🪪 Licensing, Registration and Subsidiary Legislation

1. Under section 116 of the SFO, which ONE of the following applicants may be granted a licence to carry on a business in a regulated activity?

1. A sole proprietor using a business name
2. A company incorporated in Hong Kong
3. A partnership of two individuals
4. An unincorporated club or society

Section 116(2)(a) of the SFO allows the Commission to license only a company, a registered non-Hong Kong company or, in a limited case, a foreign corporation carrying on business principally outside Hong Kong. A sole proprietor, a partnership and an unincorporated association are not corporations, so none of them can hold a licence under section 116; an individual can be licensed only as a representative under section 120, for a licensed corporation to which he is accredited.

2. What is the maximum period for which the Commission may grant a temporary licence to a corporation under section 117 of the SFO?

1. 1 month
2. 12 months
3. 6 months
4. 3 months

Section 117(1) of the SFO limits a temporary licence to a period not exceeding 3 months. The figure of 6 months is the total of all temporary licence periods allowed in any period of 24 months under section 117(2)(d), not the length of one licence; 1 month and 12 months do not appear in section 117.

3. A licensed corporation carries on a regulated activity. Under section 125(1) of the SFO, how many responsible officers must it have for that activity?

1. At least two, one of them an executive director
2. At least two, both executive directors
3. At least three, one of them an executive director
4. At least one, being an executive director

Section 125(1)(b) of the SFO requires not less than 2 individuals approved as responsible officers, at least one of whom is an executive director. One officer is not enough, the Ordinance does not require every officer to be an executive director (section 125(1)(a) only requires each individual executive director to be approved), and 3 is not the statutory minimum.

4. A person wishes to become a substantial shareholder of a corporation licensed under section 116 of the SFO. When must he obtain the Commission's approval?

1. Before he becomes a substantial shareholder
2. Within 3 business days after he becomes one
3. Within 14 days after he becomes one
4. When the Commission later invites him to

Section 131(1) of the SFO forbids a person to become and continue to be a substantial shareholder without first being approved under section 132(1)(a). The 3 business days in section 131(3)(b) is a time limit inside a defence for a person who did not know and could not have found out; the 14 days in section 132(5)(b) is for notifying changes in contact particulars. Approval does not depend on a request from the Commission.

5. Under Schedule 1 to the SFO, a licensed representative means:

1. a corporation licensed under section 116 or 117
2. an individual approved by the Commission under section 126(1)
3. any individual employed by a licensed corporation
4. an individual granted a licence under section 120 or 121

Schedule 1 to the SFO defines a licensed representative as an individual who is granted a licence under section 120 or 121. A corporation licensed under section 116 or 117 is a licensed corporation, an individual approved under section 126(1) is a responsible officer, and mere employment by a licensed corporation does not make an individual licensed.

6. Under Schedule 1 to the SFO, a responsible officer means an individual who is:

1. appointed as such by a resolution of the board
2. approved by the Commission as such under section 126(1)
3. an executive director of a licensed corporation
4. named as an executive officer under the Banking Ordinance

Schedule 1 to the SFO defines a responsible officer as an individual approved by the Commission under section 126(1) as a responsible officer of a licensed corporation. A board resolution cannot confer the status, an executive officer of a bank is a Banking Ordinance concept, and an executive director is not a responsible officer by definition even though section 125(1)(a) requires each individual executive director to seek approval.

7. Which ONE of the following must the Commission's register of licensed persons record for each licensed representative under section 136 of the SFO?

1. The names of his clients
2. The name of his principal
3. His annual remuneration
4. His personal share portfolio

Section 136(2)(c) of the SFO requires the register to contain, for each licensed representative, the name of his principal, and section 136(4) makes the register open to public inspection so that a member of the public can check who he is dealing with. Client names, remuneration and personal holdings are not particulars listed in section 136(2).

8. Mr Chan is an individual and an executive director of Harbourview Securities Limited, a licensed corporation carrying on Type 1 regulated activity. Which ONE of the following is required of him?

1. He must be approved as responsible officer for Type 1
2. He must be approved as a substantial shareholder
3. He must be registered with the Monetary Authority
4. He must hold a licence as a representative, nothing more

Section 125(1)(a) of the SFO provides that every executive director of a licensed corporation who is an individual must be approved by the Commission as a responsible officer in relation to the regulated activity. A representative licence alone is not enough, approval as a substantial shareholder is a separate matter under sections 131 and 132, and the Monetary Authority registers individuals engaged by registered institutions, not directors of licensed corporations.

