You are interested to apply for a Hong Kong Stored Value license but are not sure how much what are the conditions and costs attached to this endeavor. In this post are all you need to know about Hong Kong Stored Value license. Do not hesitate to contact us at [email protected] for more information about this matter
From 13 November 2016 onward, it has become unlawful for any person to issue or operate a SVF (Stored Value Facility) in Hong Kong without a licence (or the benefit of an exemption). Operating an SVF without an appropriate licence will be punishable on indictment by a fine of HK$1 million and 5 years’ imprisonment or on summary conviction to a fine of HK$100,000 and 6 months’ imprisonment.
Many SVF were operated so far using a Monetary Service License license which was not proper but was done anyway. Due to the new regulatory context this will have to stop.
Scope of New Regime
The previous regime applied only to card-based SVF and there was only one licensee. The new Stored Value Facility is open to new payment systems and not limited to cards anymore. It reflects the advances in payments products made possible by new technologies and has already more than 5 licensees among which Tessent and Alipay.
The principal business of an SVF licensee must be the issue or the facilitation of the issue of a SVF, the regime covers both:
- device-based multi-purpose stored value products such as the Octopus Card (octopus was the only licensed company under the old system); and
- non-device-based multi-purpose stored value facilities, which store value on mobile network accounts or computer network-based accounts.
The law purpose being of course to protect users’ stored value and, more broadly, regulate the float maintained by SVF issuers to meet payment demands.
What is not covered by SVF license?
The SVF licensee is not allowed to carry on
- any money lending services,
- financial intermediation activities or;
- any other regulated activities.
Relation between SVF license and Money Service Operator license
To enable SVF to handle cross-border payments and redemption in foreign currency the HKMA has indicated that SVF licensees are not required to separately obtain an MSO (Money Service Operator). SVF licensees will be able to carry on MSO business as part of their activity without having to apply for a further license HKCD.
The HK$25 Million Paid Up Capital Requirement
One of the drawback of the Hong Kong SVF license is that there is no there is no general exemption for SVFs having a float below a threshold amount (such as for example the S$30 million minimum float threshold for SVF licensing in Singapore).
Why is this a drawback? Because to apply for a SVF license a licensee must either have paid-up capital of no less than HK$25 million (or an equivalent amount in any other currency) or other financial resources that are equivalent to or exceed this amount.
This is a problem for smaller business operator or start up that will have to find a collaborative partnership with an SVF licensee or financial institution if they are not able to raise the required capital.
In addition, the HKMA has indicated that the HK$25 million is only a minimum requirement, and the regulatory expectation for each SVF issuer varies depending on its size, operations, number of users, business model and products to be launched in the market.
Exemption: When is a SVF license not needed
There are a few exemptions where license would not be required but they concern very limited business models and not a general exemption for smaller SVF as exist in Singapore
- Single purpose SVFs, such as prepaid cards, loyalty reward schemes and gift vouchers issued by retailers solely for funding purchases of goods and services from that issuing retailer;
- Department store SVFs, which involve a department store or similar retailer issuing an SVF that may only be used as a means of purchasing goods or services from the issuer or other persons carrying on business within the premises of the issuer, provided that the total float of the SVF does not exceed HK$1 million;
- Specified premises SVFs, in which an SVF can only be used at specified premises, such as recreational clubs or university campuses, provided that the total float of the SVF does not exceed HK$1 million;
- Bonus and loyalty point schemes, where points or units that are “money’s worth” are used to purchase goods or services and those points or units are not redeemable for cash; and
- SVFs used to purchase digital products, where goods or services are paid for through, delivered to and intended to be used through an electronic device and the relevant operator of the payment facility does not act only as an intermediary between the purchaser and the provider of the goods or services. This exemption is meant to cover online platforms offering third party digital music, books, video, games and apps where these platforms have similar attributes to single-purpose SVFs.
SVF regulation also contains a local management requirement as follows:
(1) the Chief Executive (including the Alternative Chief Executive) shall be and remain ordinarily resident in Hong Kong; and
(2) other senior management team members and key personnel shall be based in Hong Kong.
The strict requirement on the Chief Executive means that SVF applicants with overseas backgrounds must locate and assign a competent, proper and trustworthy candidate to be based in Hong Kong on a long-term basis.
Nevertheless, the requirement that senior management members be “based in Hong Kong” falls short of a residency requirement, and so there is a degree of flexibility in this regard.
The regulatory concern of the HKMA is that senior management of an SVF licensee must be reachable, responsive and contactable by the HKMA in case of any urgent SVF-related matters.
