Tamar Fintech: Model Portfolios, Discretionary Routing and a Fund Bulletin Board
Tamar Fintech Limited is a Hong Kong-incorporated company with 22 staff and no SFC licence. Its mobile app has 4,000 retail users. For a monthly fee of HKD 200, Tamar generates a model portfolio of HK-listed ETFs based on each user's age and risk score, and users can instruct Tamar to place orders with a licensed broker under a limited power of attorney. Tamar also operates a bulletin board where users post indications to buy and sell units of a private fund; Tamar matches counterparties and charges 0.5% of consideration. Client subscription monies sit in Tamar's own bank account for up to five business days before being passed to the broker. Tamar's CEO says no licence is needed because 'the broker executes and we never hold investments'. The SFC has received a complaint from a user who lost 30% of her savings.
1. Identify the regulated activities under the SFO that Tamar may be carrying on, and assess whether any exemption applies.
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Tamar is likely carrying on several regulated activities. Advising on securities (Type 4): the algorithm produces a personalised model portfolio for each user, which is a recommendation to acquire or dispose of securities; the monthly fee reinforces that this is a business. Asset management (Type 9): the limited power of attorney allows Tamar to manage a portfolio of securities for clients on a discretionary basis. Dealing in securities (Type 1): matching buyers and sellers on the bulletin board and charging 0.5% may amount to inducing or attempting to induce others to enter into agreements to acquire or dispose of securities; operating the facility may also require Type 7 authorisation for providing automated trading services under s.19 of the SFO. Holding client money triggers the Client Money Rules; Tamar's own account is not segregated. No exemption applies: the 'broker executes' point is irrelevant because the SFO looks at the activity, not who executes. The private-fund bulletin board is not a professional-investor exemption because the users are retail. Potential breaches include s.114 (unlicensed dealing) and s.103 (unauthorised offers) if fund units are offered to the public.
2. What immediate steps should Tamar take before continuing operations?
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Tamar should immediately suspend the model-portfolio service, discretionary order routing and bulletin-board matching until licensed; stop charging fees; move client monies into a segregated trust account with a licensed bank and reconcile; preserve all records; appoint Hong Kong counsel and a compliance adviser; apply for Type 1, 4, 9 and, if the bulletin board is an automated trading service, Type 7; appoint at least two responsible officers for each regulated activity and ensure at least one is available at all times; submit a business plan, compliance manual, financial resources and fit-and-proper information; and notify the SFC of the suspected breach. It should also communicate with clients and the executing broker, assess whether the complaint requires notification or compensation, and avoid any marketing that suggests regulatory approval has been obtained.
3. How would your analysis change if Tamar only published generic educational articles and users placed all orders directly with the broker?
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If Tamar only publishes generic educational articles and users place all orders directly with the broker, the Type 4 advice analysis changes: generic, non-personalised information is not a recommendation, so Type 4 may not be triggered. But the bulletin board still involves matching and a facility for trading; Type 1 and Type 7 may still apply. The broker's licence does not cover Tamar's own activities. If Tamar receives a fee for introducing users to the broker, the introducer exemption is narrow and generally requires no handling of client assets and no advice; a recurring fee may still be dealing. The client-money issue disappears if Tamar never holds money. The key is substance over form: the more Tamar personalises the service, controls order flow or holds assets, the more likely it needs a licence.