9. Under section 114(3) and (4) of the SFO, which ONE of the following individuals may perform a regulated function for Harbourview Securities Limited, a Type 1 licensed corporation, without breaching the Ordinance?

1. A licensed representative accredited to another principal
2. An individual who passed the licensing examination
3. A licensed representative accredited to Harbourview
4. A responsible officer of a different corporation

Section 114(3) of the SFO prohibits performing a regulated function for a business carried on as a regulated activity, and section 114(4)(a) excepts a licensed representative who carries on the activity for his principal. Only a representative accredited to Harbourview acts for its principal; one accredited elsewhere, a responsible officer of another corporation and a person who has merely passed examinations have no accreditation to Harbourview.

10. A person without reasonable excuse carries on a business in a regulated activity without a licence and is convicted on indictment. What is the maximum penalty under section 114(8) of the SFO?

1. A fine of $500,000 and 2 years' imprisonment
2. A fine of $5,000,000 and 7 years' imprisonment
3. A fine of $1,000,000 and 2 years' imprisonment
4. A fine of $10,000,000 and 10 years' imprisonment

Section 114(8)(a) of the SFO, as in force at 1 January 2027, provides a fine of $5,000,000 and imprisonment for 7 years on conviction on indictment. The fine of $500,000 and 2 years is the summary conviction maximum in section 114(8)(b), $1,000,000 and 2 years is the indictment maximum in section 114(9) for performing a regulated function, and $10,000,000 and 10 years appears in neither.

11. A licensed representative ceases to act for his principal, a licensed corporation. Within what period after the cessation must the principal notify the Commission under section 123(1)(a) of the SFO?

1. 3 business days
2. 14 business days
3. 7 business days
4. 30 business days

Section 123(1)(a) of the SFO requires the principal to notify the Commission within 7 business days after the cessation, and section 123(2) makes a breach an offence punishable by a fine at level 6. The other periods are not in section 123; the 180 days in section 123(1)(c) is the separate period after which an unmoved licence is deemed revoked.

12. Harbourview Securities Limited is licensed for Type 1 regulated activity and applies to add Type 4. How does section 127(2) of the SFO treat that application?

1. As an application to vary its responsible officers
2. As a notification of a change in its business plan
3. As an application for a temporary licence
4. As an application for a licence for that activity

Section 127(2) of the SFO provides that an application to vary a licence by adding a regulated activity is, for the purposes of Part V, regarded as an application for a licence in relation to that activity. It is therefore not a mere notification, it is not a temporary licence under section 117, and it is not limited to the responsible officers.

13. Under section 139 of the SFO, a person must be licensed or registered for which type of regulated activity to take or use the title “securities adviser”?

1. Type 1
2. Type 4
3. Type 5
4. Type 6

Section 139(4) of the SFO, read with item 4 of Schedule 6, reserves the title “securities adviser” to a person licensed or registered for Type 4 regulated activity. Type 1 covers the titles in item 1 such as stockbroker and securities dealer, Type 5 covers futures adviser and Type 6 covers corporate finance adviser.

14. Which ONE of the following is a condition of a licence granted under section 116(1) of the SFO in relation to each regulated activity?

1. Every responsible officer must be an executive director
2. At least one responsible officer is available at all times
3. Each responsible officer may supervise only one regulated activity
4. A responsible officer must sit at the premises daily

Section 118(1)(a)(ii) of the SFO makes it a licence condition that at least one responsible officer is “available at all times to supervise the business” of the regulated activity. The section does not require every responsible officer to be an executive director or to sit at the premises, and paragraph 3.2.4 of the Licensing Handbook allows one individual to be responsible officer for more than one regulated activity.

15. Under Schedule 1 to the SFO, a person is generally a substantial shareholder of a corporation if, alone or with associates, he has an interest in more than what percentage of its issued shares or voting power?

1. More than 5%
2. More than 10%
3. More than 25%
4. More than 50%

Schedule 1 to the SFO (section 6 of Part 1) regards a person as a substantial shareholder if, alone or with associates, he has an interest in shares of more than 10% of the issued shares or entitling him to control more than 10% of the voting power. The 5% figure belongs to other provisions such as the insider dealing definition in section 247, and 25% and 50% are not the Part V test.

16. Which ONE of the following statements about a temporary licence granted to a corporation under section 117 of the SFO is INCORRECT?

