Leung said in a recent speech that she sees a disturbing trend — certain small and dormant businesses in Hong Kong are being offered for sale for several million dollars.
“The price tag comes with two individuals who are paid tens of thousands per month simply for being responsible officers in name only, without having to report for duty at office.”
Firms regulated by the SFC are required to appoint at least two responsible officers who are accountable for good governance and proper behaviour.
Unlicensed individuals who control a firm might think they can manage their businesses without having to bear the consequences of their actions, but they should be liable for breaches and the SFC may exercise its powers to sanction them, Leung said.
“[The] SFC may revoke the licences of corporations and these responsible officers for hire who do not genuinely carry on a business of a regulated activity,” she added.
China corporates dominate
The SFC will also be working closer with other regulators, such as the China Securities Regulatory Commission, in light of the phenomenon and increasing number of applications from the mainland.
Mainland China has overtaken the US as the source of the largest number of shareholder groups controlling Hong Kong’s licensed corporations, which include asset management and brokerage firms, according to Leung. Around 13% of all licensed corporations are controlled by mainland corporates.
In addition, Hong Kong now has more asset managers than brokerage firms. The number of firms carrying out asset management activities (Type 9 licence) is now more than those dealing in securities (Type 1 licence) regulated type of activity.
Nearly two-thirds of new firm applications are now for the Type 9 licence, she said.
Leung said that the process for applying for a new licence in Hong Kong is straightforward and normally takes about 15 weeks. Fitness, properness and financial soundness are key indicators for the assessment.
“In this connection, I’d like to emphasise that we look beyond the quantitative thresholds and assess each application qualitatively.”
ROs or reps?
The regulator previously warned firms about registering senior executives as responsible officers.
In January, Leung said that the SFC noticed that in some cases, a senior executive, while supervising several responsible officers, was not licensed as a responsible officer of the firm but only as a representative.
“In some extreme cases, some junior executives are appointed ROs while the controlling minds of the firm stay in the shadows in the hope of escaping regulatory scrutiny,” she said.
Firms operating in Hong Kong will have greater accountability for corporate wrongdoing, especially with the new rules that the regulator has set for senior management oversight.
In December last year, the SFC released a circular on the manager-in-charge initiative, which outlines new measures that will require all members of a firm’s senior management team to take on legal liability of the firm.
The board of each licensed firm is expected to allocate responsibility, identify and appoint fit and proper individuals to act as managers-in-charge and to provide management structure information to the SFC on or before 17 July.
The managers-in-charge initiative should heighten the awareness of individuals of their obligations and liability under the law, regardless of whether or not they are licenced, the SFC said.
