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HKSI LE Paper 3 study materials
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HKSI LE Paper 3 practice questions

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Question 1Regulatory framework and the SFC

Under the Securities and Futures Ordinance, which body is the principal statutory regulator of the securities and futures markets in Hong Kong?

  1. The Stock Exchange of Hong Kong Limited
  2. The Hong Kong Monetary Authority
  3. The Securities and Futures Commission Correct answer.
  4. The Financial Reporting Council

Explanation

The Securities and Futures Ordinance establishes the Securities and Futures Commission as the statutory regulator responsible for supervising the securities and futures markets. The Exchange is a recognised exchange company that operates the market but is not the principal statutory regulator, and the HKMA focuses on banking stability and monetary matters.

Question 2Regulatory framework and the SFC

Which statutory objective is expressly assigned to the Securities and Futures Commission under the Securities and Futures Ordinance?

  1. Promoting the development of the securities and futures markets Correct answer.
  2. Reducing systemic risk in the banking sector
  3. Issuing the currency notes in circulation
  4. Setting the level of interest rates in Hong Kong

Explanation

The SFO lists the SFC's objectives, which include promoting the development of the securities and futures markets and protecting investors. Interest rates and currency issuance fall to the monetary authority, while banking sector stability is a banking supervision matter.

Question 3Regulatory framework and the SFC

An intermediary licensed by the SFC wishes to display its licence status to clients. Which statement best describes the licensing regime administered by the SFC?

  1. Licences are granted by the Exchange and merely recorded by the SFC
  2. A single licence automatically covers every regulated activity without conditions
  3. Licensing is optional where the firm deals only with professional investors
  4. A firm must hold an SFC licence for each regulated activity it carries on Correct answer.

Explanation

The SFO requires a person to be licensed for each regulated activity it performs, and the SFC may impose conditions on that licence. Dealing with professional investors does not remove the licensing requirement where the activity is a regulated activity.

Question 4Regulatory framework and the SFC

Which function is performed by the Investor Compensation Company Limited rather than by the SFC directly?

  1. Administering compensation payments to investors under the investor compensation regime Correct answer.
  2. Approving listing documents for new applicants
  3. Setting the capital adequacy requirements for licensed corporations
  4. Prosecuting market misconduct cases before the Market Misconduct Tribunal

Explanation

The Investor Compensation Company Limited is a company established to administer the investor compensation fund and process compensation payments. Prosecutions, listing approvals and capital requirements are handled through other bodies and processes.

Question 5Regulatory framework and the SFC

A licensed corporation's senior management is reviewing its obligations under the SFC's conduct rules. Which statement best reflects the SFC's approach to supervision of licensed corporations?

  1. The SFC conducts ongoing supervision including inspections and may take disciplinary action Correct answer.
  2. The SFC supervises only at the point of licence application and does not conduct ongoing monitoring
  3. The SFC relies solely on self-certification by firms with no on-site inspection powers
  4. The SFC delegates all supervisory work to the Exchange with no direct oversight

Explanation

The SFC's supervisory model is continuous: it monitors licensed corporations through reporting, inspections and investigations, and can impose disciplinary sanctions for breaches. Supervision is not confined to the licensing stage, and the SFC does not delegate its regulatory functions wholesale to the Exchange.

Question 6Regulatory framework and the SFC

Which of the following best describes the status of the Stock Exchange of Hong Kong Limited within the regulatory framework?

  1. A recognised exchange company subject to SFC oversight Correct answer.
  2. An independent statutory tribunal hearing disciplinary cases
  3. A government department responsible for drafting the Securities and Futures Ordinance
  4. A self-regulatory body entirely outside SFC supervision

Explanation

The Exchange is recognised as an exchange company under the SFO and operates the market, but it remains subject to SFC oversight. It is not a government department, a tribunal, or wholly outside SFC supervision.

Question 7Regulatory framework and the SFC

Under the SFO, which of the following is a regulated activity requiring an SFC licence?

  1. Providing general newspaper commentary on market trends
  2. Operating a personal blog about investing
  3. Publishing historical share price tables without recommendation
  4. Advising on securities as part of a business Correct answer.