1. It must carry on business principally outside Hong Kong
2. Licence periods may total no more than 6 months in 24 months
3. It may be granted for Type 8 (securities margin financing)
4. It must nominate at least one individual for approval

Section 117(1) of the SFO excludes Type 3, Type 7, Type 8 and Type 9 regulated activities from temporary licences, so the statement about Type 8 is incorrect. The other three statements are correct: section 117(2)(a) requires business principally outside Hong Kong, section 117(2)(d) caps the total at 6 months in 24 months, and section 117(2)(f) requires at least one nominated individual.

17. In considering whether a person is fit and proper under section 129 of the SFO, the Commission must have regard to which of the following? I. Financial status or solvency II. Reputation, character, reliability and financial integrity III. Market share among licensed corporations IV. Ability to carry on the regulated activity competently, honestly and fairly

1. I and III only
2. II and IV only
3. I, II and IV only
4. I, III and IV only

Section 129(1) of the SFO requires the Commission to have regard to financial status or solvency, qualifications or experience, the ability to carry on the regulated activity competently, honestly and fairly, and reputation, character, reliability and financial integrity. Propositions I, II and IV are in that list. Market share among licensed corporations is not, so the options containing proposition III are wrong, and II and IV alone omit financial status or solvency.

18. In respect of a regulated activity for which they are licensed or registered, section 114(1) of the SFO does NOT apply to which of the following? I. A corporation licensed under section 116 II. A corporation holding a temporary licence under section 117 III. An authorized financial institution registered under section 119 IV. A company that has applied for a licence but is not yet licensed

1. I and II only
2. I and IV only
3. I, II and III only
4. I, II, III and IV

Section 114(2) of the SFO exempts from section 114(1) a corporation licensed under section 116 or 117 and an authorized financial institution registered under section 119 for the activity (it also exempts a person authorized under section 95(2)). A company that has only applied for a licence has no licence, so it is not exempt, which excludes the options containing proposition IV.

19. Mr Chan is a licensed representative accredited to Harbourview Securities Limited. He applies under section 122 of the SFO to transfer his accreditation to Ridgeway Capital Limited, another licensed corporation. What is the effect once the Commission approves the transfer?

1. Harbourview Securities remains his principal
2. His licence is revoked after 180 days
3. He must apply for a new licence first
4. Ridgeway Capital becomes his new principal

Under section 122(2) of the SFO, on the Commission approving the transfer of accreditation the other corporation becomes the representative's principal. A transfer avoids a fresh licence application, and the 180-day deemed revocation in section 123(1)(c) applies only where no transfer application is made after he ceases to act for his principal.

20. Ridgeway Overseas Limited has no place of business in Hong Kong and is not licensed. It actively markets, through a website aimed at the Hong Kong public, services that would be Type 4 regulated activity if provided in Hong Kong. Under section 115 of the SFO, what is the position?

1. It is exempt, having no place of business in Hong Kong
2. It is exempt unless it holds client assets in Hong Kong
3. Its services are regarded as a business in that activity
4. Its Hong Kong-based staff must be licensed, not the company

Section 115(1)(a) and (b) of the SFO applies where a person actively markets to the public, whether in Hong Kong or from a place outside Hong Kong, services that would be a regulated activity if provided in Hong Kong. Under section 115(1)(i) the provision of the marketed services is then regarded for section 114(1)(a) as carrying on a business in that activity, and section 115(1)(ii) treats the marketing as holding out. Location of the place of business and holding of client assets are not exemption tests, and the company itself is caught, not only its staff.

21. Mr Ho becomes a substantial shareholder of Harbourview Securities Limited through a transfer of shares, without the Commission's prior approval. Until the Commission approves him to continue, what is the position of the voting rights attached to those shares?

1. They are exercisable on a poll but not by show of hands
2. They are not exercisable until the Commission approves
3. They are exercisable once the transfer is registered
4. They are exercisable, with a fine imposed later

Section 131(4) of the SFO provides that, unless and until the Commission approves the person to continue under section 132(1)(b), the voting rights conferred by shares acquired by transfer, issue or transfer of the right to be issued are not exercisable. Section 131(5) makes it an offence to purport to exercise such a right. The Ordinance does not allow exercise on a poll, exercise once the transfer is registered, or a fine as the only consequence.

22. Ms Lam ceased to act for her principal as a licensed representative and has not applied to transfer her accreditation to another corporation. After how many days is her licence deemed to be revoked under section 123(1)(c) of the SFO?