COSTS AND LICENSING REQUIREMENTS
Legal, financial and consulting fees: Between 140,000 USD to 170,000 USD depending on complexity of the case. For example, the application process will be easier if the applicant is a regulated company that already operate such type of business in other jurisdiction than if it is a start-up.
Fees covered all application process and assistance with drafting or reviewing supporting documents such as KYC, AML, Business Plan, Risk Management and so on Also include meetings with HK authorities and follow-up until decision by HK authorities on the license
Application fees: none
Annual licensing fee is HK$113,020.00. (around 15,000 USD)
Minimum Capital Requirement: HK$ 25,000,000 (around 3,200,000 USD)
Time of execution: 9 months
The minimum requirement for licensing is as follow: –
- The principal business of the company must be operation of a stored value facility;
- Not less than HK$25,000,000.00 paid-up share capital; or the company’s other financial resources are equivalent to or exceed HK$25,000,000.00;
- The company must have in place adequate systems of control to ensure that the Monetary Authority is kept informed of the identity of each controller of the applicable company;
- The chief executive, directors and controller of the company must be a fit and proper person to hold the position; In relation to conditions (for apply for the SFC licence), it is hard to give an exhaustive list of conditions. Generally speaking, an applicant has to fulfill the criteria as contained in the SFC’s fit and proper guidelines, the competence requirements, and the capital and financial requirements. In determining whether an applicant is fit and proper, the SFC will have regard to the applicant’s:
- financial status or solvency;
- the education or other qualifications or experience having regard to the functions to be performed;
- ability to perform functions competently, honestly and fairly; and
- reputation, character, financial integrity and reliability.
In assessing the competence of a responsible officer, the authorities will consider whether the applicant possesses appropriate ability, skills, knowledge and experience to properly manage and supervise the corporate applicant’s proposed activities. An applicant applying to be a responsible officer will normally be expected to meet one of the following options:
|Option 1||Option 2||Option 3|
|Education||Degree in financial discipline or equivalent or Recognized Industry qualification|
|Local regulatory framework paper||Pass||Pass||Pass|
|Relevant industry experience||At least 3 years over past 6 years||At least 5 years over past 8 years||At least 8 years over past 11 years|
|Management skill and experience||2 years||2 years||2 years|
- The company must have in place adequate systems of control to ensure that each manager of the company is a fit and proper person to hold the position;
- The officers of the company who are responsible for implementing the company’s stored value facility scheme or the day-to-day management of the scheme must have the appropriate knowledge and experience to effectively discharge that responsibility;
- The company must have in place adequate systems of control to ensure that each of its officers responsible for implementing the company’s stored value facility scheme or the day-to-day management of the scheme has the appropriate knowledge and experience to effectively discharge that responsibility;
- The company must have in place appropriate risk management policies and procedures for managing the risks arising from the operation of its stored value facility scheme that are commensurate with the scale and complexity of the scheme, including—
- adequate security and internal control to ensure the safety and integrity of data (in particular, personal data) and records;
- effective means to detect fraud and attempted fraud;
- robust and proven contingency arrangements to address any operational disruptions; and
- other operational and security safeguards appropriate for the scheme
- must implement the policies and procedures mentioned above, and
- must not deviate from those policies and procedures except with the prior written consent of the Monetary Authority
- There must be in place in the stored value facility of the company adequate and appropriate systems of control for preventing or combating possible money laundering or terrorist financing
- The company must have in place adequate risk management policies and procedures for managing its float or deposit to ensure that there will always be sufficient funds for the redemption of the stored value that remains on the facility
- The Company must ensure that always its float or deposit is kept separate from any other funds paid to or maintained or received by the company, and is adequately protected by the measures adopted by the company for protecting the float or deposit;
- The stored value facility scheme of the company must be prudent and sound, having regard to the purpose, business model and operational arrangement of the scheme; and
- The stored value facility scheme of the applicable company must be operated prudently and with competence in a manner that will not adversely affect: –
- the stability of any payment system in Hong Kong; or
- the interests of the user or potential user of the stored value facility to which the stored value facility scheme relates.
The above are the minimum criteria listed in the ordinance. Since certain criteria are discretionary and vague in nature, we cannot guarantee that the application will be successful, and each case will have to be assessed individually.
The regime will allow the HKMA to issue licences with conditions, including in relation to maximum stored value and float. If the HKMA intends to attach conditions to a new SVF licence, it must give a written notice to the licence applicant setting out the proposed conditions and the grounds for imposing them. The HKMA must then allow the applicant no less than 14 days to make written or oral representations as to why the grounds for attaching conditions have not been made out.
Do not hesitate to contact us at [email protected] for more information about this matter