Explanation

Advising on securities is a regulated activity under the SFO when carried on as a business, and it requires a licence. General commentary, factual price publication and personal blogging do not by themselves amount to carrying on a regulated activity.

Question 8Regulatory framework and the SFC

The SFC's disciplinary powers over licensed corporations include which of the following?

  1. Removing the corporation's listing from the Exchange
  2. Ordering imprisonment for breaches of the conduct rules
  3. Dissolving the licensed corporation by administrative order
  4. Imposing a public reprimand and a fine Correct answer.

Explanation

The SFC may impose disciplinary sanctions such as public or private reprimands, fines, suspension or revocation of licences, and orders. Imprisonment follows only from criminal conviction by a court, and the SFC does not administratively dissolve companies or delist issuers.

Question 9Regulatory framework and the SFC

Which statement correctly describes the SFC's relationship with the Hong Kong Monetary Authority in regulating market participants?

  1. The SFC supervises banks' securities businesses instead of the HKMA
  2. The HKMA approves all SFC licences before they are issued
  3. The SFC has no contact with the HKMA and each operates in complete isolation
  4. The two authorities cooperate and share information under statutory arrangements Correct answer.

Explanation

The SFC and the HKMA cooperate and exchange information under statutory and memorandum arrangements, reflecting their overlapping interests in different parts of the financial system. They do not operate in isolation, and neither approves the other's licences wholesale.

Question 10Regulatory framework and the SFC

A firm argues that because it is incorporated overseas it need not comply with the SFC's conduct requirements when serving Hong Kong clients. Which response is most accurate?

  1. Overseas incorporation removes the need to comply with SFC rules
  2. The SFC rules apply only to firms incorporated in Hong Kong
  3. Compliance depends only on the law of the firm's home jurisdiction
  4. The SFC regime can apply to overseas firms carrying on a regulated activity in Hong Kong Correct answer.

Explanation

The SFO regime is activity- and territory-based: a firm carrying on a regulated activity in Hong Kong, or holding itself out as doing so, may fall within the SFC's licensing and conduct requirements regardless of where it is incorporated. Home jurisdiction rules may also apply, but they do not displace the Hong Kong regime.

Question 11Regulatory framework and the SFC

Which of the following is a statutory objective of the SFC relating to investors?

  1. Guaranteeing investors against all investment losses
  2. Providing investment advice to retail clients
  3. Setting the returns payable on investment products
  4. Securing an appropriate degree of protection for investors Correct answer.

Explanation

One of the SFC's statutory objectives is to secure an appropriate degree of protection for investors, which is not a guarantee against loss. The SFC does not provide investment advice to retail clients or set product returns.

Question 12Regulatory framework and the SFC

A licensed representative is unsure whether a proposed arrangement amounts to a regulated activity. What is the most appropriate first step under the regulatory framework?

  1. Rely on a colleague's informal view that no licence is needed
  2. Assume the activity is unregulated because no client has objected
  3. Obtain independent legal advice and check the SFC's guidance before proceeding Correct answer.
  4. Proceed and disclose the arrangement only if a client complains

Explanation

Firms and representatives should assess whether an activity is regulated by reference to the SFO and SFC guidance, taking professional advice where uncertain, before proceeding. Informal assurances or the absence of client complaints do not determine regulatory status.

Question 13Regulatory framework and the SFC

Which statement about the SFC's rule-making power is correct?

  1. The SFC's codes have no relevance to enforcement or licensing decisions
  2. The SFC may only issue non-binding press statements
  3. The SFC may amend the Securities and Futures Ordinance without legislative process
  4. The SFC may make subsidiary rules and codes under powers conferred by the SFO Correct answer.

Explanation

The SFO confers on the SFC power to make subsidiary legislation and to issue codes and guidelines, which are relevant to licensing and enforcement. The SFC cannot amend the Ordinance itself, since that requires the legislative process.

Question 14Regulatory framework and the SFC

An SFC inspector arrives at a licensed corporation's office and requests records relating to client orders. Which statement best reflects the corporation's position?

