General Guidance on Licensing Obligations of Family Offices
The Securities and Futures Commission (the “SFC”) has recently issued guidance on licensing obligations for family offices and discusses how the SFC licensing regime applies to family offices intending to carry out asset management in Hong Kong.
The current licensing obligations of family offices depend on the activities and services that family offices provide. The nature of the family office, the clients that it serves, the nature of the relationship between the clients are not relevant factors in determining whether a license is required for the operations of a family office.
Regulated Activities Under the current licensing regime, if a family office provides services that constitute a regulated activity under Part 1 of Schedule 5 of the Securities and Futures Ordinance (Cap. 571) (the “SFO”) and does not fall within any of the available exemptions, it should obtain a license.
The structure, operation and management of a family office can affect whether and what type of license a family office requires. A single-family office with a trustee appointed to hold assets of a family trust and operate the family office
as an internal unit will not need a license since the asset management service will only be provided to family members.
Multi-family offices may be providing services for different families may not fall in the above exemption and depending on the asset management services provided, they would likely need a license.
Depending on the operations of a family office, it may require obtaining the following licenses:
Type 1 – dealing in securities;
Type 2 – dealing in futures contracts;
Type 4 – advising on securities;
Type 5 – advising on future contracts; and
Type 9 – asset management.
Section 114 of the SFO prohibits any unlicensed person to carry on, or hold himself out as carrying on, a business in a regulated activity. A breach of section 114 is a criminal offence and the unlicensed person is liable to a fine of $5,000,000 and to imprisonment for 7 years.
In addition, under section 213 of the SFO, the SFC can apply to court to make certain orders when a person has contravened any provisions of the SFO, such orders include:
Managers, investment officers or responsible officers should:
A multi-family office granted with full discretionary investment authority would be providing similar services of an asset management company and would likely need to be licensed for Type 9 (asset management) regulated activity. On the other hand, if a multi family office was not granted full discretionary investment authority but provides securities investment advice and assists in security transactions or future contracts, it would then likely need to be licensed for that specific regulated activity.
restraining or prohibiting the misconduct;
restraining or prohibiting the misconduct;
requiring payment of damages.
The SFC has in the past applied for interim injunctions orders against entity to freeze the assets of a firm which carried out regulated activities without a license.
Action to take
identify the operations carried out by the family office and consider whether they are regulated activities under the SFO;
identify the specific activities carried out by the family office and assess what type of license are required to be obtained;
assess the structure of the family office, investment and asset management operations and consider whether they can be exempted from the licensing obligations; and
understand the ongoing regulatory developments that may affect your license application or regulatory obligation.
Regulatory activity and licensing requirement assessment
How can we help
Preparation and submission of license application Our firm has vast experience in assisting the management of PE firms on whether they fall within the SFC regulatory regime in Hong Kong.
We will understand the structure of your firm and your core business activities to assess whether or not your firm is required to be licensed or qualified for exemptions under the SFO.
We will provide advice on the relevant type of licenses that you need to obtain based on our analysis of the business activities of your firm.
Our firm assists the management of PE firms to prepare their license application for the activities they carry out.
With our experience and knowledge in the industry, we are able to minimize the license application process by helping your firm understand, analyze and respond to enquiries raised by the SFC.
We will provide you with updates on the ongoing regulatory developments and their implications on your license application.
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