An SFC Type 9 license is a license to carry on a business in the regulated activity of asset management. In these FAQs, we provide answers to common questions about SFC Type 9 licenses. These FAQs supplement our FAQs on SFC licensing generally and our guide to SFC licensing. If you would like more information about applying for an SFC Type 9 license or about SFC asset management regulation, contact one of our hedge funds, private equity or mutual funds lawyers.
Under the Securities and Futures Ordinance (“SFO”), any person who carries on a business in Type 9 regulated activity (asset management) must, unless otherwise exempted, hold an SFC Type 9 license. For this purpose, Type 9 regulated activity (asset management) includes both “real estate investment scheme management” as well as “securities and futures contract management”. The latter includes providing a service of managing a portfolio of securities or futures contracts for another person.
Historically, asset managers managing a unit trust, mutual fund or hedge fund require an SFC Type 9 license but, recent developments in the field of private equity now make it more common for private equity fund sponsors to require an SFC Type 9 license.
Market participants often rely upon the intra-group exemption from the SFC Type 9 license requirement. Under this exemption, a corporation is exempt from a Type 9 license if it provides a service of managing a portfolio of securities or futures contracts solely to its wholly owned subsidiaries, its holding company which holds all its issued shares, or other wholly owned subsidiaries of that holding company.
A decision to avoid an SFC Type 9 license based on an exemption can have significant criminal consequences if the decision is made on the incorrect belief that an exemption applies when, in fact, it does not. As a result, it is strongly recommended that such a decision be made only with the benefit of legal advice. Our SFC licensing practice lawyers can assist in this regard.
Historically, many private equity sponsors operating in Hong Kong did not hold an SFC Type 9 license. However, the introduction of the new limited partnership fund (“ LPF”) regime and its corresponding concessionary profits tax rate for carried interest has sparked interest in LPF structures in which the LPF or its general partner (“GP”) delegate investment discretion to a Hong Kong based asset manager holding an SFC Type 9 license.
SFC Type 9 licenses are often subject to a condition that the licensed corporation not hold client assets. This condition means that the holder of an SFC Type 9 license will normally use an outside custodian (typically a bank or a broker) to custody client assets. Asset management firms will generally accept this condition as it reduces required regulatory capital.
Many SFC Type 9 licenses are subject to a condition that the licensed corporation only deal with professional investors. Under the SFO and the Securities and Futures (Professional Investor) Rules, a “professional investor” includes a person carrying on the business of providing investment services, a bank, an insurance company, and certain retirement schemes as well as trust companies with total assets of not less than HK$40 million, an individual having a portfolio of not less than HK$8 million, a partnership having a portfolio of not less than HK$8 million or total assets of not less than HK$40 million and a corporation having a portfolio of not less than HK$8 million or total assets of not less than HK$40 million, or a holding company which wholly owns such corporation.
There is some uncertainty as to whether a hedge fund, including an open-ended fund company (“OFC”) are inherently professional investors as defined in the SFO. Similarly, there is some uncertainty as to whether a general partner (“GP”) of a limited partnership fund (“LPF”) or indeed, an LPF itself are inherently professional investors as defined in the SFO.
Every corporation licensed for Type 9 regulated activity must have a minimum of 2 responsible officers (“ROs”) and must appoint individuals to serve as managers-in-charge (“MICs”) of 8 prescribed core functions. These requirements are set out in our Guide to Applying for an SFC License
For an SFC Type 9 license, if the ROs are to be approved by the SFC unconditionally, they will generally need to demonstrate prior experience exercising investment discretion. The most obvious example of such experience is experience as a portfolio manager.
An asset manager licensed for SFC Type 9 regulated activity (asset management) will typically be subject to a condition that it not hold client assets. On this basis, it will be exempt from minimum paid-up capital requirements and will require a minimum of HK$100,000 in liquid capital.
Find out more about how we can help
Contact Us