Hong Kong, as a global financial center, provides a well-established licensing regime through the Securities and Futures Commission (SFC). Among various licenses under this regime, Type 1 (Dealing in Securities), Type 4 (Advising on Securities), and Type 9 (Asset Management) are the three most core and sought-after licenses for firms entering the Asian financial market. This article offers a comprehensive guide to applying for these licenses, including requirements, application process, documentation, common pitfalls, and practical tips for efficient planning.

Disclaimer: This article summarizes the licensing process in plain language for ease of understanding. It does not directly quote regulatory provisions, and some content may be simplified or incomplete. It should not be used as the sole basis for decision-making.

1. License Types and Their Core Functions

Licenses issued by the SFC are categorized based on regulated activities listed under Schedule 5 of the Securities and Futures Ordinance (SFO). Understanding the role of each license is the first step in the application process:

1. Type 1 License – Dealing in Securities

• Scope: Permits the firm to buy, sell, and act as a broker/dealer for clients in securities like stocks and bonds. Also includes underwriting and placing activities.

• Use Cases: Brokerage firms, trading platforms, OTC desks, etc.

• Subcategories:

• Small Type 1: Commission-based; cannot hold client assets or execute trades directly.

• Large Type 1: Can execute trades, offer margin financing, with higher capital requirements.

2. Type 4 License – Advising on Securities

• Also known as the “Financial Advisor License” in Hong Kong.

• Scope: Allows providing investment advice to clients, including research reports and recommendations regarding securities.

• Use Cases: Financial advisory, wealth management, robo-advisory, and research departments.

• Key Notes:

• Lower entry threshold but strict regulatory requirements, especially on suitability assessment.

• Does not cover execution-only services (Type 1) or non-security advice (e.g., real estate, insurance).

3. Type 9 License – Asset Management

• Scope: Permits discretionary portfolio management of securities or futures for clients, including fund management and investment decision-making.

• Use Cases: Hedge funds, family offices, private fund managers.

• Subcategories:

• Small Type 9: Cannot hold client assets; limited to professional investors (PI); lower liquidity requirements.

• Large Type 9: Can manage pooled assets; suitable for public funds; subject to higher compliance and capital standards.

• Virtual Asset Management:

• If managing security-type virtual assets (e.g., STOs, tokenized bonds), extra regulations apply.

• If non-security crypto assets (e.g., Bitcoin) exceed 10% of AUM, a VA license uplift is required.

2. Key Requirements for SFC License Application

1. Entity Requirements

• Incorporation: Must be a company registered in Hong Kong or a registered foreign company with a local presence. Locally incorporated entities are preferred.

• Physical Office: A dedicated, secure, lockable office space is mandatory (virtual offices not allowed). Shared offices are permitted only if properly separated and approved by SFC.

• Organizational Structure:

• Clear internal roles and responsibilities.

• Compliance, risk management, and operations must be clearly defined.

• Board resolution required to approve the license application.

• Compliance and Risk Systems:

• Internal policies for AML, conflicts of interest, internal audit, and client asset protection.

• Compliance Manual and Risk Management Manual required.

• Business Continuity Plan (BCP) and Disaster Recovery Plan (DRP) also needed.

2. Responsible Officers (RO)

• At least two ROs are required for each type of regulated activity.

• One RO must reside in Hong Kong and supervise daily operations.

• At least one RO must be an Executive Director.

• ROs must pass relevant SFC exams unless exempted (e.g., CFA/FRM/previous license holders).

• Experience Requirements:

• 3-5 years of relevant industry experience.

• 2+ years of proven management experience.

• Type 9 ROs must have at least 3 years of asset management experience.

• Fit and Proper Criteria:

• Clean background, no major misconduct.

• Evaluation includes financial soundness, qualifications, reputation, and integrity.

• Licensed Representatives & MICs:

• All front-line staff must be licensed representatives.

• Management-In-Charge (MICs) must cover 8 core functions (e.g., compliance, IT, AML).

• Key MIC roles must overlap with RO positions.

3. Capital Requirements

• Capital Forecast: Applicants must submit a 6-month operational budget forecast.

• SFC often expects HKD 800K–1M in liquid assets to prove operational readiness.

4. Exemptions

• Incidental Business Exemptions: If activities under one license are incidental to another, no separate license is needed.

• Common combinations:

• Type 1 + Type 4/6/9: Type 1 license covers the others if activities are incidental.

• Type 2 + Type 5/9: Similar exemption logic applies.

• Group exemptions: Services provided only to wholly owned subsidiaries or parent company do not require a separate license (with limitations).

3. Application Process

Step-by-Step Timeline

1. Preparation Stage (3–4 weeks):

• Confirm if business model constitutes a regulated activity.

• Appoint qualified ROs.

• Draft Business Plan, Compliance Manual, and Risk Framework.

2. Application Submission:

• Form 1: Corporate applicant

• Form 5/6: RO application

• Supplementary Forms A/B/C/D/E

• Questionnaires on business structure and internal controls

• Use SFC’s WINGS system for online submission.

