Establishing an SFC-Licensed Corporation in Hong Kong
- a22162
- Jul 21
- 13 min read
Establishing an SFC-Licensed Corporation in Hong Kong
Establishing an SFC-licensed corporation in Hong Kong involves a structured process to ensure compliance with the Securities and Futures Ordinance (SFO) and related regulations. The Securities and Futures Commission (SFC) is the independent statutory body responsible for regulating Hong Kong's securities and futures markets.
Here's a comprehensive guide to the process:
1. Determine the Regulated Activities:
First, identify which "regulated activities" your proposed corporation will engage in. The SFO currently outlines 10-12 types of regulated activities, including:
Type 1: Dealing in securities
Type 2: Dealing in futures contracts
Type 3: Leveraged foreign exchange trading
Type 4: Advising on securities
Type 5: Advising on futures contracts
Type 6: Advising on corporate finance
Type 7: Providing automated trading services
Type 8: Securities margin financing
Type 9: Asset management
Type 10: Providing credit rating services
(There may be additional or new types of regulated activities introduced, such as those related to over-the-counter derivatives or virtual assets.)
2. Key Requirements for an SFC-Licensed Corporation:
To be granted an SFC license, a company must be "Fit and Proper." This assessment considers several factors:
Incorporation: The applicant must be a company incorporated in Hong Kong or an overseas company registered with the Hong Kong Companies Registry. The SFC generally prefers Hong Kong-incorporated companies.
Financial Status/Solvency: The company must meet minimum paid-up capital and liquid capital requirements, which vary depending on the types of regulated activities.
Qualified Personnel:
Responsible Officers (ROs): At least two Responsible Officers are required for each regulated activity. At least one RO must be an executive director. One RO must be available at all times to supervise the business. ROs must demonstrate relevant educational or other qualifications, experience, competence, honesty, fairness, reputation, character, reliability, and financial integrity. They must also pass relevant SFC licensing examinations.
Licensed Representatives: Any individual carrying out regulated activities on behalf of the licensed corporation must be a "licensed representative" accredited to that corporation.
Managers-in-Charge (MICs): Since 2017, licensed entities are also required to appoint Managers-in-Charge for specific "Core Functions," including:
Overall Management Oversight
Key Business Line
Operational Control and Review
Risk Management
Finance and Accounting
Information Technology
Compliance
Anti-Money Laundering and Counter-Terrorist Financing
Internal Controls and Systems: The applicant must have a proper business structure, robust internal control systems, and policies and procedures that ensure compliance with SFC regulations, including anti-money laundering and counter-terrorist financing ordinances. This often involves preparing a detailed business plan, compliance manual, and operational workflow diagrams.
Physical Presence: Secure suitable office premises in Hong Kong.
Substantial Shareholders: Substantial shareholders of the corporation will also be assessed for their fitness and properness.
3. Application Process (General Steps):
The SFC licensing application process typically involves several stages:
Step 1: Analysis and Preparation (Initial Consultation & Document Gathering)
Consultation: Engage with a compliance consulting firm to ascertain specific licensing requirements based on your proposed activities.
Information Gathering: Compile all necessary corporate information, including business registration details, financial statements (audited, if available), and group financial statements.
Documentation Preparation: Draft a comprehensive business plan, compliance manual, financial projections, and other relevant policies and procedures. Prepare forms and supplements for the corporate applicant, proposed Responsible Officers, Licensed Representatives, and substantial shareholders.
Personnel Sourcing: Identify and assess the fitness and properness of proposed Responsible Officers and other key personnel.
Premises & Bank Accounts: Secure office premises and establish bank accounts.
Step 2: Submission and Initial Review
Online Application: Submit the completed prescribed forms and supporting documents via the SFC's online WINGS platform. Ensure all questions are answered and all necessary supporting documents are attached.
Board Resolution: For corporate applicants, a board resolution approving the application must be submitted.
Initial Review by SFC: The SFC will conduct an initial review (typically 2-4 weeks). They may request additional information or clarifications.
Step 3: Acceptance and Fee Payment
Once the SFC is satisfied with the initial review and there are no fundamental issues, they will formally accept the application and issue an invoice for the application fees.
Payment: Pay the prescribed application fees through the online payment facility on WINGS.
