I. Policy Overview
As the largest financial trading market in Asia, Hong Kong is an important bridge for many financial institutions in the Mainland to seek external development. Compared with the difficulty of applying for financial licenses in the Mainland, the Hong Kong securities and futures market adopts an access system. As long as you meet the requirements of the Hong Kong Securities Regulatory Commission, you can apply. Among the 10 types of licenses managed by the Hong Kong Securities Regulatory Commission, each type of license corresponds to a business. To engage in the corresponding business, you must obtain the corresponding license, and only after obtaining the license can you become a licensed person specified by the Hong Kong Securities Regulatory Commission.
License plates 1–10
2. License Classification
As an asset management company, our research focuses on the application of license plates 1, 4 and 9.
The so-called 149 license plate is actually a combination of Class 1, Class 4 and Class 9 license plates.
(1) Category 1 License: Dealing in Securities
Category 1 license, i.e. securities trading license, only with Category 1 license can you provide securities trading (such as buying and selling of stocks, stock options and bonds) and brokerage services to clients in Hong Kong. This is equivalent to mainland securities companies providing stock trading services to clients. If a financial institution wants to conduct securities trading activities in Hong Kong, it needs to hold Category 1 license, so Category 1 license is the most common of the ten major licenses, and the number of individuals and institutions holding licenses is also the largest of all licenses.
(2) 4 types of licenses: Advising on Securities
Type 4 license - a license to provide securities advice to clients (providing consulting services to professional investors for a fee). Only with a Type 4 license can you provide securities investment advice to clients and publish related research reports in Hong Kong. Many companies choose to apply for both Type 1 and Type 4 licenses at the same time.
The main service of Hong Kong Type 4 license is to provide advice on securities, but don’t think that there is no risk in providing advice, because in Hong Kong’s financial circle, if you mislead relevant professional investors, the Hong Kong Securities Regulatory Commission will impose fines, and the Hong Kong Type 4 license may be revoked at any time.
(3) 9 types of licenses: Asset Management
Category 9 licenses, namely asset management licenses, are the only way to issue funds and manage client funds in Hong Kong. Equivalent to the private equity fund license in the Mainland. Holding this license means obtaining a "passport" in the international capital market, which allows you to directly participate in overseas investments and manage the funds of overseas investors. (Regulated activities include real estate investment plans, securities or futures contracts, etc.)
3. Advantages of holding a Hong Kong No. 9 license plate & application method:
Advantages of No. 9
1. Overseas investment
To expand the scope of overseas investment targets, Hong Kong has relatively few restrictions on the investment targets of asset management institutions. Asset management institutions can invest in various types of overseas equity assets and derivatives, and can also invest in A-shares at the same time.
2. Increase asset allocation options for domestic customers
Hong Kong is open to the global capital market and has a wider range of investment types. We can design more diversified fund products for customers to choose from. With the increasing demand for diversified allocation of high-net-worth customers, obtaining the No. 9 license can better meet customer requirements and provide more diversified services to high-net-worth customers.
Overseas investors usually have a stronger risk tolerance and discrimination. Although they are more strict in selecting private equity companies, once they are selected, they are more likely to hold their funds for a long time and be more stable. Overseas investors are also more tolerant of performance requirements, and many only require private equity funds to run some reference indexes before they can extract returns.
3. Tax benefits
Hong Kong's tax rate is lower than that of the mainland, and additional tax incentives are introduced every year, which can be enjoyed by Hong Kong companies. Therefore, setting up a fund management company in Hong Kong can reduce a large tax burden. (If a Hong Kong limited company has an annual profit of less than 2 million Hong Kong dollars, it only needs to pay 8.25% of the net profit tax; if the Hong Kong limited company has an annual profit of more than 2 million Hong Kong dollars, it will pay 16.5% of the net profit exceeding 2 million.)
4. Build an international investment team and expand global presence
The Hong Kong Securities and Futures Commission has more than 3,200 licensed financial institutions and over 40,000 licensed practitioners. It has a rich reserve of high-end financial talents and can quickly build an international investment team and gradually deploy global asset management business.
