licensing and subsidiary legislation
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FINANCIAL LAW ANDFINANCIAL LAW ANDREGULATIONSREGULATIONS
WEEK 7
Licensing and Subsidiary Legislation
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The Licensing Regime of SFC Part V
- an individual engaging in a regulated
activity for a licensed corporation
(as his principal) has to be licensedand becomes a licensed representative
- unlicensed individuals are prohibited to
use certain titles such as stockbroker and
securities adviser (ss. 139)
Licensing Regime
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Responsible Officer
- a licensed representative may apply as responsibleofficer and is approved by SFC with reference to hisbeing fit and proper and has sufficient authority within
the licensed corporation
- At least two responsible officers for each regulatedactivities in every licensed corporation
Licensing Regime
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Responsible Officer
- A licensed corporation shall not carryon any regulated activity unless every
executive director is approved by theSFC as a responsible officer
Licensing Regime
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Executive Officer
- An executive officer is a responsibleofficer of a licensed corporation, as adirector who is responsible forsupervising the business of a regulatedbusiness
- Or, an executive officer of a registeredinstitution
- Or, a director of an associated entityresponsible for supervising the handlingof client assets of the intermediary.
Licensing Regime
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Registered Institutions
- are authorized financial institutions
applying to engage in regulated activities
- SFC shall refer their applications to the
Hong Kong Monetary Authority for
advice on granting certificates of
registration
Licensing Regime
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Exemptions
- Accountants, lawyers and trust companies
providing advice on securities, futures contracts,
assets management or corporate finance willcontinue to be exempted from licensing
requirements provided that the advice given is
wholly incidental to their professional practice or
the discharge of their duties.
Licensing Regime
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Fit and Proper Guidelines
- apply to persons:
(a) an individual who applies for licence
or is licensed under Part V of the SFO
(b) a licensed representative who applies
for approval or is approved as a
responsible officer
Fit and proper
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Fit and Proper Guidelines
- apply to corporations
(c) a corporation which applies for licence
or is licensed under Part V of the SFO
(d) an authorized financial institution which
applies for registration or is registered
Fit and proper
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Fit and Proper Guidelines
- apply to persons
(e) whose name is entered in the register
maintained by the HKMA
(f) applies to act as an executive officer
of a registered institution
Fit and proper
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Fit and Proper Criteria
SFC takes into consideration
- financial status
- education, qualifications, experiences
- abilities to act efficiently, honestly, fairly
- reputation, character & financial integrity
Fit and proper
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Fit and properFinancial Status
A fit and proper corporation should not be
- subject to receivership, insolvency
proceedings
- failing to meet any judgment debt
(obligations to clients)- unable to meet financial and capital
requirements applicable to it
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Fit and properFinancial Status
A fit and proper corporation should
- comply with capital requirements
(Financial Resources Rules)
- failing to meet any judgment debt
- unable to meet financial and capital
requirements applicable to it
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Ability to Carry on the Regulated ActivityCompetently, Honestly and Fairly
A fit and proper corporation should not- have management that fail to meet
the fit and proper guidelines
- fail to perform the regulated activities
efficiently and effectively
Fit and proper
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Ability to Carry on the Regulated ActivityCompetently, Honestly and Fairly
A fit and proper corporation should not- have key personnel who failto meet
the fit and proper guidelines
- have failedto perform regulated activities
efficiently and effectivelyAn intermediary is expected to demonstrateits competence in accordance withGuidelines on Competence
Fit and proper
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Financial Status
A fit and proper individual should not be
- involved in bankruptcy proceedings or in
managing an insolvent corporation
- unable to meet any judgment debt
Fit and proper
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Competence and Capability
A fit and proper individual should not be
- under 18 years of age
- failing to perform regulated activities
efficiently and effectively
Fit and proper
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Ability to Carry on the Regulated Activity
Competently, Honestly and Fairly.
A fit and proper person should not
- have been a mentally ill patient
- have evidence of incompetence,
negligence and mismanagement
of regulated activities
Fit and proper
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Reputation, Character, Reliability and
Integrity
The SFC is not likely to be satisfied thata person is fit and proper if an individual
(i) found by a court for fraud, dishonesty
(ii) convicted of a criminal offence
(iii) censured by regulatory body
Fit and proper
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Reputation, Character, Reliability and
Integrity
(iv) restricted from carrying on any trade
which requires authorization by law(v) disqualified by court as a director
(vi) found guilty of market misconduct or
failed to abide by codes and guidelines
of the SFC
Fit and proper
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Reputation, Character, Reliability and
Integrity
(vii) a director, substantial shareholder or
involved in the management of a
corporation that was
(1) wound up ; (2) guilty of fraud(3) not met obligations to clients
and compensation funds
Fit and proper
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Reputation, Character, Reliability and
Integrity
The SFC is not likely to be satisfied thata corporation or an authorized financial
institution is fit and proper if it:
(a) was found to be of poor reputation and
lacking in financial integrity(b) has been served with a winding uppetition
Fit and proper
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Continuing Requirements
- A person licensed or registered under
the SFO, or a relevant individual or anexecutive officer of a registered institution
must continue to be fit and proper.
- SFC may take disciplinary actions if
the person is guilty of misconduct oris not a fit and proper person to remain
the same type of regulated person
Fit and proper
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Capital Requirements
The SFC has made the Financial Resources
Rules (FRR) which specify requirements as
to the amount of capital which should be
maintained by licensed corporations(registered AFIs will have requirements set
by HKMA)
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Securities and Futures (Client
Securities) Rules
The SFC is empowered to make rules
regarding the holding of and dealing with
client securities and collateral by an
intermediary or its associated entity or by anypersons acting on their behalf. The SFC has
made the Securities and Futures (Client
Securities) Rules under s.148.
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Securities and Futures (Client
Money) Rules
The SFC is empowered to make rules for the
holding of and dealing with clients money by
licensed corporations (not AFIs) and their
associated entities. The breach of the ruleswill be an offence. The SFC has made the
Securities and Futures (Client Money) Rules
under s.149.
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Securities and Futures (Keeping of
Records) Rules The SFC is empowered to make rules for:
- the keeping of records by intermediaries
(including registered institutions); and- the keeping of records by their associatedentities of the intermediaries clients assetsreceived or held by them.
The SFC has made the Securities andFutures (Keeping of Records) Rules unders.151.
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Class work
With reference to the Enforcement Report by
SFC in Aug 2008, what is the recent
prosecution strategy of SFC in its
enforcement practice? (comment on the 1stcriminal case)
With reference to the Enforcement Report by
SFC in Aug 2008, discuss the issues relatedto the reported cases about two investment
banks.
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