Step 4: Further Processing and Requisitions
After payment, the SFC will continue to process the application, thoroughly examining various aspects like proposed business activities, internal controls, key personnel, and financial arrangements.
Requisitions: Expect multiple rounds of requisitions from the SFC, requesting further information or clarifications. Timely and well-answered responses are crucial to expedite the process.
Step 5: Approval and Grant of License
Upon satisfactory review of all submitted information and compliance with requirements, the SFC will grant the license.
4. Application Fees:
SFC application fees are generally charged per regulated activity. For Licensed Corporations applying for most regulated activities (e.g., Types 1, 2, 4, 5, 9), the application fee is HKD 4,740 per regulated activity. There are also fees for Responsible Officer and Licensed Representative applications.
5. Timeline:
The SFC aims to process corporate license applications within approximately 15 weeks from the date of formal acceptance (i.e., payment of the acceptance invoice). However, this timeline does not include the time taken for applicants to prepare the application or respond to SFC requisitions. The entire process, from preparation to approval, can take several months (e.g., 4-6 months or longer, depending on complexity and responsiveness).
6. Ongoing Obligations:
Once licensed, a corporation has continuous obligations to maintain its "fit and proper" status and comply with SFC regulations, including:
Financial Resources: Maintain minimum paid-up share capital and liquid capital at all times. Submit Financial Resources Returns (FRR) to the SFC.
Responsible Officers and MICs: Ensure at least one Responsible Officer is available at all times to supervise regulated activities. All executive directors must be approved as Responsible Officers. Appoint and notify the SFC of MICs for all core functions.
Notifications: Promptly notify the SFC of various changes or events (typically within 7 business days), including:
Cessation of business
Changes in name or business address
Changes in directors, complaints officers, or emergency contact persons
Changes in share capital or shareholding structure
Significant changes in the nature of business or business plan
Changes in MICs (appointment or cessation)
Changes in bank accounts
Changes in auditor's name
Annual Submissions: Submit audited accounts and other required documents to the SFC within four months after the end of each financial year.
Annual Fees: Pay annual licensing fees (Note: there have been periods of fee waivers, but these are subject to change. As of early 2025, the SFC was planning to resume annual licensing fees).
Continuing Professional Training (CPT): Licensed representatives must undertake a minimum number of CPT hours per calendar year (e.g., 5 hours per regulated activity). Records of CPT activities must be maintained for at least three years.
Compliance Manual and Operations: Adhere to the established compliance manual, operational procedures, and relevant codes and guidelines issued by the SFC (e.g., Code of Conduct for Persons Licensed by or Registered with the SFC, Fund Manager Code of Conduct).
KYC and Suitability: Implement robust Know Your Customer (KYC) processes and suitability assessments for clients.
Establishing an SFC-licensed corporation is a complex undertaking that often benefits from professional guidance from compliance consultants or legal advisors experienced in Hong Kong's regulatory framework.
Fees
When establishing an SFC-licensed corporation in Hong Kong, there are several types of fees you'll encounter. These can be broadly categorized into application fees and ongoing annual fees, with specific amounts depending on the type of regulated activity and the category of applicant (licensed corporation, Responsible Officer, or Licensed Representative).
It's important to note that the SFC has, at times, implemented waivers for annual licensing fees. However, as of April 1, 2025, the SFC has resumed the collection of annual licensing fees. Therefore, it's crucial to budget for these ongoing costs.
Here's a breakdown of the typical fees (as of late 2024/early 2025 information):
I. Application Fees (One-time)
These fees are paid when you submit your initial application to the SFC.
For a Licensed Corporation:
For most regulated activities (Types 1, 2, 4, 5, 6, 7, 8, 9, 10): HKD 4,740 per regulated activity.
For Type 3 (Leveraged Foreign Exchange Trading): HKD 129,730.
Note: The application fee for Type 7 (Providing automated trading services) is waived if it's incidental to carrying on Type 1 or Type 2 regulated activities.
For Approval to become a Responsible Officer (RO):
For most regulated activities (Types 1-10): HKD 2,950 per regulated activity.
Note: The application fee for Type 7 RO is waived if it's incidental to carrying on Type 1 or Type 2 regulated activities.
For a Licensed Representative (LR):
For most regulated activities (Types 1, 2, 4, 5, 6, 7, 8, 9, 10): HKD 1,790 per regulated activity.