  1. It may delete the records before responding to the request
  2. It must cooperate with the inspection and produce the requested records Correct answer.
  3. It may produce records only if the Exchange also requests them
  4. It may refuse all access because the records are commercially sensitive

Explanation

Licensed corporations are expected to cooperate with SFC inspections and investigations and to produce records as required. Commercial sensitivity or the absence of an Exchange request does not justify refusal, and destroying records would itself be a serious breach.

Question 15Regulatory framework and the SFC

Which of the following best describes the role of the Market Misconduct Tribunal?

  1. It hears civil proceedings relating to market misconduct referred by the SFC Correct answer.
  2. It licenses corporations to deal in securities
  3. It approves amendments to the Listing Rules
  4. It sets the SFC's annual budget

Explanation

The Market Misconduct Tribunal conducts civil proceedings into market misconduct matters initiated by the SFC and may make findings and orders. It does not license firms, set budgets or approve Listing Rules.

Question 16Regulatory framework and the SFC

Which statement correctly distinguishes the SFC from the Financial Reporting Council?

  1. The FRC regulates securities dealing while the SFC oversees auditors
  2. Both bodies perform identical functions under the same statutory provisions
  3. The FRC licenses intermediaries while the SFC sets accounting standards
  4. The SFC regulates securities and futures activities while the FRC focuses on auditor regulation and financial reporting Correct answer.

Explanation

The SFC regulates securities and futures activities and market participants, while the Financial Reporting Council focuses on auditor oversight and financial reporting matters. Their functions are distinct and are not identical or reversed.

Question 17Regulatory framework and the SFC

A licensed corporation is considering an arrangement that may breach the SFC's conduct rules but is profitable. Which consideration is most consistent with the regulatory framework?

  1. Profitability justifies the arrangement if clients consent
  2. The arrangement is acceptable if no loss results
  3. The arrangement is acceptable if competitors do the same
  4. Compliance with the SFC's rules is a regulatory obligation regardless of profitability Correct answer.

Explanation

Compliance with the SFC's rules is a regulatory obligation and is not displaced by profitability, client consent or industry practice. Absence of loss does not make conduct compliant where the rules are breached.

Question 18Regulatory framework and the SFC

Which of the following is most consistent with the SFC's statutory objective of reducing systemic risk?

  1. Monitoring risks arising in the securities and futures markets and coordinating with other regulators Correct answer.
  2. Guaranteeing the profits of licensed corporations
  3. Approving the appointment of bank chief executives
  4. Setting the exchange rate of the Hong Kong dollar

Explanation

The SFC's objectives include reducing systemic risk in the securities and futures industry, which it pursues by monitoring market risks and coordinating with other regulators. It does not guarantee profits, set the exchange rate or approve bank executive appointments.

Question 19Regulatory framework and the SFC

A firm wishes to rely on an SFC code of conduct as the sole basis for its compliance programme. Which statement is most accurate?

  1. Codes apply only to banks, not to licensed corporations
  2. Codes may be supplemented by rules and guidelines, and breaches may be considered in enforcement Correct answer.
  3. Codes override the Securities and Futures Ordinance
  4. Codes are irrelevant to compliance programmes

Explanation

SFC codes and guidelines operate alongside subsidiary rules and are relevant to supervisory and enforcement assessments, but they do not override the Ordinance. A compliance programme should reflect the full framework, not codes alone.

Question 20Regulatory framework and the SFC

Which statement best describes the SFC's power to investigate suspected breaches of the SFO?

  1. It may investigate only matters referred by the Exchange
  2. It has no investigative powers and must rely on the police
  3. It may investigate suspected breaches and require the production of information and records Correct answer.
  4. It may investigate only after a court has found a breach

Explanation

The SFC has statutory investigative powers, including the ability to require the production of information and records, and can initiate investigations into suspected breaches. It does not need a prior court finding or an Exchange referral to investigate.

Question 21Regulatory framework and the SFC

Which of the following best reflects the SFC's approach to corporate governance of licensed corporations?

  1. Senior management has no responsibility for compliance
  2. Corporate governance is irrelevant to licensing
  3. Compliance is solely the responsibility of the compliance officer
  4. The SFC expects clear management accountability and effective controls Correct answer.

