The FSTB and SFC are proposing to extend the current licensing regime embedded in the AMLO to capture and regulate VA advisory service providers and VA management service providers. 

The new licensing regime proposes to require any person who carries on a business of the following to be licensed by or registered with the SFC:

i. giving advice on whether, which, the time at which, or the terms or conditions on which VAs should be acquired or disposed of; or

ii.issuing analyses or reports, for the purposes of facilitating the recipients of the analyses or reports to make decisions on whether, which, the time at which, or the terms or conditions on which, VAs are to be acquired or disposed of.

The proposed scope of “advising on VA” mirrors that of Type 4 regulated activity (advising on securities) in the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong) (“SFO”).  In the same vein, the FSTB and SFC proposes to provide mirroring exemptions (including for solely advising wholly owned group companies, acts which are wholly incidental to licensed VA dealing or solely for purposes of licensed VA fund management etc.).

The new licensing regime proposes to require any person who carries on a business of providing VA management services in Hong Kong to be licensed by or registered with the SFC.  “VA management” is proposed to mean providing a service of managing a portfolio of VA for another person by the person (including, for example, where a firm is given discretionary power to make investment decisions in VA for a fund).  Similarly, the FSTB and SFC proposes to provide corresponding exemptions that mirror those available under Type 9 regulated activity (asset management) (including for providing services to wholly owned group companies, acts which are wholly incidental to VA dealing services of a licensed or registered VA dealing service provider etc.).

Asset managers should note that there will be no de minimis threshold as regards investments in VA under the new licensing regime.  Any entity which provides asset management services for a portfolio which invests in VA, regardless of the portion of such portfolio that is allocated to VA will need to obtain a license or registration.  As such, asset managers which are currently operating under the existing de minimis threshold (i.e., stated investment objective to invest in VA or the intention to invest 10% or more of gross asset value in VA), will be caught under the new licensing regime once it takes effect.

Under this new licensing regime, both VA advisory service providers and VA management service providers will be required to comply with AML/CFT obligations under Schedule 2 of the AMLO in relation to customer due diligence and record-keeping.

A point to note is that there will be no deeming arrangement or transitional period afforded to pre-existing VA advisory service providers and VA management service providers.  The new licensing regime, if implemented, will come into effect immediately upon the commencement date of the relevant statutory provisions.  To minimise future disruptions to business operations, all relevant industry stakeholders currently engaged in VA advisory and/or VA management services should reach out to the SFC and HKMA (as applicable) promptly to initiate pre-application processes and discussions as appropriate.

Noting that there are firms which have already undergone the VA advisory service and/or VA management service uplift process with the SFC or the HKMA (as the case may be), it is proposed that an expedited approval process under the new licensing regime will be available to these firms. 

Authored by Michael Wong and Nicole Yeung.