Payment Services Providers & Digital Platforms in Hong Kong

The 2019 memorandum issued by the SFC contains provisions related to digital platforms that trade in digital assets. The document also sets out regulatory standards governing the procedure for licensing an automated trading services operator in HK SAR.

The main emphasis is placed on individuals trading in digital assets which aren’t deemed securities and, therefore, can’t be regulated. 

These individuals can continue to be involved in their activities & won’t be required to apply for a digital asset platform operator license in HK SAR. However, if such an entity decides to carry out activities falling under the SFC’s authority, they’ll have to obtain a license authorizing trade in securities in HK or obtain the ATS license in HK (Type 7).

If the said licenses are granted to a platform operator, certain licensing conditions contained in the annex to the memorandum will be applied. Licensed operators will also be required to comply with other requirements contained in the SFC’s Code of Conduct, circulars, guidelines & FAQs. Any violation of the said rules can be deemed misconduct capable of adversely affecting a licensed platform operator & entail disciplinary actions, which include license revocation & fines.

Hong Kong: CIS

Under the SFO, promoting invitations & offers for participation in CIS is prohibited. The only exceptions to that rule are set forth below:

• existence of a property-related agreement;
• parties to a scheme are unable to manage property on a daily basis;
• property is managed by or on behalf of an individual responsible for that;
• an agreement is necessary to enable participants to derive a profit from acquiring & managing property.

Hong Kong: Crowdfunding

Hong Kong has no particular laws governing activities of crowdfunding platforms in HK. If offered to the general public, equity crowdfunding & P2P lending in Hong Kong can be deemed CIS & require compliance with certain regulations.

Obtaining a crowdfunding platform operator license in HK is required for individuals engaged in regulated activities. Such entities must also ensure compliance with the Code of Conduct of the SFC applicable to intermediaries.

P2P lending can involve lending activities requiring individuals or legal entities to obtain a lender license. A lender is defined as an individual whose business (irrespective of whether they’re engaged in any other operations) is to extend loans.

There’s no laws governing securitization; the only exception is requirements for disclosure & capital applicable to authorized institutions.

Registering a securities & futures company in HK SAR implies that monetary services providers must obtain a license from the CEC.

If payment service providers issue facilities capable of having value & being utilized for making payments for products/services, they’re required to obtain the SVF license. 

Privacy

Those planning to register a fintech company in HK should keep in mind the PDPO governing the gathering, utilization & processing of data collected from individuals or corporate entities. Pursuant to the PDPO, using & disclosing personal information has certain restrictions. However, it also contains exceptions applicable to using & disclosing customer-related information if:

• there’s a law or court order authorizing it;
• it’s necessary for the protection of legal rights in HK or settlement of a dispute through litigation in HK;
• it’s necessary for for DD of an M&A deal;
• it’s necessary for preparing a statistical report or conducting research (if no personal data about a client is revealed).

With regard to product-related data, companies must disclose such information if regulatory authorities require its submission. There’s various legal acts providing HK authorities with broad powers to launch an investigation.