Explanation

The SFC expects licensed corporations to maintain clear management accountability and effective systems and controls, with senior management bearing responsibility for compliance. Compliance is not the sole preserve of a compliance officer, and governance is relevant to licensing and supervision.

Question 22Regulatory framework and the SFC

Which statement about the SFC's power to impose licence conditions is correct?

  1. Conditions cannot be varied once a licence is granted
  2. Conditions may restrict the activities a licensed corporation may conduct Correct answer.
  3. Conditions may be imposed only with the consent of the Exchange
  4. Conditions are always published in full in the Gazette

Explanation

The SFC may impose conditions on a licence, including restrictions on the activities that may be conducted, and may vary them. Conditions do not require Exchange consent and are not always published in full.

Question 23Regulatory framework and the SFC

Which of the following is an example of the SFC exercising its function of protecting investors?

  1. Requiring disclosure of information relevant to investment decisions Correct answer.
  2. Selecting the directors of listed companies
  3. Determining the price at which shares trade
  4. Setting the daily trading volume of the market

Explanation

Investor protection is pursued through disclosure requirements and conduct standards, among other measures. The SFC does not set trading volumes or prices, nor does it select company directors.

Question 24Regulatory framework and the SFC

Which statement best describes the relationship between the SFO and the SFC's subsidiary rules?

  1. Subsidiary rules are made under the SFO and operate within its framework Correct answer.
  2. Subsidiary rules replace the SFO entirely
  3. Subsidiary rules are made by the courts
  4. Subsidiary rules cannot be enforced by the SFC

Explanation

Subsidiary rules are made under powers conferred by the SFO and operate within the statutory framework rather than replacing it. They are not made by the courts and can be enforced by the SFC.

Question 25Regulatory framework and the SFC

A licensed corporation receives a request from the SFC for information about a client's transactions. The client asks the firm to withhold the information. What is the most appropriate response?

  1. Provide the information as required, subject to applicable confidentiality and legal advice Correct answer.
  2. Provide only information the client approves
  3. Destroy the records to protect the client
  4. Withhold the information because the client objects

Explanation

A request from the SFC for information must be complied with, subject to applicable confidentiality obligations and legal advice on the scope of the request. Client objection does not justify withholding, and destroying records would be a serious breach.

Question 26Regulatory framework and the SFC

Under the Securities and Futures Ordinance, which body is responsible for the day-to-day supervision of licensed corporations and the conduct of regulated activities?

  1. The Market Misconduct Tribunal
  2. The Securities and Futures Commission Correct answer.
  3. The Financial Reporting Council
  4. The Hong Kong Monetary Authority

Explanation

The SFC is the statutory regulator under the SFO for the securities and futures industry, including licensing and supervising licensed corporations. The HKMA supervises banks, the FRC oversees financial reporting and auditing, and the MMT adjudicates market misconduct cases referred by the SFC.

Question 27Regulatory framework and the SFC

A licensed corporation wishes to appoint a new responsible officer. Which statement best describes the SFC's approval requirement?

  1. The appointment is approved by the Hong Kong Monetary Authority for all licensed corporations.
  2. The appointment is automatically approved if the individual holds a recognised professional qualification.
  3. The appointment only needs to be reported to the SFC within seven days after it takes effect.
  4. The appointment must be approved by the SFC before the individual can act as a responsible officer. Correct answer.

Explanation

Under the SFO and the SFC's licensing regime, a person must be approved by the SFC to act as a responsible officer of a licensed corporation. The SFC assesses fit and proper criteria, competence, and relevant industry experience before granting approval.

Question 28Regulatory framework and the SFC

Which of the following statements about the SFC's power to issue codes of conduct and guidelines is correct?

  1. The SFC can only issue codes and guidelines with the prior approval of the Market Misconduct Tribunal.
  2. A breach of a code or guideline automatically constitutes a criminal offence under the SFO.
  3. The SFC may issue codes and guidelines, and a breach may be considered in disciplinary proceedings even though it is not itself a statutory offence. Correct answer.
  4. Codes and guidelines issued by the SFC are legally binding in the same way as subsidiary legislation.

