On 27 July 2023, the Securities and Futures Commission (the SFC) has begun accepting applications for carrying on Type 13 regulated activity (RA 13) under the Securities and Futures Ordinance (SFO) through a new regime which will bring depositaries of SFC-authorised collective investment schemes (CIS) under the SFC's direct supervision. This article provides an overview of the licensing guidance in relation to RA 13 and transitional arrangements for depositories currently operating in Hong Kong.
LICENSING/REGISTRATION REQUIREMENTS FOR CORPORATE PRACTITIONERS
RA 13 refers to "providing depository services for the relevant CISs". Upon commencement of the new regime on 2 October 2024, trustees and custodians (i.e. depositaries) of SFC-authorised CIS will be required to be licensed by or registered with the SFC for RA 13 under the SFO in order to provide depository services, unless the CIS is:
- a registered mandatory provident fund scheme or a constituent fund of such scheme; or
- an approved pooled investment fund, which is intended to be offered only to professional investors but not to retail investors.
Under the new regime, a depository licensed for RA 13 is required at all times to maintain paid-up share capital of not less than HK$10M and is required to comply with the requirements set out in the Code of Conduct for Persons Licensed by or Registered with the SFC. Similar to other licensed corporation, a depository licensed for RA 13 has to submit monthly financial returns under the Securities and Futures (Financial Resources) Rules and other periodic statutory returns required under the SFO.
LICENSING/REGISTRATION REQUIREMENTS FOR INDIVIDUAL PRACTITIONERS
Under the new regime, the following staff members of the depository performing key functions must be licensed or registered for RA 13 as the depository representatives:
- staff members assuming oversight duties to ensure that a relevant CIS is operated in accordance with its scheme documents. Such duties encompass the monitoring of various operational aspects of the scheme; and
- staff members who are empowered to approve instructions or transactions for custody-related purposes, if the depositary carries out all or part of the custody operations in respect of a relevant CIS by itself.
If a depository of a CIS also acts as the fund administrator or transfer agent for that CIS, its staff members who are only involved in providing those services are generally not required to be licensed or registered for RA 13.
TIMELINE FOR EXISTING DEPOSITARIES AND THEIR REPRESENTATIVES TO SUBMIT APPLICATIONS
The SFC is currently accepting RA 13 licence and registration applications via WINGS, its online submission platform. The SFC advised that firms which provide depositary services for relevant CISs in Hong Kong are required to submit their corporate licence or registration applications for RA 13 on or before 30 November 2023 in order to allow a smooth transition. Individual practitioners seeking to become licensed representatives of existing depositories are quired to submit their applications to the SFC through WINGS between 1 June 2024 and 31 July 2024.
CONCLUSION
As the new regime will come into effect on 2 October 2024, existing trustees and custodians of the relevant CIS are advised to prepare themselves in advance to comply with the regulatory requirements and make timely application for the RA 13 license.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