For Type 3 (Leveraged Foreign Exchange Trading): HKD 2,420.
Note: The application fee for Type 7 LR is waived if it's incidental to carrying on Type 1 or Type 2 regulated activities.
Provisional Licensed Representative: HKD 800 per application (on top of the normal LR fee).
II. Annual Licensing Fees (Ongoing)
These fees are payable annually, within one month after each anniversary date of the license or registration.
For a Licensed Corporation:
For most regulated activities (RAs other than RA 3): HKD 4,740 per regulated activity.
For RA 3 (Leveraged Foreign Exchange Trading): HKD 129,730.
Note: The annual fee for RA 7 is waived if the carrying on of which is incidental to the carrying on of RA 1 or RA 2.
For a Responsible Officer (RO):
For RAs other than RA 3: HKD 4,740 per regulated activity.
For RA 3: HKD 5,370.
For a Licensed Representative (LR):
For RAs other than RA 3: HKD 1,790 per regulated activity.
For RA 3: HKD 2,420.
For a Registered Institution (RI) (e.g., banks):
For RAs other than RAs 3 and 8: HKD 35,000 per regulated activity.
Important Considerations:
Multiple Regulated Activities: If your corporation, RO, or LR is licensed for multiple regulated activities, you will pay the fee for each activity.
Waivers: While the SFC resumed annual fee collection from April 1, 2025, past waivers have occurred. Always check the latest SFC circulars or official website for any current waivers or changes to fees.
Surcharges for Late Payment: Failure to pay annual licensing fees on time will result in surcharges:
Less than 1 month overdue: 10% surcharge
Over 1 month but less than 2 months: 30% surcharge
Over 2 months but less than 3 months: 50% surcharge
Over 3 months but less than 4 months: Suspension of license/registration
Over 4 months: Revocation of license/registration
Other Costs: Beyond these direct SFC fees, remember to factor in other significant costs:
Professional Fees: Fees for compliance consultants, legal advisors, and auditors for the application process and ongoing support. These can be substantial.
Minimum Capital Requirements: This is a key financial commitment, not a fee, but a significant cost. The required paid-up capital and liquid capital vary greatly depending on the regulated activity and whether client assets are held. For example, for a Type 9 (Asset Management) license where client assets are held, the minimum paid-up share capital is HKD 5,000,000 and minimum liquid capital is HKD 3,000,000. If no client assets are held, the minimum liquid capital could be HKD 100,000.
Office Space: Rent and associated costs for suitable premises in Hong Kong.
Staffing Costs: Salaries for Responsible Officers, Licensed Representatives, and other operational staff.
Technology and Systems: Investment in IT infrastructure, trading systems, and compliance software.
Always refer to the official Securities and Futures Commission (SFC) website or contact them directly for the most up-to-date and definitive information on licensing fees and requirements.
Bestar Professional Fees
Beyond the direct SFC application and annual licensing fees, a significant portion of the cost of establishing and maintaining an SFC-licensed corporation in Hong Kong comes from professional fees for compliance consulting, professional advisory, and auditing. These fees vary widely based on the complexity of your business, the types of regulated activities, and the size of your operation.
Here's a breakdown:
I. Application Process Professional Fees (One-Time)
These are the fees incurred to prepare and submit a robust and compliant license application.
Compliance Consulting:
Scope: This includes initial assessment, drafting of a comprehensive business plan, developing a detailed compliance manual (including AML/CTF policies, internal controls, risk management frameworks), assisting with the "fit and proper" assessment of individuals (ROs, LRs, MICs), preparing all SFC application forms, and managing communication with the SFC during the application process.
Cost: For a relatively straightforward Type 4 (advising on securities) or Type 9 (asset management) license with no client money/asset handling, you might expect to pay anywhere from HKD 150,000 to HKD 500,000+. For more complex licenses (e.g., Type 1/2 with client money, or multiple RAs), this could easily go up to HKD 500,000 to HKD 1,000,000+.
Factors influencing cost:
Number and complexity of regulated activities.
Whether client assets will be held.
Number of Responsible Officers and Licensed Representatives requiring approval.
The quality and completeness of your existing internal documentation.
