HKSI Paper 1 key terms

Hong Kong's statutory regulator for the securities and futures industry, established under the Securities and Futures Ordinance. It licenses intermediaries, supervises market conduct, investigates misconduct and promotes investor protection and market development.

The principal Hong Kong statute governing securities, futures and leveraged foreign exchange activities. It creates the SFC, sets out licensing, market misconduct, disclosure and enforcement provisions, and defines key offences and defences.

Hong Kong's central banking institution, which also supervises banks and their securities, futures and insurance intermediary activities. It works alongside the SFC under agreed supervisory arrangements for registered institutions.

A bank or other institution authorised by the HKMA that is registered with the SFC to carry on regulated activities. Front-line supervision is shared, with the HKMA supervising the institution and the SFC overseeing conduct of regulated activities.

A company incorporated in Hong Kong that holds an SFC licence to carry on one or more regulated activities. It must satisfy fit and proper criteria, capital and competence requirements, and ongoing conduct obligations.

A specified activity listed in the SFO, such as dealing in securities, advising on securities, asset management or providing corporate finance advice. Carrying on such an activity as a business requires a licence or registration.

Dealing in securities. It covers buying, selling, subscribing for or underwriting securities, and making or offering to make an agreement to do so, subject to the exclusions set out in the SFO.

Advising on securities. It means giving advice on acquiring or disposing of securities, or on the terms of such acquisition or disposal, as part of a business, subject to applicable exclusions.

Asset management. It involves managing a portfolio of securities or futures contracts for another person, or operating a collective investment scheme, subject to the exclusions specified in the SFO.

An individual approved by the SFC to supervise a licensed corporation's regulated activity. A corporation generally needs at least two responsible officers, at least one of whom must be an executive director available at all times.

An individual licensed by the SFC to carry on a regulated activity on behalf of a licensed corporation. The representative must be sponsored by the corporation and meet competence, training and fit and proper requirements.

The assessment of whether an applicant or licensee is suitable to be licensed, considering financial soundness, education and experience, competence, integrity, reputation and any disciplinary or criminal history.

Ongoing training that licensed individuals must complete each year to maintain competence. It covers topics relevant to their regulated activities, with a specified minimum number of hours and ethics content.

The SFC's conduct rules covering matters such as honesty, fair dealing, know-your-client, suitability, client assets, conflicts of interest, order handling and record keeping. Breach may attract disciplinary action.

The process of identifying a client, verifying identity, understanding the client's financial situation, investment experience and objectives, and keeping that information up to date before providing services.

The requirement to ensure that a recommendation or solicitation is reasonably suitable for the client in light of the client's known financial situation, investment experience and objectives, taking into account the product's risk and features.

The process of assessing a client's tolerance for investment risk and capacity to bear losses, using information gathered through KYC, so that products and recommendations can be matched to the client.

SFC rules requiring client securities and collateral to be held in segregated accounts, properly recorded and reconciled, and not commingled with the intermediary's own assets, with periodic statements to clients.

SFC rules governing the receipt, holding and payment of client money, requiring segregation in trust or designated accounts, prompt deposit and withdrawal, and accurate records and reconciliation.

Prohibited conduct under the SFO including insider dealing, false trading, price rigging, disclosure of false or misleading information inducing transactions, stock market manipulation and related offences, enforceable through civil and criminal proceedings.

Dealing in securities while in possession of inside information, or disclosing or procuring others to deal using such information, in circumstances where the person knows or ought reasonably to know the information is inside information.

A civil tribunal convened by the SFC to determine whether market misconduct has occurred. It can impose orders such as disqualification, cold shoulder orders, cease and desist orders and disgorgement.

Specific information about a listed corporation, or its securities, that is not generally known to the market and would, if generally known, be likely to materially affect the price of the securities.

The SFO duty on a listed corporation to disclose inside information to the public as soon as reasonably practicable after the information comes to its knowledge, subject to specified safe harbour exceptions.

The rules issued by the Stock Exchange of Hong Kong governing listing eligibility, disclosure, corporate governance and continuing obligations of listed issuers and their directors.

A licensed corporation appointed to advise and assist an applicant seeking a listing, including conducting due diligence on the applicant and ensuring the accuracy of information in the listing document.

Advising on corporate finance. It covers advising on the raising of capital, corporate restructuring, takeovers and listings, and is typically required by sponsors and financial advisers.

An arrangement where property is pooled and managed as a whole by an operator, with participants not having day-to-day control, and where returns or profits are shared. It is subject to authorisation and offering rules.

A collective investment scheme authorised by the SFC for retail offering in Hong Kong, meeting requirements on structure, management, disclosure and investor protection set out in the relevant codes.

An investor falling within the SFO's defined categories, such as certain institutions and high-net-worth individuals meeting asset thresholds, to whom reduced offering and conduct requirements may apply.

A document such as a prospectus or offering memorandum that provides investors with the information needed to make an informed investment decision, including the issuer, the product, risks and fees.

The framework of laws, rules and procedures designed to prevent the use of financial systems to launder criminal proceeds, including risk assessment, customer due diligence, monitoring and reporting suspicious transactions.

The identification and verification of customers and beneficial owners, understanding of business relationships and purposes, and ongoing monitoring required under AML and counter-terrorist financing rules.

The natural person who ultimately owns or controls a customer or the person on whose behalf a transaction is conducted, including persons exercising ultimate effective control over a legal arrangement.

An individual entrusted with prominent public functions, or a close associate or family member of such a person, who presents higher money-laundering risk and requires enhanced due diligence and senior management approval.

Additional and more intensive checks applied to higher-risk situations, such as PEPs, correspondent relationships or unusual transactions, including extra verification, source of funds checks and senior approval.

A report made to the Joint Financial Intelligence Unit when a person knows or suspects that property represents proceeds of crime or is linked to terrorist financing, with tipping-off restrictions applying.

The Hong Kong unit, operated jointly by the police and customs, that receives and analyses suspicious transaction reports and disseminates intelligence to law enforcement and regulators.