Licensing and Subsidiary Legislation

8/9/2019 Licensing and Subsidiary Legislation

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FINANCIAL LAW ANDFINANCIAL LAW ANDREGULATIONSREGULATIONS

WEEK 7

Licensing and Subsidiary Legislation


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The Licensing Regime of SFC Part V

- an individual engaging in a regulated

activity for a licensed corporation

(as his principal) has to be licensedand becomes a licensed representative

- unlicensed individuals are prohibited to

use certain titles such as stockbroker and

securities adviser (ss. 139)

Licensing Regime


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Responsible Officer

- a licensed representative may apply as responsibleofficer and is approved by SFC with reference to hisbeing fit and proper and has sufficient authority within

the licensed corporation

- At least two responsible officers for each regulatedactivities in every licensed corporation

Licensing Regime


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Responsible Officer

- A licensed corporation shall not carryon any regulated activity unless every

executive director is approved by theSFC as a responsible officer

Licensing Regime


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Executive Officer

- An executive officer is a responsibleofficer of a licensed corporation, as adirector who is responsible forsupervising the business of a regulatedbusiness

- Or, an executive officer of a registeredinstitution

- Or, a director of an associated entityresponsible for supervising the handlingof client assets of the intermediary.

Licensing Regime


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Registered Institutions

- are authorized financial institutions

applying to engage in regulated activities

- SFC shall refer their applications to the

Hong Kong Monetary Authority for

advice on granting certificates of

registration

Licensing Regime


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Exemptions

- Accountants, lawyers and trust companies

providing advice on securities, futures contracts,

assets management or corporate finance willcontinue to be exempted from licensing

requirements provided that the advice given is

wholly incidental to their professional practice or

the discharge of their duties.

Licensing Regime


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Fit and Proper Guidelines

- apply to persons:

(a) an individual who applies for licence

or is licensed under Part V of the SFO

(b) a licensed representative who applies

for approval or is approved as a

responsible officer

Fit and proper


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- apply to corporations

(c) a corporation which applies for licence

or is licensed under Part V of the SFO

(d) an authorized financial institution which

applies for registration or is registered

Fit and proper


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- apply to persons

(e) whose name is entered in the register

maintained by the HKMA

(f) applies to act as an executive officer

of a registered institution

Fit and proper


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Fit and Proper Criteria

SFC takes into consideration

- financial status

- education, qualifications, experiences

- abilities to act efficiently, honestly, fairly

- reputation, character & financial integrity

Fit and proper


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Fit and properFinancial Status

A fit and proper corporation should not be

- subject to receivership, insolvency

proceedings

- failing to meet any judgment debt

(obligations to clients)- unable to meet financial and capital

requirements applicable to it


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Fit and properFinancial Status

A fit and proper corporation should

- comply with capital requirements

(Financial Resources Rules)

- failing to meet any judgment debt

- unable to meet financial and capital

requirements applicable to it


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Ability to Carry on the Regulated ActivityCompetently, Honestly and Fairly

A fit and proper corporation should not- have management that fail to meet

the fit and proper guidelines

- fail to perform the regulated activities

efficiently and effectively

Fit and proper


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Ability to Carry on the Regulated ActivityCompetently, Honestly and Fairly

A fit and proper corporation should not- have key personnel who failto meet

the fit and proper guidelines

- have failedto perform regulated activities

efficiently and effectivelyAn intermediary is expected to demonstrateits competence in accordance withGuidelines on Competence

Fit and proper


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Financial Status

A fit and proper individual should not be

- involved in bankruptcy proceedings or in

managing an insolvent corporation

- unable to meet any judgment debt

Fit and proper


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Competence and Capability

A fit and proper individual should not be

- under 18 years of age

- failing to perform regulated activities

efficiently and effectively

Fit and proper


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Ability to Carry on the Regulated Activity

Competently, Honestly and Fairly.

A fit and proper person should not

- have been a mentally ill patient

- have evidence of incompetence,

negligence and mismanagement

of regulated activities

Fit and proper


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Reputation, Character, Reliability and

Integrity

The SFC is not likely to be satisfied thata person is fit and proper if an individual

(i) found by a court for fraud, dishonesty

(ii) convicted of a criminal offence

(iii) censured by regulatory body

Fit and proper


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Integrity

(iv) restricted from carrying on any trade

which requires authorization by law(v) disqualified by court as a director

(vi) found guilty of market misconduct or

failed to abide by codes and guidelines

of the SFC

Fit and proper


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Integrity

(vii) a director, substantial shareholder or

involved in the management of a

corporation that was

(1) wound up ; (2) guilty of fraud(3) not met obligations to clients

and compensation funds

Fit and proper


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Integrity

The SFC is not likely to be satisfied thata corporation or an authorized financial

institution is fit and proper if it:

(a) was found to be of poor reputation and

lacking in financial integrity(b) has been served with a winding uppetition

Fit and proper


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Continuing Requirements

- A person licensed or registered under

the SFO, or a relevant individual or anexecutive officer of a registered institution

must continue to be fit and proper.

- SFC may take disciplinary actions if

the person is guilty of misconduct oris not a fit and proper person to remain

the same type of regulated person

Fit and proper


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Capital Requirements

The SFC has made the Financial Resources

Rules (FRR) which specify requirements as

to the amount of capital which should be

maintained by licensed corporations(registered AFIs will have requirements set

by HKMA)


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Securities and Futures (Client

Securities) Rules

The SFC is empowered to make rules

regarding the holding of and dealing with

client securities and collateral by an

intermediary or its associated entity or by anypersons acting on their behalf. The SFC has

made the Securities and Futures (Client

Securities) Rules under s.148.


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Securities and Futures (Client

Money) Rules

The SFC is empowered to make rules for the

holding of and dealing with clients money by

licensed corporations (not AFIs) and their

associated entities. The breach of the ruleswill be an offence. The SFC has made the

Securities and Futures (Client Money) Rules

under s.149.


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Securities and Futures (Keeping of

Records) Rules The SFC is empowered to make rules for:

- the keeping of records by intermediaries

(including registered institutions); and- the keeping of records by their associatedentities of the intermediaries clients assetsreceived or held by them.

The SFC has made the Securities andFutures (Keeping of Records) Rules unders.151.


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Class work

With reference to the Enforcement Report by

SFC in Aug 2008, what is the recent

prosecution strategy of SFC in its

enforcement practice? (comment on the 1stcriminal case)

With reference to the Enforcement Report by

SFC in Aug 2008, discuss the issues relatedto the reported cases about two investment

banks.

Documents

Licensing and Subsidiary Legislation