Professional Advisory:
Scope: Professional advice covers areas like corporate structuring, reviewing client agreements, drafting professional opinions, advising on specific SFO interpretations, and ensuring all legal documents are compliant. We may also review the compliance manual from a legal perspective.
Cost: Professional fees can vary significantly. For the application phase, Bestar charges anywhere from HKD 100,000 to HKD 400,000+, depending on the level of engagement and complexity.
Factors influencing cost:
Complexity of legal issues.
Need for specialized professional opinions.
Auditors (Pre-licensing Audit / Comfort Letter):
Scope: While a full annual audit isn't required until after licensing, some firms may engage an auditor for a pre-licensing "comfort letter" regarding financial projections or capital adequacy, or to conduct a preliminary review of financial systems.
Cost: This would generally be a smaller fee, possibly in the range of HKD 20,000 to HKD 50,000, depending on the scope.
II. Ongoing Support and Annual Professional Fees
These are recurring costs to ensure continuous compliance and proper financial reporting.
Compliance Consultancy (Ongoing Retainer/Advisory):
Scope: Ongoing compliance support often includes:
Keeping abreast of regulatory changes and advising on their impact.
Reviewing and updating the compliance manual annually.
Assisting with regular SFC filings (e.g., Financial Resources Returns (FRR)).
Providing ad-hoc compliance advice.
Conducting annual compliance reviews or mock inspections.
Providing CPT training for licensed individuals.
Cost: Monthly retainers can range from HKD 15,000 to HKD 50,000+ per month, or annual packages can range from HKD 180,000 to HKD 600,000+, depending on the level of support required, the number of regulated activities, and the volume of transactions.
Professional Advisory (Ongoing Ad-hoc Advice):
Scope: Bestar is typically engaged on an ad-hoc basis for specific legal questions, contract reviews, or in the event of SFC inquiries or investigations.
Cost: This is highly variable, depending on the frequency and complexity of professional needs. Hourly rates can range from HKD 2,000 to HKD 8,000+ per hour.
Auditing (Annual Audit):
Scope: All limited companies in Hong Kong are required to undergo an annual audit. For SFC-licensed corporations, this audit is more complex due to specific regulatory reporting requirements (e.g., FRR, client money rules).
Cost: For an SFC-licensed entity, annual audit fees are generally higher than for a standard trading company. They can range from HKD 40,000 to HKD 150,000+ annually for smaller to medium-sized licensed firms, and significantly more for larger or more complex operations (e.g., those holding client assets or with extensive transactions).
Factors influencing cost:
Company size and complexity (number of transactions, balance sheet size).
Number of regulated activities.
Whether client money/assets are held (adds significant complexity).
Quality of internal record-keeping.
Summary of Estimated Professional Fees (Highly Illustrative):
Category | Application Phase (One-time) | Ongoing Annual (Recurring) |
Compliance Consultancy | HKD 150,000 - HKD 1,000,000+ | HKD 180,000 - HKD 600,000+ |
Professional Advisory | HKD 100,000 - HKD 400,000+ | Variable (Ad-hoc) |
Auditing | HKD 20,000 - HKD 50,000 (if applicable) | HKD 40,000 - HKD 150,000+ |
Total Professional Fees: Establishing and maintaining an SFC license represents a significant investment. For initial setup, expect to budget anywhere from HKD 300,000 to well over HKD 1,500,000 in professional fees for the application process. Ongoing annual professional fees could range from HKD 250,000 to HKD 800,000+ annually, excluding any major ad-hoc legal needs or regulatory investigations.
These figures are estimates and can vary substantially. It's always recommended to obtain detailed proposals from Bestar to get an accurate understanding of the costs for your specific situation.
How Bestar can Help
Establishing an SFC-licensed corporation in Hong Kong is a highly regulated and intricate process. Bestar plays a crucial role in guiding firms through this complex landscape, offering expertise that significantly streamlines the application and ongoing compliance journey.
Here's how we can help:
Bestar offers a two-pronged approach to navigating the complex landscape of establishing and operating an SFC-licensed corporation in Hong Kong. We provide specialized expertise in both regulatory compliance and legal risk mitigation, ensuring invaluable assistance at every stage of your journey:
Initial Assessment and Strategy:
Determining Regulated Activities: We help you accurately identify which of the SFC's regulated activities apply to your business model, preventing over-licensing (unnecessary burdens) or under-licensing (compliance gaps and potential penalties).
