On the theory that three’s a charm, our third and final blog on Hong Kong private equity activities will take a look at Asset Management (Type 9) activities, which are among the most relevant regulated activities for private equity firms in Hong Kong.
Asset Management (Type 9) covers managing, on a discretionary basis, portfolio of securities for and on behalf of a third party. If a private equity firm is licensed by the SFC to carry out the regulated activity of asset management, then in addition to being able to exercise discretionary portfolio management, such firm is able to rely on what is commonly referred to as the “incidental exemption” and market funds under its management or sub-management, without the need to obtain a separate Type 1 license. The Type 9 license is therefore very flexible.
In addition to considering the types of licenses that the onshore entity needs, it is also necessary to consider the personnel that needs to be put in place. In summary, it is necessary to have two responsible officers for each type of regulated activity (although the same person can be responsible officer for different types of regulated activities). The responsible officer must have at least three years of relevant industry experience over the previous six years, two years of managerial experience, and must pass the relevant exams. While exemptions from the exam requirements are available, in practice, such exemption is very difficult to obtain as the SFC would like to encourage responsible officers to be familiar with the Hong Kong regulatory framework.
It is also necessary to designate persons as the managers-in-charge for eight core functions: (i) overall management oversight; (ii) key business line; (iii) operational control and review; (iv) risk management; (v) finance and accounting; (vi) information technology; (vii) compliance; and (viii) anti-money laundering and counter-terrorist financing.