Under sections 11 and 12 of the BO, a company which carries on, or proposes to carry on banking business or deposit-taking in Hong Kong, respectively, must be licensed as an AI. There are three types of AIs, namely: licensed bank, restricted licence bank and deposit-taking company.
For these purposes “banking business” is defined in section 2 of the BO as the business of receiving money from the public on current, deposit, savings or similar account, and/or paying or collecting cheques. A breach of section 11 or 12 of the BO may be a criminal offence for any person that breaches it and, if it is a company, every director and manager may also be liable. Breach is punishable on summary conviction by a fine and/or imprisonment for up to 6 months, and on conviction on indictment, by a maximum term of 5 years and/or a fine.
It is worth noting that under the BO, there are restrictions on the use of the word “bank” as well as on certain advertisements, invitations or documents in relation to taking deposits from the public. The Financial Secretary and the HKMA are empowered to grant various exemptions from the regulatory requirements.
Under section 114 of the SFO, a person carrying on the business of a regulated activity in Hong Kong (or that holds himself out as doing so) must be licensed by the SFC as a licensed corporation or a registered institution (where it is an AI). Part 1 of Schedule 5 of the SFO sets out the regulated activities2 which includes asset management, dealing in securities and advising on securities. A contravention of section 114 of the SFO, without reasonable excuse, may be a criminal offence and is punishable on summary conviction by imprisonment for up to 2 years and a fine, and on indictment by a maximum term of imprisonment of 7 years and a fine.
For each regulated activity, there are a number of exemptions, which if applicable, will mean that the person will not require a licence to carry out the relevant activity in Hong Kong. The SFC may also grant licences subject to certain conditions, such as not holding client money, or that the licence-holder may only carry on the regulated activity in respect of “professional investors” as defined under the SFO and subsidiary legislation.
In addition, any individual performing functions relating to a regulated activity of a licensed corporation must be licensed by the SFC as a “licensed representative” accredited to the particular licensed corporation or corporate applicant. Generally, licensed representatives are required to be fit and proper, and competent in three basic elements: academic qualification, industry qualification and regulatory knowledge. Fitness and probity is considered in respect of their:
- financial status;
- relevant education, qualifications and experience;
- competence, honesty and fairness; and
- reputation, character, reliability and financial integrity.
Competence in the necessary elements can be demonstrated by passing:
- English or Chinese and Mathematics in the Hong Kong Certificate in Education Examination (or equivalent);
- a “recognised industry qualification”; and
- a “local regulatory framework paper”, respectively, although there are exemptions and alternative means of compensating where particular elements might be lacking.
Similarly, staff of AIs engaging in securities business and/or other regulated activities must be registered with the HKMA as a “relevant individual”. Relevant individuals must be fit and proper and meet the same competence requirements as licensed representatives.