Explanation

The SFC publishes codes of conduct and guidelines to set expected standards; they are not subsidiary legislation and a breach is not automatically a criminal offence. However, a failure to comply may be taken into account by the SFC in assessing whether a licensee is fit and proper and in disciplinary action.

Question 29Regulatory framework and the SFC

Which of the following best describes the SFC's investigative powers under the Securities and Futures Ordinance?

  1. The SFC may investigate suspected breaches of the SFO and, in doing so, may require production of records and attendance of witnesses. Correct answer.
  2. The SFC may investigate only after obtaining a court warrant in every case.
  3. The SFC may investigate only licensed corporations, not unlicensed persons.
  4. The SFC may investigate only matters referred to it by the Hong Kong Monetary Authority.

Explanation

The SFO confers broad investigative powers on the SFC, including the ability to require the production of records and documents and to require persons to attend and answer questions. These powers may be exercised in relation to suspected breaches of the SFO and related conduct, and are not limited to licensed corporations.

Question 30Regulatory framework and the SFC

Which of the following is a statutory objective of the Securities and Futures Commission?

  1. To promote the development of the securities and futures markets in Hong Kong Correct answer.
  2. To maximise tax revenue from securities transactions
  3. To guarantee investors against investment losses
  4. To ensure that all listed companies remain profitable

Explanation

One of the SFC's statutory objectives under the SFO is to promote the development of the securities and futures markets in Hong Kong. Other objectives include protecting investors, reducing systemic risk, and maintaining market fairness and transparency.

Question 31Licensing and registration of intermediaries and individuals

Under the Securities and Futures Ordinance, which regulator is responsible for licensing corporations that carry on a regulated activity in Hong Kong?

  1. The Companies Registry
  2. The Insurance Authority
  3. The Hong Kong Monetary Authority
  4. The Securities and Futures Commission Correct answer.

Explanation

The Securities and Futures Commission (SFC) administers the licensing regime for intermediaries and individual representatives under the Securities and Futures Ordinance. The other bodies have their own supervisory roles but do not issue SFC licences for regulated activities.

Question 32Licensing and registration of intermediaries and individuals

A firm wishes to be licensed for Type 1 regulated activity. Which business does this licence cover?

  1. Dealing in securities Correct answer.
  2. Providing automated trading services
  3. Advising on corporate finance matters
  4. Asset management

Explanation

Type 1 regulated activity is dealing in securities. Corporate finance advice falls under Type 6, automated trading services under Type 7, and asset management under Type 9.

Question 33Licensing and registration of intermediaries and individuals

Which of the following is a core requirement that a corporate applicant must satisfy before the SFC will grant an intermediary licence?

  1. Having a paid-up capital of at least HK$1 billion
  2. Listing its shares on the Stock Exchange of Hong Kong
  3. Operating in Hong Kong for at least ten years
  4. Being a fit and proper person with adequate financial resources and competent staff Correct answer.

Explanation

Licensing turns on the fit and proper test, which considers financial soundness, competence, and integrity. Minimum capital depends on the regulated activity type rather than a flat HK$1 billion, and there is no listing or ten-year trading history requirement.

Question 34Licensing and registration of intermediaries and individuals

Which individual role at a licensed corporation must be approved by the SFC before the person may perform it?

  1. The external legal adviser
  2. The internal audit clerk
  3. The Responsible Officer Correct answer.
  4. The receptionist at the head office

Explanation

Responsible Officers must be approved by the SFC and are the individuals charged with supervising the regulated activity. Support staff and external advisers do not require SFC approval for their roles.

Question 35Licensing and registration of intermediaries and individuals

How many Responsible Officers must a licensed corporation appoint at a minimum, and what is the required spread?

  1. Four, at least two of whom must be non-executive directors
  2. One, who may be an executive director
  3. Three, all of whom must be executive directors
  4. Two, at least one of whom must be an executive director Correct answer.

Explanation

A licensed corporation must have at least two Responsible Officers, and at least one of them must be an executive director of the corporation. This ensures active management involvement in supervising the regulated activity.

Question 36Licensing and registration of intermediaries and individuals

A licensed representative wishes to become a Responsible Officer. Which condition must the individual satisfy in addition to being fit and proper?

