Regulation and Licensing of Securities and Futures Activities
This domain tests the statutory gateway to the Hong Kong market: who must be licensed, what each regulated activity covers, and how the SFC and HKMA supervise licensed corporations and registered institutions.
Regulated activities and licensing gateways
The Securities and Futures Ordinance (Cap. 571) prohibits carrying on a business of a regulated activity in Hong Kong without an SFC licence or, for banks, HKMA registration. The 13 regulated activities are commonly examined by type: 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 credit rating services; Type 11 dealing in or advising on OTC derivative products; Type 12 client clearing for OTC derivatives; and Type 13 depositary services for relevant collective investment schemes.
A licensed corporation must have at least two responsible officers (ROs), with at least one available at all times to supervise the regulated activity. Individual representatives need representative licences. ROs must satisfy competence and management-experience standards. The fit and proper test covers financial soundness, competence, integrity, reputation and legal/regulatory compliance. Continuous Professional Training is generally 10 hours per calendar year, including at least 2 hours on ethics or regulation.
Worked example
A start-up proposes a robo-adviser that recommends Hong Kong-listed stocks and executes client instructions. It does not manage money discretionarily. The recommendations are advising on securities (Type 4); execution is dealing in securities (Type 1). If it later manages model portfolios without client instruction, Type 9 is engaged. The firm must be licensed before starting, appoint two ROs with one available at all times, and ensure staff meet CPT. A generic asset-allocation tool may fall outside Type 4 only if it does not recommend specific securities.
Traps that cost marks
Do not confuse Type 4 advising on securities with Type 6 corporate finance advice. The incidental-exemption is narrow and does not cover holding out to the public. Bank registration is not an SFC licence; the HKMA is the front-line regulator for registered institutions. Professional-investor status does not remove the need for a licence. Two ROs on paper are not enough if neither is available to supervise.