely and respond carefully.

Applying for a type 9 licence extends both domestic and overseas operations. The relationship between domestic and international business operations, and legal compliance is highly interconnected and interactive, necessitating a comprehensive, long-term strategy for a stable and effective application process.

Carl Miao is a senior partner at AllBright Law Offices

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Pudong New Area, Shanghai 200120, China
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