• Required Forms:

3. Fee Payment:

• Company license: HKD 4,740 per activity

• RO approval: HKD 2,950 per person

• Licensed representative: HKD 1,790 per person

• Fees are non-refundable.

4. SFC Review:

• Review business model, documents, RO qualifications, and ownership structure.

• May request interviews or additional documentation.

5. Approval or Rejection:

• If approved, SFC issues a Principle Approval Letter.

• Final steps include capital injection, bank account setup, and compliance confirmation.

6. Timeline:

• Preparation: 3–4 weeks

• SFC processing: 6–12 months (official: 8–15 weeks but usually longer)

4. Required Documentation Checklist

Corporate Documents

• Certificate of Incorporation & BR Certificate

• Articles of Association

• Shareholding structure & UBO chart

• Office lease or ownership proof

• Organizational chart and department responsibilities

Capital and Financial Proof

• Capital injection proof

• Last 12 months audited financial statements

• Bank statements (last 6 months)

• 6-month financial projections and backup documents

Directors & ROs

• ID/passport copies

• Academic degrees (finance/law/accounting preferred)

• Professional certificates (CFA, FRM, etc.)

• Background declarations (no criminal/disciplinary record)

• Proof of regulatory exams passed or exemption

• Proof of HK residency (at least one RO)

• RO commitment letter

Compliance and Risk Documents

• AML/KYC procedures

• Internal audit processes

• Conflicts of interest policies

• Complaint handling mechanisms

• Risk assessments (market, credit, liquidity)

• Business Continuity Plan and Disaster Recovery Plan

Business Plan

• Target clients, product list, investment strategies

• For Type 9: fund track record (if available), investment decision-making flow, asset allocation models, risk-adjusted return metrics

Virtual Asset Supplements (if applicable)

• Valuation policies

• Blockchain monitoring tools used (e.g., Chainalysis)

• Wallet/key management policies

• Smart contract audit reports (e.g., CertiK)

V. Common Issues and Mitigation Strategies

During the application process, the SFC may request additional information. Common issues can lead to delays or rejections.

1. Incomplete Documentation

Issue: Missing supplementary forms or insufficient explanations regarding suitability (e.g., disciplinary records).

Strategy: Prepare all documents strictly according to the checklist. Ensure full completeness and provide reasonable explanations for any potential concerns.

2. Personnel Issues

Issue: Insufficient number of Responsible Officers (ROs), inadequate experience (e.g., lacking local regulatory exam exemptions), nominal appointments, or absence of a resident RO. RO qualification is a common rejection point.

Strategy: Carefully select ROs to ensure they meet experience and qualification requirements. If exam exemption is not available, submit the application only after the exam is passed. Ensure ROs are not “in name only” and carry substantial responsibilities. At least one RO must be based in Hong Kong.

3. Financial and Operational Concerns

Issue: Inadequate capital, lack of risk management details in the business plan, missing employment visas (for non-Hong Kong-based ROs).

Strategy: Ensure sufficient liquidity is injected to demonstrate financial strength. The business plan must detail risk management, including contingency planning. Non-HK ROs must obtain valid employment visas.

4. Other Discrepancies

Issue: Incorrect license type application, insufficient information on operations, failure to apply for dual licenses when dealing with virtual assets.

Strategy: Assess licensing needs early. If virtual assets are involved, consider the dual license framework (e.g., Type 1 & Type 7 licenses, and a VASP license under the Anti-Money Laundering Ordinance).

5. Anti-Money Laundering Risks

Issue: The SFC strictly reviews potential money laundering risks. A common rejection reason is weak shareholder proof of funds (e.g., short history, suspicious large transactions).

Strategy: Provide the past six months’ bank statements and detailed justifications for any large transactions. Avoid potential conflicts of interest or dishonest behavior.

VI. Ongoing Compliance After Licensing

Ongoing compliance management is critical after obtaining the license.

1. Annual Obligations

• Audited Accounts: Must submit audited financial statements and required documents within four months of the end of each fiscal year.

• Financial Resources Returns:

• Generally due within 21 calendar days after the end of each month.

• For licensed corporations only holding Type 4, 5, 6, or 9 licenses without client asset approval, submissions are required semi-annually.

• Continuous Professional Training (CPT):

• Licensed corporations must assess staff training needs annually.

• Each licensed individual must complete at least five CPT hours per regulated activity per year.

• ROs must attend SFC-recognized courses.

• Annual Fees:

• HKD 4,740/year for corporate licenses

• HKD 2,950/year per RO

• HKD 1,790/year per licensed representative

• Late payment may result in license revocation.

2. AML/CFT Framework

Implement AML/CFT policies, procedures, and controls to meet legal and regulatory requirements.
Refer to the “Guideline on Anti-Money Laundering and Counter-Financing of Terrorism (For Licensed Corporations and VASPs)”.
AML/KYC policies must be kept up to date and effectively enforced.