1. 30 days
2. 180 days
3. 90 days
4. 365 days

Section 123(1)(c) of the SFO deems the licence revoked upon the cessation if the individual has not applied for a transfer of accreditation within 180 days after that cessation. The periods of 30, 90 and 365 days do not appear in section 123; the 7 business days in section 123(1)(a) is the time for the principal to notify the Commission.

23. Which ONE of the following statements about a registered institution under the SFO is INCORRECT?

1. It may be registered for Type 1 regulated activity
2. The SFC refers its application to the Monetary Authority
3. It cannot be registered for Type 3 or Type 8 activities
4. It must have two responsible officers under section 126

Section 125(2) of the SFO gives registered institutions a separate regime based on their executive officers, so the rule of two responsible officers approved under section 126 applies to licensed corporations under section 125(1), not to registered institutions. The other statements are correct: section 119(1) allows registration for any regulated activity other than Type 3 and Type 8, and section 119(2) requires the Commission to refer the application to the Monetary Authority.

24. Which of the following notification requirements are set out in section 135 of the SFO? I. Notice of intended cessation of a regulated activity at least 14 business days beforehand II. At least 7 business days' advance notice of an intended change of address III. Notice within 7 business days after a person becomes or ceases to be a director of a licensed corporation IV. Notice within 7 business days of a prescribed change in information provided to the Commission

1. I and II only
2. II, III and IV only
3. I, III and IV only
4. I, II and III only

Section 135 of the SFO requires at least 7 business days' advance notice of a change of address (subsection (2)), notice within 7 business days after a person becomes or ceases to be a director of a licensed corporation (subsection (6)), and notice within 7 business days of a change in information provided, in the circumstances prescribed by rules (subsection (3)). Proposition I is wrong because subsection (1) requires notice of intended cessation not later than 7 business days before, not 14, which rules out every option containing it.

25. The Commission shall refuse to approve a licensed representative as a responsible officer under section 126 of the SFO unless he satisfies it that: I. he is a fit and proper person to be so approved II. he has held a licence for at least five years III. he has sufficient authority within the licensed corporation IV. he is already an executive director of the corporation

1. II, III and IV only
2. I and IV only
3. I and III only
4. I, II, III and IV

Section 126(2) of the SFO requires the applicant to satisfy the Commission that he is a fit and proper person and that he has sufficient authority within the licensed corporation, which are propositions I and III. The section sets no five-year licence period, and it does not require the applicant to be an executive director; section 125(1)(b) needs only at least one executive director among the responsible officers.

26. Under Part 1 of Schedule 5 to the SFO, which Type of regulated activity is asset management?

1. Type 4
2. Type 6
3. Type 8
4. Type 9

Part 1 of Schedule 5 to the SFO lists asset management as Type 9 regulated activity. Type 4 is advising on securities, Type 6 is advising on corporate finance and Type 8 is securities margin financing.

27. Under Part 1 of Schedule 5 to the SFO, Type 13 regulated activity is:

1. providing credit rating services to the public
2. providing client clearing services for OTC derivatives
3. providing automated trading services to investors
4. providing depositary services for relevant CISs

Part 1 of Schedule 5 to the SFO defines Type 13 as providing depositary services for relevant CISs. Credit rating services are Type 10 and automated trading services are Type 7. Client clearing services for OTC derivative transactions are Type 12, which is not yet in operation.

28. Under the definition of “dealing in securities” in Schedule 5 to the SFO, which ONE of the following is excluded from that definition?

1. Acting as principal in dealing with a professional investor
2. Introducing a client to a Type 1 dealer for a commission
3. Acting as agent for a retail client for a commission
4. Passing a client's offer to a Type 1 dealer for a rebate

Part 2 of Schedule 5 to the SFO excludes a person who, as principal, performs the act by way of dealing with a professional investor. A person who introduces a client to a Type 1 dealer or passes on a client's offer in return for a commission or rebate is regarded as dealing in securities, and acting as agent for a retail client is plainly dealing.

29. Which ONE of the following statements about Type 10 regulated activity (providing credit rating services) is CORRECT?

1. A licence is needed for ratings prepared for a bank's own internal counterparty risk assessment
2. A licence is needed for ratings disseminated to the public within Hong Kong, but not elsewhere
3. A licence is needed for ratings meant for the public or subscribers, in Hong Kong or elsewhere
4. A licence is not needed for ratings distributed by subscription, as those are not public ratings

Paragraph 1.3.9 of the SFC Licensing Handbook says a firm preparing credit ratings for dissemination to the public or distribution by subscription, in Hong Kong or elsewhere, must be licensed for Type 10. Paragraph 1.3.10 says ratings prepared for internal use, such as a bank's counterparty risk systems, are unlikely to count. The Hong Kong-only limit and the subscription carve-out have no basis in the Handbook.