Because the No. 9 license is for asset management business, it is the most in line with the requirements of private equity. Over the years, more and more private equity institutions have applied for the No. 9 license. Secondly, because these three licenses are a combination of a set of punches, most companies will apply for all three licenses at the same time. After obtaining the No. 1, No. 4, and No. 9 licenses, the scope of overseas investment targets can be further expanded, the product selection of investors can be enriched, and full and active participation in international market investment can be provided to high-net-worth clients. Global asset allocation and wealth management consulting services.
How to get a license & how to apply:
One path is to apply by yourself, and the other is to buy a shell company (acquisition).
Method 1: Acquisition
Acquisition is not as simple as everyone thinks, that is, just taking over the company. As everyone knows, if you buy an A-share shell company in China, you also need to go to the Securities Regulatory Commission/Industry and Commerce Bureau for approval, and it is the same in Hong Kong. The Hong Kong Securities Regulatory Commission stipulates that if a licensed shell company changes its major shareholder, it needs to go to the Securities Regulatory Commission for approval. The concept of major shareholder in Hong Kong is very broad, holding 10% of the shares is considered. However, the Securities Regulatory Commission will ask about the new shareholder's opinion on the company, so you may need to submit a new business plan.
Licensed RO:
Another big problem is that you need to find a licensed RO, which is a scarce resource. If you buy a shell company, you may bring a few ROs to work for you for 3-6 months, but each institution will eventually need to find an RO independently. The CSRC also needs to approve the replacement of ROs. Therefore, when buying a shell company, you may have a smooth negotiation with a shell seller in the early stage, but the replacement procedures in the later stage will take at least 3-4 months. In general, the control is relatively low.
149 license plate market price
Based on the market conditions before 2020, it would cost tens of millions of Hong Kong dollars to acquire a Hong Kong company with a 149 license. Since the Hong Kong 149 license can already be regarded as a symbol of a strong wealth management company, there are many companies that want to acquire it. (However, due to the epidemic, many brokerage firms have closed down. According to the current market situation, the acquisition fee of a 149 license may have dropped to 2 million Hong Kong dollars.
Method 2: Direct application
If you are applying for a license, assuming you have already established a company in Hong Kong, the total time will be 6-9 months. In total, the time cost of both methods is about the same. The direct application method must meet the following seven elements:
Condition 1 for direct application of No. 9 license plate: Company requirements
To apply for a Hong Kong No. 9 license plate, you must meet the following conditions:
The applicant must be a company incorporated in Hong Kong or a non-Hong Kong company registered with the Hong Kong Registry.
The company must have an appropriate business structure, a good internal control system and qualified personnel and team (the CSRC will strictly review the team composition and background of key members).
A company must have at least 2 responsible officers, at least 1 of whom must be an executive director.
Applicants must meet the “Fit & Proper” requirements. The applicant’s major shareholders (holding more than 10% of the licensed company’s shares), directors and senior management must meet the “Fit & Proper” requirements.
“Fit & Proper” qualification requirements:
Good financial status and repayment capacity, not facing bankruptcy or defaulting on debts.
Possess a qualified academic degree or industry qualification, such as a bachelor's degree or above in accounting, economics, finance, or other related majors, or relevant professional qualifications such as Chartered Financial Analyst.
No record of punishment or criminal record by domestic or foreign regulatory authorities in the past five years or more.
The resume has certain industry-related experience.
Condition 2 for direct application of No. 9 license: Financial requirements
If you are applying for a Type 9 license for holding customer assets, the minimum paid-in capital must be HK$5 million and the liquid capital must be no less than HK$3 million.
If you do not hold client assets, there is no minimum paid-in capital restriction, and the minimum liquid capital is HK$100,000;
The registered capital requirements for both No. 4 and No. 9 licenses are the same. You must open an account in a bank in Hong Kong. In addition, you need to submit proof of the shareholder's source of funds and legal proof, the funding requirements for the planned business, and the requirements for registered capital.
There are also clear requirements for regular reporting of financial status. Licenses No. 4 and 9 are also subject to conditions for holding customer assets. If funds are held, financial reports must be submitted every quarter. If not, financial report declaration forms only need to be submitted every six months.