  1. Reside outside Hong Kong for tax purposes
  2. Have passed the paper for the relevant regulated activity and met the industry experience requirement Correct answer.
  3. Be approved by the Hong Kong Monetary Authority
  4. Hold at least 10% of the corporation's issued shares

Explanation

Responsible Officer approval requires the relevant industry experience and competence, evidenced by passing the applicable examination and meeting the experience threshold. Shareholding, residence, and HKMA approval are not conditions for SFC Responsible Officer status.

Question 37Licensing and registration of intermediaries and individuals

Which test does the SFC apply when assessing whether an individual is a fit and proper person to be licensed?

  1. Whether the individual has a university degree
  2. Whether the individual's education, experience, and integrity support fitness, including consideration of past misconduct Correct answer.
  3. Whether the individual has a Hong Kong permanent identity card
  4. Whether the individual has previously worked for a bank

Explanation

The fit and proper assessment considers education, experience, integrity, and any disciplinary or criminal history. Formal degree, prior bank employment, and permanent residency are not determinative criteria.

Question 38Licensing and registration of intermediaries and individuals

A representative's licence lapses because the individual ceases to be employed by the sponsoring licensed corporation. What is the effect on the individual's ability to continue performing regulated activities?

  1. The individual may continue until the licence is formally revoked
  2. The individual may not perform regulated activities until re-licensed through a new sponsoring corporation Correct answer.
  3. The individual may continue for six months while seeking new employment
  4. The individual may continue if a colleague supervises the work

Explanation

A representative's licence is tied to sponsorship by a licensed corporation. Once that sponsorship ends, the licence lapses and the individual cannot carry on regulated activities until re-licensed with a new sponsor.

Question 39Licensing and registration of intermediaries and individuals

Which of the following activities requires a Type 4 licence?

  1. Managing a collective investment scheme
  2. Advising on securities Correct answer.
  3. Providing credit rating services
  4. Dealing in futures contracts

Explanation

Type 4 regulated activity is advising on securities. Dealing in futures contracts is Type 2, credit rating services is Type 10, and managing a collective investment scheme falls under Type 9.

Question 40Licensing and registration of intermediaries and individuals

A licensed corporation intends to change its principal place of business. What must it do under the licensing regime?

  1. Seek approval from the Stock Exchange
  2. Wait until the next annual return
  3. Notify the SFC in advance of the change Correct answer.
  4. Nothing, provided it updates its website

Explanation

Licensed corporations must notify the SFC of specified changes, including a change of principal place of business, in advance. Website updates, Exchange approval, and waiting for the annual return do not satisfy the notification obligation.

Question 41Licensing and registration of intermediaries and individuals

Which of the following is a continuing obligation of a licensed corporation under the SFC's licensing regime?

  1. Maintaining adequate capital and submitting annual financial returns Correct answer.
  2. Holding a general meeting every month
  3. Obtaining SFC approval for every client trade
  4. Submitting monthly audited financial statements

Explanation

Licensed corporations must maintain adequate financial resources and submit annual financial returns and other prescribed filings. Monthly audited statements, monthly general meetings, and trade-by-trade approval are not required.

Question 42Licensing and registration of intermediaries and individuals

An individual applies for a representative licence. Which document must the sponsoring licensed corporation provide to the SFC?

  1. A personal guarantee from the individual's family
  2. A bank reference from a foreign regulator
  3. A copy of the individual's employment contract with a competitor
  4. A sponsorship declaration and confirmation of the individual's fitness Correct answer.

Explanation

The sponsoring corporation must confirm sponsorship and attest to the individual's fitness and competence. Family guarantees, competitor contracts, and foreign bank references are not part of the application.

Question 43Licensing and registration of intermediaries and individuals

Which body acts as the front-line regulator for a registered institution carrying on regulated activities?

  1. The Securities and Futures Commission
  2. The Financial Reporting Council
  3. The Hong Kong Monetary Authority Correct answer.
  4. The Hong Kong Exchanges and Clearing Limited

Explanation

Registered institutions are banks supervised by the HKMA, which acts as their front-line regulator for regulated activities, while the SFC retains overall oversight of the licensing regime. The other bodies do not perform this front-line role.