30. Which of the following persons giving advice on securities fall outside the definition of “advising on securities” in Schedule 5 to the SFO, so that no Type 4 licence is needed? I. A corporation advising solely its holding company, which holds all its issued shares. II. A trust company registered under Part 8 of the Trustee Ordinance, advising wholly incidental to the discharge of its duty as such. III. A corporation advising solely its parent company, which holds 60% of its issued shares. IV. A person advising through a television broadcast for reception by the public.

1. I, II and IV only
2. I and III only
3. II, III and IV only
4. I, II, III and IV

Part 2 of Schedule 5 to the SFO excludes advice given solely to a holding company that holds all the corporation's issued shares, advice by a registered trust company wholly incidental to its duty, and advice through a television or radio broadcast for reception by the public. A parent holding only 60% of the shares is not a holding company holding all the issued shares, so statement III is not excluded. The 60% holding is a figure posed in the question, not a statutory threshold.

31. Harbourview Securities Limited is licensed for Type 1 regulated activity only. It now offers selected clients a discretionary account management service and charges each of them a fee based on the value of the assets managed, separate from its dealing commissions. Which ONE of the following is MOST LIKELY correct?

1. It needs no further licence, as asset management by a Type 1 licensee is incidental to dealing
2. It also needs a Type 4 licence, as discretionary management is a form of advice on securities
3. It also needs a Type 6 licence, as the fee is based on the value of the assets it manages
4. It also needs a Type 9 licence, as the service is distinct from its dealing business

Paragraph 1.3.4 of the SFC Licensing Handbook lets a Type 1 licensee carry out Type 9 activity without a Type 9 licence only if it is wholly incidental to the dealing business. That exemption may not apply where there is a distinct service, for example a fee based on assets under management. Type 4 and Type 6 do not cover managing client portfolios.

32. Which ONE of the following statements about exclusions from regulated activities is INCORRECT?

1. A counsel advising on securities wholly incidental to his practice as counsel is excluded from advising on securities
2. A bank preparing credit ratings for its internal risk systems is unlikely to be providing credit rating services
3. A corporation managing assets of its group company's clients is within the wholly owned group exemption for Type 9
4. A person advising on securities through a newspaper available to the public does not need a Type 4 licence

Paragraph 1.3.15 of the SFC Licensing Handbook says the group exemption covers asset management only for the group company's own assets, and managing assets belonging to third parties, including the group company's clients, attracts a licensing requirement. The other three statements follow paragraph 1.3.10 of the Handbook and Part 2 of Schedule 5 to the SFO.

33. In simple terms, a fit and proper person under the SFC's Fit and Proper Guidelines means one who is:

1. financially sound, licensed, experienced and insured
2. financially sound, competent, honest, reputable and reliable
3. competent, reputable, solvent and locally resident
4. honest, qualified, and free of any criminal record of any kind

Paragraph 1.3 of the Fit and Proper Guidelines defines a fit and proper person as one who is financially sound, competent, honest, reputable and reliable. Residence, insurance cover or a licence in hand are not part of that description, and the Guidelines do not require a spotless record of every kind: a conviction is weighed by its relevance, its recency and the circumstances.

34. What is the legal status of the Fit and Proper Guidelines?

1. Guidelines under section 399 of the SFO without the force of law
2. Subsidiary legislation made under the SFO with the force of law
3. Rules of HKEX that bind its Exchange Participants in Hong Kong
4. Guidelines of the HKMA that apply to registered institutions

Paragraph 1.4 of the Fit and Proper Guidelines says they are made under section 399 of the SFO and do not have the force of law. They are issued by the SFC (not HKEX or the HKMA) and apply to licensed persons, applicants and relevant individuals alike. Failure to follow them can still count against a person's fitness and properness.

35. Where the Fit and Proper Guidelines refer to the "recency" of a matter of concern, it is normally taken to mean within the last:

1. 12 months for all persons
2. 3 years for all persons
3. 5 years for all persons
4. 10 years for all persons

Under paragraph 3.5 of the Fit and Proper Guidelines, recency is normally taken to mean within the last five years for all persons. The shorter and longer periods are not the benchmark, and the Guidelines do not use different periods for individuals and corporations.