The process of applying for a license is not a one-time process. It usually takes at least half a year to prepare materials and other matters. It is especially important to note that even after obtaining the license, there will still be many restrictions. Therefore, without the assistance of a professional organization, it is still very likely that various important details will be missed.
Condition 3 for direct application for license plate No. 9: Regulations for practitioners
Each regulated activity requires a license and corresponding licensed personnel to operate it. In other words, if you have licenses 1, 4, or 9, then your company must also have corresponding licensed practitioners.
Practitioners - Responsible Officer (RO), in fact, is what is commonly called a risk control officer in China. An institution or company needs to employ at least two ROs to hold a license, and ROs cannot work part-time for other companies. The role of RO is more like receiving a salary from the licensed company, but in fact they are supervisors assigned by the Hong Kong Securities and Futures Commission.
Another thing that needs to be emphasized is the issue of compliance. Violation of SFC regulations in Hong Kong may result in civil or criminal penalties, depending on the severity of the violation. The company and the hired RO are respectively responsible for compliance.
Among them, ROs are divided into big and small brands. Big brand ROs are those who have had experience as the person in charge of relevant licenses before. Small brand ROs are those who have passed the HKSI (Hong Kong Securities & Futures) related exams and only have relevant industry experience. According to the market data of No. 9 RO, if the RO does not participate in the management and operation of the company, the monthly salary of pure listing is about HK$50,000. If the RO is required to participate in the operation and management of the company, the monthly salary will be as high as HK$80,000-100,000. (It is recommended to find two ROs, one big and one small, to apply for the #4+9 license)
4. Application process for Hong Kong No. 9 license plate
The application process for Hong Kong Type 9 license consists of two parts:
1. Preliminary preparations
The whole process is expected to take 2-3 months, including company structure establishment and company registration, opening of Hong Kong company account, office leasing and team building, preparation of all materials and application forms, and submission of application to the Hong Kong Securities Regulatory Commission.
2. Approval from the Hong Kong Securities and Futures Commission
The entire process, which includes asking questions from the CSRC, accepting applications and collecting fees, preparing exchange participant application documents, coordinating attendance at CSRC meetings, receiving preliminary approval notifications and supplementing materials, and finally formally obtaining a license, is estimated to take 4-6 months. Some steps may require multiple processing, so it is recommended to prepare in advance and reserve sufficient time.
5. Experience and suggestions on applying for Hong Kong No. 9 license plate
Based on the history of previous application approvals, there are two important suggestions:
1. Building a two-tier holding company structure
When building a corporate structure, in order to avoid the need to file with the Hong Kong Securities Regulatory Commission for changes in important actual controllers such as the Hong Kong company & shareholders applying for a license, it is recommended that a holding company B be built above the licensed company A, with holding company B holding A. Subsequent entry and exit of shareholders only need to be handled at the holding company B level, without the need for licensed company A to file with the Hong Kong Securities Regulatory Commission, thereby reducing maintenance costs (the method adopted by most companies on the market).
2. Make good financial preparations
Make financial preparations in advance. The Hong Kong Securities and Futures Commission will require applicants to provide proof of funds during the review and approval process. Due to the country's foreign exchange controls, large amounts of funds moving out of the country need to be planned in advance.
Normally, when the Hong Kong Securities and Futures Commission examines proof of funds, the first thing it must do is to ensure that the proof of funds can be used at any time and cannot be mainland funds (there are foreign exchange controls); the second thing is that the amount of funds must ensure that the company can maintain the minimum liquidity while maintaining normal operations for at least half a year. According to normal estimates and combined with the rental cost and labor cost of the Hong Kong office address, it is recommended to prepare at least 20 million Hong Kong dollars in funds (funds for at least 1 year of operation).
about Us
JZL Capital is a professional institution registered overseas, focusing on blockchain ecosystem research and investment. The founder has extensive work experience and has served as CEO and executive director of many overseas listed companies, and has led and participated in eToro's global investment. Team members come from top universities such as the University of Chicago, Columbia University, University of Washington, Carnegie Mellon University, University of Illinois at Urbana-Champaign, and Nanyang Technological University, and have served internationally renowned companies such as Morgan Stanley, Barclays Bank, Ernst & Young, KPMG, HNA Group, and Bank of America.