Fintech Market Overview

This article does not constitute legal advice.

Cross-border payments in Hong Kong

Fintech Software

As a general rule, if a corporation deals with the general public in Hong Kong, its activities are subject to Hong Kong law. If the services or products provided by these corporations are securities-related, these will be governed by the SFO. The SFO is silent on whether the regulated activities are subject to any geographical requirements but it is generally accepted that the SFO will apply to activities conducted in Hong Kong. However, even if the regulated activities are not conducted in Hong Kong, the corporation may still be subject to Section 103 of the SFO if it has marketing activities in Hong Kong. Whether there are any marketing activities in Hong Kong would be determined by the specific circumstances of the matter, as the term 'actively market' is not defined under the SFO, but the starting point would be whether there is any active marketing to the Hong Kong public (for example, whether the corporations had called a Hong Kong investor or organised marketing campaigns targeting Hong Kong investors, whether the products are denominated in Hong Kong dollars). If it is determined that the corporation is marketing into Hong Kong, then it may need to be licensed or registered with the SFC, and may even be subject to the Prospectus Requirements and the SFC Authorisation requirement under the C(WUMP)O and the SFO unless one of the exemptions discussed above applies.1

Regarding fund distribution from jurisdictions outside Hong Kong, following the memoranda of understanding (MOU) signed between Hong Kong and other jurisdictions, including China, Switzerland, France, Luxembourg, the United Kingdom and Thailand (with China being the first country to sign the MOU with Hong Kong), a system of mutual recognition of funds is put in place between Hong Kong and the signing countries to allow eligible funds to be passported into Hong Kong, and vice versa. Each MOU differs slightly on the type of funds that would be eligible for mutual recognition and the structure of the funds. For example, the MOU with France requires the fund to retain a minimum of 20 per cent of the net asset value to be attributable to Hong Kong investors; the MOU with the United Kingdom prohibits leverage over 100 per cent of the net asset value; and the MOU with Luxembourg requires the fund to be managed by a fund manager that has a minimum of HK$10 million in capital. Having said that, all foreign funds to be offered into Hong Kong will be required to appoint a firm in Hong Kong as representative and engage a licensed intermediary to carry out any marketing activities of the fund in Hong Kong.1

Similarly, under Section 114 of the SFO, the restriction on carrying out regulated activities does not make any distinction between foreign or local corporations. Therefore, corporations should obtain licences from the SFC if they provide cross-border regulated services and products targeting the Hong Kong public.1

Nevertheless, a temporary licence under Section 117 of the SFO could be available to foreign corporations if they are already licensed or regulated in another jurisdiction. This temporary licence is valid for up to three months or up to six months within any two-year period. The SFC will consider whether the foreign corporation is subject to similar regulatory requirements as imposed, monitored or enforced by the foreign corporation's local regulator and whether that local regulator would be able to take disciplinary action against the foreign corporation for its actions in Hong Kong as part of the consideration in granting the temporary licence. There are also other restrictions to the temporary licence (including that not all types of regulated activities would be allowed), and the licensee cannot hold client assets.1

Furthermore, the Cross-boundary Wealth Management Connect Scheme in the Guangdong–Hong Kong–Macao Greater Bay Area (the Cross-boundary WMC) was launched in September 2021, allowing eligible mainland China, Hong Kong and Macao residents in the Guangdong–Hong Kong–Macao Greater Bay Area (GBA) to invest in wealth management products distributed by banks in each other's market through a closed-loop funds flow channel established between their respective banking systems. It gives flexibility to individual retail investors to open and operate cross-boundary investment accounts directly, through a formal and convenient channel, and to choose their preferred products.1

The Cross-boundary WMC consists of the Southbound Scheme and the Northbound Scheme. The Southbound Scheme refers to eligible residents in the GBA cities investing in wealth management products distributed by banks in Hong Kong and Macao via designated channels. The Northbound Scheme refers to eligible residents in Hong Kong and Macao investing in wealth management products distributed by mainland China banks via designated channels. Only relatively simple wealth management products of low-to-medium risk are currently available under the Cross-boundary WMC. One bank account with a cross-boundary remittance function and another bank account with an investment function are required to be opened with banks in investors' place of residence and the other market, respectively, and the two accounts must be paired with each other. Cross-boundary renminbi fund flows are subject to closed-loop and quota management.1

The restrictions relating to offering or inviting investors under Section 103 of the SFO are only relevant to invitations to invest made in Hong Kong, but there are no specific restrictions under the SFO if there is a genuine enquiry made by a Hong Kong investor to the foreign corporation. Provided that the response to the enquiry made by the Hong Kong investor is bespoke and tailored to the enquiry, the foreign corporation may not be subject to the restriction under Section 103. This is a process that is commonly referred to as 'reverse enquiry'.1

Fintech in Hong Kong

Fintech in other countries

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Hong Kong Fintech Lawyers

Ilya Druzhinin

Ilya Druzhinin

I have over 22 years of experience in legal practice, most of which is accompanied by e-com and fintech projects

Languages: RU EN

  1. https://thelawreviews.co.uk/title/the-financial-technology-law-review/hong-kong
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