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Circular to Licensed Corporations on Responsible Officers and Substantial Shareholders

Jun 08, 2017

On 2 June 2017, the Securities and Futures Commission (SFC) issued a circular1 on the takeover of "shell" intermediaries licensed under the Securities and Futures Ordinance2 (SFO).

There are two main areas covered in the circular:


1. Responsible Officers (ROs)

The SFC reminds ROs that they are not permitted to act as “fronts” for the purchaser of an intermediary by being ROs in name only. 

The circular states that, even if there is a change of substantial shareholder, this does not alter the requirement under the SFO for ROs to properly supervise the regulated activities and manage the risks associated with the business.

More specifically, ROs are reminded that they are required to satisfy the "fit and proper" criteria on an ongoing basis and any dereliction of this duty may lead to disciplinary action and/or the revocation of licence3.


2. Substantial Shareholders

Changes of substantial shareholders4 in an SFO registered intermediary require advance written approval of the SFC5.

In the circular, the SFC underlines that the vetting process for a new substantial shareholder is no less stringent or time consuming than that for a fresh intermediary application.  In short, the SFC’s position is that, the takeover of  an existing intermediary is not necessarily a less exacting or less time-consuming process.

To emphasise the point, the SFC say that, in considering an application to approve a change in substantial shareholder,  they may enquire into issues such as source of funding and financial strength as well as potential changes in the business plan and senior management after the takeover is completed.

The SFC notes that, should applicants attempt to incorrectly represent that no changes will incur upon the change of ownership and significant changes to the business plan or changes to management are then revealed in the course of ongoing supervision by the SFC, or else not disclosed by the intermediary in accordance with its ongoing obligations, then this is an offence under the SFO.


2. Cap 571 of the Laws of Hong Kong
3. Under the powers at Section 194 (1) of the SFO
4. As defined under Section 6 of Part 1 of Schedule 1 of the SFO
5. See Section 132 (2) of the SFO


Publication date: 2 June 2017

For more information on securities and futures licensing related matters in Hong Kong, please contact:-

Chris Lambert  |  |  +852 2861 8417

Charles Mok   |  |  +852 2861 8440


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