SFC Licensing
Licensing questions in Paper 5 are rarely about licensing for its own sake; they test whether you know which licence a corporate finance activity requires and what the people doing it must satisfy.
The regulated activities you must map
- 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 over-the-counter derivative dealing; Type 12 depositary services for relevant collective investment schemes.
- Corporate finance work sits under Type 6: advising on the Listing Rules, the Takeovers Code, notifiable and connected transactions, and acting as sponsor or independent financial adviser.
Entry requirements
- Fit and proper criteria: financial soundness, no bankruptcy or conviction for dishonesty, integrity of management and substantial shareholders.
- Competence: recognised academic or professional qualification, relevant industry experience, and passing Paper 1 plus the paper for the regulated activity.
- Responsible officers: at least two approved ROs, at least one available at all times to supervise the regulated activity. An RO needs relevant industry experience (broadly three years within the six years before application) plus management experience.
- Substantial shareholders (10% or more) require SFC approval.
- Financial resources: a Type 6 adviser must meet the paid-up capital and liquid capital thresholds in the Financial Resources Rules (broadly HK$5 million paid-up and HK$3 million liquid capital).
- Continuing professional training: five hours per calendar year for each licensed individual.
- Notification duties: changes in RO or representative status, cessation of business, and changes of particulars must be notified to the SFC.
Worked example
A Type 1 dealing firm is asked to advise a listed client on a connected transaction circular and to give the independent financial adviser opinion. It cannot: the work is advising on corporate finance, requiring Type 6, and the Listing Rules additionally require the IFA to be independent. A Type 4 advice licence does not fill the gap, because Type 4 covers advising on securities, not on Listing Rules or Takeovers Code matters.
Traps that cost marks
- Assuming one licence, typically Type 1, covers all corporate finance work.
- Saying a bank must be licensed; it is registered under SFO Part III.
- Confusing the two-RO minimum with the requirement that one RO be available at all times.
- Forgetting that independence for an IFA is a separate Listing Rules test, not a licensing test.