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Fintech Market Overview

This article does not constitute legal advice.

Crowdfunding in Hong Kong

Fintech Software

Under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) (C(WUMP)O), it is unlawful to issue any form of application for shares in, or debentures of, a company to the Hong Kong public unless the form is issued with a prospectus that complies with the requirements of the C(WUMP)O and is registered with the Registrar of Companies in Hong Kong (the Prospectus Requirements). In addition, Section 103 of the SFO prohibits a person from issuing an advertisement, invitation or document that to his or her knowledge is, or contains, an invitation to the public to deal in any 'securities' (which is widely defined under Schedule 1 of the SFO) unless the issue has been authorised by the SFC (the SFC Authorisation), which would in turn require the offering document to comply with the Prospectus Requirements. There are certain exemptions to the Prospectus Requirements and the SFC Authorisation requirement, the most common of which are:

  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

Hong Kong does not have any specific laws or regulations in relation to crowdfunding. Crowdfunding activities such as peer-to-peer lending and equity crowdfunding may be considered as a CIS and, if offered to the public in Hong Kong, may be subject to a number of Hong Kong regulatory provisions (e.g., the Prospectus Requirement and the SFC Authorisation requirement) unless an exemption applies (see Section II).1

Operators of crowdfunding platforms would also be subject to Section 103 of the SFO as outlined above. If the operator of a crowdfunding platform carries on a regulated activity, it is required to obtain appropriate SFC licences and would also be required to comply with the SFC Code of Conduct, which contains provisions requiring licensed intermediaries to establish clients' financial situation and investment experience and ensure that recommended investment products are suitable for each particular client.2

Peer-to-peer lending is subject to the same regulatory provisions that may be applicable to crowdfunding, as outlined above.1

In addition, peer-to-peer lending by individuals or businesses might constitute the carrying on of business as a money lender, which requires the person or business to be a licensed money lender under the Money Lenders Ordinance (Cap 163) (MLO).1

The MLO requires that anyone wishing to carry on business as a money lender must apply to a licensing court for a licence, processed by the Companies Registry and enforced by the Commissioner of Police. The term 'money lender' is defined in Section 2 of the MLO as 'every person whose business (whether or not he carries on any other business) is that of making loans or who advertises or announces himself or holds himself out in any way as carrying on that business'. Certain persons and loans under Schedule 1 of the MLO are excluded from the definition.1

Peer-to-peer lenders may be able to rely on an exemption in the case of a loan made by a corporation, firm or individual whose ordinary business does not primarily or mainly involve the lending of money. It would, however, be difficult in the case of any individual lender to determine at what point the lender is 'carrying on a business of lending money'.1

Subject to whether the loans or financings would constitute securities (which is inclusive of an interest in a CIS), the trading of loans or financings may fall under the regulation of the SFO, which means only licensed corporations can conduct any secondary trading. Otherwise, transfers of loans and financings may be conducted 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

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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

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