3. Internal Controls & Risk Management

Establish effective internal control measures to safeguard operations and client assets from theft, fraud, and misconduct.
Conduct regular internal audits to ensure ongoing compliance.
Refer to the “Guidelines on Internal Control for Licensed or Registered Persons”.

4. Additional Requirements for Virtual Asset Service Providers (VASPs)

• Client Asset Custody: Must be held in trust via associated entities only.

• External Assessment Reports:

• Appoint an independent assessor to review policies, systems, and controls.

• Submit reports during license application (Phase 1) and after in-principle approval (Phase 2).

• Annual reviews required, submitted within four months after fiscal year-end.

• Monthly Reports: Submit business activity reports within two weeks after the end of each calendar month.

• Refer to:

• Guidelines for Virtual Asset Trading Platform Operators

• Licensing Handbook for Virtual Asset Trading Platform Operators

VII. Special Considerations for Virtual Asset (VA) Management

With the rise of fintech, the SFC imposes additional requirements on VA management.

1. Dual Licensing Arrangement

Centralized VA trading platforms must obtain:

• Type 1 & Type 7 licenses under the Securities and Futures Ordinance

• A VASP license under the Anti-Money Laundering Ordinance

2. Upgrade Requirements

• Team Expertise: At least two ROs must have over three years of VA-related experience (e.g., crypto trading, DeFi strategy).

• Compliance & IT Systems:

• Establish VA investment policies

• Implement AML systems

• Cybersecurity assessment required (e.g., 98% of assets in cold wallets, hot wallets with multi-signature protocols)

• Partner Requirements:

• Must work with SFC-approved exchanges (e.g., OSL, HashKey) and qualified auditors

3. Investment Restrictions

Traditional Type 9 license holders cannot invest over 10% of AUM in virtual assets unless upgraded to a VA license.

4. Custody & Audit

• Self-Custody: Must use SFC-approved cold wallet providers (e.g., Fireblocks, Copper)

• Third-Party Custody: Allowed only with licensed VA custodians (e.g., Hex Trust, First Digital Trust)

• Valuation: Use on-chain data and independent pricing sources (e.g., CoinMarketCap API).
  Auditors must have Web3 auditing capabilities.

VIII. Optimization Strategies & Market Insights

In Hong Kong’s competitive financial market, effective application strategies and long-term planning are critical.

1. Talent Preparation

Secure and train qualified ROs early — key to successful licensing.

2. Institutional Setup

Develop investor suitability assessments, risk management systems, and emergency protocols.

3. Business Positioning

Avoid “one-stop-shop” approaches. Focus on niche strengths when choosing license combinations (e.g., Type 4 + 9 is a common setup for advisory + asset management).

4. Professional Support

Engage consultants familiar with SFC procedures to reduce uncertainty and streamline applications.

5. Acquisition of Licensed Firms

When time is critical, acquiring a licensed entity can shorten setup time to 1–6 months.
Ensure thorough due diligence to avoid compliance issues, hidden liabilities, or HR disputes.
Acquisition cost is ~60–80% of self-application cost.

6. Use of Exemptions

Utilize group exemptions or incidental exemptions to optimize license combinations.

7. Cost Optimization

Startups may collaborate with licensed entities (e.g., using a Type 9 license for advisory) to reduce early costs.
Options include shared ROs or outsourced compliance (e.g., KYC/CDD), while core risk control must remain in-house.

8. Mainland China Institutions – Special Considerations

• Cross-border Capital Flow: Use QDII/QDLP/QDIE channels or establish HK SPV for fund transit.

• Personnel Deployment: Mainland executives residing in HK need work visas. At least one RO should be stationed in HK.

• Compliance Risk: Avoid marketing terms like “guaranteed returns” to stay clear of PRC “Asset Management Rules” and HK “SFO” violations.

9. GBA (Greater Bay Area) Opportunities

Leverage QFLP in Qianhai to bring GBA capital under management of HK Type 9 license.
SFC offers a 50% license fee rebate for firms committing to ≥HKD 500M AUM in 3 years.
HKSTP tenants may enjoy 30% rent discount in the first year (if ≥15% R&D expenditure commitment).

10. RegTech Deployment

Invest in regulatory technology (e.g., automated KYC, transaction monitoring).
SFC may mandate integration with the SFC Regulatory Gateway for real-time data uploads.

IX. Summary & Recommendations

SFC licensing is not just a compliance threshold — it is a key market access credential. Whether applying for Type 1, 4, or 9 licenses, firms must ensure readiness across:

• Personnel qualifications

• Capital strength

• Internal systems

Recommendations:

• Early Planning: Identify business needs, secure key personnel in advance

• Professional Guidance: Hire experienced compliance consultants to ensure full readiness

• Stay Agile: Align license strategy with your business model and track SFC regulatory changes — especially around virtual assets

This comprehensive guide aims to give you a clear understanding of the SFC licensing process and regulatory expectations — providing practical support for real-world execution.