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A company may not issue any form of application for shares, or debentures, to the Hong Kong public under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (C(WUMP)O). The prospectus must be registered with the Registrar of Companies in Hong Kong (the Prospectus Requirements) and comply with the requirements of the C(WUMP)O. In addition, Section 103 of the SFO prohibits a person from releasing an advertisement, invitation or document that is, or contains, an invitation to the public to deal in any 'securities' (as defined in Schedule 1 of the SFO). The issue must be approved by the SFC (the SFC Authorisation), and the offering document must meet Prospectus Requirements to be approved by the SFC. The Prospectus Requirements and the SFC Authorisation requirement are subject to certain exemptions, including:

1. professional investors exemption: offers made to professional investors only (as defined under the SFO);
2. private placement exemption: offers made to a maximum of 50 persons in Hong Kong provided that the offering document contains a warning statement as specified under Part 3 of the Eighteenth Schedule of the C(WUMP)O;
3. sophisticated investor exemption: offers where the minimum principal amount to be subscribed by any person is not less than HK$500,000 (or its foreign currency equivalent), with the appropriate specified warning statement in a prominent position of the offering document;
4. de minimis offering exemption: offers in respect of which the total considerable payable amount for the offering does not exceed HK$5 million (or its foreign currency equivalent); and
5. outside Hong Kong investors exemption: offers to persons outside Hong Kong. ¹

A number of laws and regulations do not apply to crowdfunding in Hong Kong. Peer-to-peer lending and equity crowdfunding can be regarded as CISs and, if offered in Hong Kong, may be subject to Hong Kong regulatory provisions (e.g., the Prospectus Requirement and the SFC Authorization Requirement), unless an exemption applies (see Section II).¹

Operators of crowdfunding platforms must adhere to Section 103 of the SFO as previously stated. If the platform carries out a regulated activity, then appropriate licensing from the SFC is a requirement and adherence to the Code of Conduct - this includes assessing a client's financial situation, investment experience and ascertaining if the recommended product would be suitable for them - is also essential.²

As outlined above, peer-to-peer lending is subject to the same regulatory requirements as crowdfunding.¹

Moreover, peer-to-peer lending by individuals or businesses may constitute carrying on business as a money lender, which requires licensing under the Money Lenders Ordinance (Cap 163) (MLO).¹

Anyone planning to carry out business as a money lender must apply to a licensing court for authorisation, which will be processed by the Companies Registry and enforced by the Commissioner of Police. The MLO outlines 'money lender' as anyone whose sole or primary practice is providing loans, or who advertises/announces themselves in that capacity. Nevertheless, persons and transactions outlined in Schedule 1 of the MLO are exempt from meeting this definition.¹

If a lender makes a loan to a corporation, firm, or individual whose ordinary business does not primarily or mainly involve lending money, peer-to-peer lenders may be exempt from this law. Nevertheless, it would be difficult to determine at what point an individual lender is carrying on a business of lending money in the case of any individual lender.¹

Depending on whether the loans or financings constitute securities (including interests in CISs), they may be subject to SFO regulation, which means only licensed corporations can conduct secondary trading of loans or financings. In addition, loans and financings can be transferred by way of legal or equitable assignment:

• legal assignment: an assignment that meets the criteria set out in the Law Amendment and Reform (Consolidation) Ordinance (Cap 23):
• equitable assignment: an assignment that has not met all the above requirements to create a legal assignment (typically, not being able to give notice to the obligor). ¹

Banking in Hong Kong

Fintech in Hong Kong

Fintech in other countries

Notes

1. https://thelawreviews.co.uk/title/the-financial-technology-law-review/hong-kong
2. http://www.sfc.hk/publicregWeb/corp/BLO833/details