Fit and Proper Assessment: We assess your proposed corporate structure, key personnel (Responsible Officers, Managers-in-Charge), and substantial shareholders against the SFC's "fit and proper" criteria, identifying any potential red flags early on.
Capital Requirements: We advise on the precise minimum paid-up capital and liquid capital requirements for your specific regulated activities, helping you plan your financial resources effectively.
Business Plan Formulation: We assist in drafting a robust and compliant business plan that clearly outlines your objectives, strategies, target market, and financial projections, aligning it with SFC expectations.
Application Preparation and Submission:
Document Preparation: This is one of our most significant contributions. We guide you through the extensive list of required documents, including:
Detailed compliance manuals (covering internal controls, risk management, AML/CTF policies, and procedures).
Operational workflow diagrams.
Organizational charts.
Resumes and other personal information for ROs and LRs.
Drafting and completing all SFC application forms and supplements accurately.
Liaison with SFC: We act as a crucial intermediary between your firm and the SFC case officers, handling correspondence, responding to requisitions (requests for information), and clarifying any queries efficiently. Their experience often means they anticipate common SFC questions, leading to smoother communication.
Negotiating Licensing Conditions: In some cases, the SFC may impose specific licensing conditions. Bestar can help negotiate these conditions to be as practical and least restrictive as possible for your business.
Post-Licensing and Ongoing Compliance:
Establishing Compliance Frameworks: We assist in setting up robust internal control and compliance frameworks post-licensing.
Compliance Manual Implementation: We help you implement and operationalize your compliance manual, ensuring that policies are understood and followed by all staff.
Ongoing Monitoring and Reporting: We provide ongoing support for regulatory reporting (e.g., Financial Resources Returns), ensuring timely and accurate submissions.
Regulatory Updates: We keep you informed about new SFC circulars, guidelines, and changes to the regulatory landscape, advising on necessary adjustments to your operations.
Training: We can conduct compliance training for your staff, including Responsible Officers and Licensed Representatives, on topics like CPT requirements, AML/CTF, market misconduct, and ethical conduct.
Mock Inspections: Bestar offers mock SFC inspections to help firms prepare for potential regulatory visits, identifying and addressing weaknesses proactively.
Ad-hoc Advice: We provide ongoing ad-hoc advice on various compliance issues that may arise during your daily operations.
Legal Interpretation and Structure:
"Regulated Activities" Interpretation: We provide definitive legal opinions on whether specific business activities fall under the SFC's "regulated activities" and whether any exemptions apply. This is critical for businesses with novel or complex service offerings.
Corporate Structuring: We advise on the optimal legal structure for your licensed corporation, considering implications under the SFO, company law, and tax regulations.
Shareholder Agreements and Governance: We can draft or review shareholder agreements and internal governance documents to ensure they align with SFC expectations regarding control and oversight.
Contractual and Documentation Review:
Client Agreements: We review client agreements, terms of business, and other contractual documents to ensure they comply with SFC requirements regarding disclosure, client suitability, and risk warnings.
Outsourcing Agreements: If you plan to outsource any critical functions, Bestar can review the outsourcing agreements to ensure they meet the SFC's requirements for ongoing oversight and accountability.
Compliance with Legal Provisions: We ensure that all documentation, policies, and procedures are legally sound and fully compliant with the Securities and Futures Ordinance (SFO) and its subsidiary legislation.
Risk Management:
Identifying Legal Risks: We identify potential legal risks associated with your business model and operational practices, advising on mitigation strategies.
Specialized Legal Areas:
Financial Product Development: If you are launching new financial products, Bestar can ensure they comply with relevant regulations.
AML/CTF Legal Advice: Bestar handles the operational aspects of AML/CTF, and provides the underlying legal interpretation of the Anti-Money Laundering and Counter-Terrorist Financing Ordinance.
Data Privacy: We ensure compliance with Hong Kong's data privacy laws (e.g., Personal Data (Privacy) Ordinance) concerning client information.
In essence, Bestar helps you navigate the practical and operational aspects of meeting SFC requirements, while providing the deep legal interpretation and risk mitigation necessary to ensure your firm's activities are robustly aligned with the law. Firms will engage Bestar, working collaboratively to achieve a seamless and fully compliant SFC licensing and operational process.
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