Question 44Licensing and registration of intermediaries and individuals

A licensed corporation wishes to add a new regulated activity to its licence. Which step is correct?

  1. Ask the Stock Exchange to amend the licence
  2. Begin the activity immediately and inform the SFC afterwards
  3. Rely on the existing licence because all regulated activities are covered
  4. Apply to the SFC for a variation of the licence before conducting the activity Correct answer.

Explanation

A corporation must apply to the SFC for a variation of its licence before carrying on an additional regulated activity. Acting first and notifying later, applying to the Exchange, or assuming blanket coverage is incorrect.

Question 45Licensing and registration of intermediaries and individuals

Which of the following individuals would generally be disqualified from holding a representative licence?

  1. A person who has changed employers twice in five years
  2. A person who holds a degree in economics
  3. A person who speaks only Cantonese
  4. A person with a recent conviction for fraud Correct answer.

Explanation

A recent fraud conviction undermines the integrity element of the fit and proper test and would generally disqualify an applicant. Changing employers, holding a degree, or speaking only Cantonese are not disqualifying factors.

Question 46Licensing and registration of intermediaries and individuals

What is the principal purpose of the SFC's licensing regime for intermediaries?

  1. To ensure only fit and proper persons carry on regulated activities and to protect investors Correct answer.
  2. To approve the commercial terms of every client agreement
  3. To set the interest rates charged by banks
  4. To guarantee investment returns for retail clients

Explanation

Licensing ensures that only fit and proper persons with adequate resources carry on regulated activities, thereby protecting investors and maintaining market confidence. It does not guarantee returns, set interest rates, or approve individual contracts.

Question 47Licensing and registration of intermediaries and individuals

A licensed representative plans to move to a different licensed corporation. What is required before the individual may act for the new employer?

  1. The new corporation must apply for the individual's licence to be transferred or re-granted Correct answer.
  2. Nothing, because the licence travels with the individual
  3. The individual must surrender the licence permanently
  4. The old employer must consent in writing to the move

Explanation

A representative licence is tied to the sponsoring corporation, so a move requires the new corporation to apply for the licence to be transferred or re-granted. The licence does not travel automatically and old-employer consent is not the operative requirement.

Question 48Licensing and registration of intermediaries and individuals

Which of the following statements about the SFC's power to revoke or suspend a licence is correct?

  1. The SFC has no power to suspend licences
  2. The SFC may suspend a licence only after a criminal conviction
  3. The SFC may revoke or suspend a licence where the licensee is no longer fit and proper Correct answer.
  4. The SFC may revoke a licence only with the consent of the Stock Exchange

Explanation

The SFC may revoke or suspend a licence where the licensee ceases to be fit and proper or breaches regulatory requirements. It does not need Exchange consent, a criminal conviction is not the only trigger, and suspension powers clearly exist.

Question 49Licensing and registration of intermediaries and individuals

A licensed corporation's Responsible Officer resigns. What must the corporation do?

  1. Notify the SFC and ensure the minimum Responsible Officer requirement continues to be met Correct answer.
  2. Close the business immediately
  3. Appoint the resigning officer's assistant as a temporary Responsible Officer without approval
  4. Continue operating without notifying the SFC

Explanation

The corporation must notify the SFC of the resignation and ensure it continues to satisfy the minimum Responsible Officer requirement. Silent continuation, unapproved appointments, and mandatory closure are not correct responses.

Question 50Licensing and registration of intermediaries and individuals

Which of the following best describes the relationship between a licensed corporation and its representatives?

  1. Representatives are licensed independently and need no corporate sponsor
  2. Representatives act under the sponsorship of a licensed corporation, which is accountable for their conduct Correct answer.
  3. Representatives may act for multiple unlicensed firms simultaneously
  4. Representatives are licensed by the HKMA

Explanation

Representatives are licensed through a sponsoring licensed corporation, which is responsible for supervising them and is accountable for their conduct. They are not independently licensed, not licensed by the HKMA, and cannot act for unlicensed firms.