One may not be required to be licensed for certain regulated activities if such activities are performed wholly incidental to your carrying out of another regulated activity for which you are already licensed:

Licensed for Type 1 RA and wish to carry out Type 4, 6, and/ or 9 RA. Do not need to be licensed for Type 4, 6, and 9 provided that these activities are carried out wholly incidental to your Type 1 business. This exemption normally applies to stockbrokers who provide investment advice or manage discretionary accounts for their securities clients.

Licensed for Type 2 RA and wish to carry out Type 5 and/ or 9 RA. Do not need to be licensed for Type 5 and 9 provided that these activities are carried out wholly incidental to your Type 2 business. This exemption normally applies to futures brokers who provide investment advice or manage discretionary accounts for their futures clients.

Licensed for Type 9 RA and wish to carry out Type 1, 2, 4, and/ or 5 RA. Do not need to be licensed for Type 1, 2, 4, and/ or 5 provided that these activities are carried out wholly incidental to your Type 9 business. This exemption normally applies to fund managers who market their funds under management or place trade orders to dealers or provide investment advice/research reports in the course of managing their own clients’ portfolios of securities and/or futures contracts. Another example is if a private equity (PE) firm offers investment opportunities to other persons (offering co-investment opportunities) whereby they may enter into securities transactions alongside the PE fund, the firm is generally required to be licensed for Type 1 regulated activity (RA1). This is because the act of offering co-investment opportunities will likely be regarded as inducing other persons to enter into securities transactions. Nonetheless, the PE firm may not need to be licensed for RA1 if it is licensed for RA9 to manage the PE fund and its act of offering the co-investment opportunities is conducted solely for the purposes of carrying on RA94. For example, if offering co-investment opportunities forms an integral part of fundraising by the PE fund to secure capital to invest in its underlying projects, the PE firm would not be required to be licensed for RA1.

Please also see the factors to determine if an incidental exemption is applicable (Q5).

Various factors are relevant in determining whether an incidental exemption is applicable to a certain activity, for example, whether the activity is subordinate to the carrying on of the other regulated activity for which the licensed corporation is or will be licensed, whether discrete fees are charged for the activity, and whether the activity constitutes a major part of the licensed corporation’s business. An incidental exemption may apply in the following circumstances:

If you are licensed for Type 1 regulated activity (dealing in securities), you need not separately be licensed for Type 8 regulated activity (securities margin financing) to carry out securities margin financing activities for your clients. However, you would need to satisfy the more stringent financial resources required in terms of paid-up capital in order to do so (see  Q31)This exemption normally applies to stockbrokers who also provide margin financing facilities to their securities clients.

If you intend to prepare credit ratings for dissemination to the public or for distribution by subscription in Hong Kong or elsewhere, you are required to be licensed for Type 10 regulated activity.

However, if a firm prepares credit ratings only for its internal use, such as a bank’s internal systems for assessing counterparty risks, it is unlikely that the firm will be regarded as “providing credit rating services” for the purposes of the SFO because the credit ratings would neither be intended for dissemination to the public or distribution by subscriptions, whether in Hong Kong or elsewhere, nor reasonably expected to be so disseminated or distributed.

You may not be required to be licensed for futures or securities dealing activity if you act as principal and deal with professional investors only (that is, the institutional professional investors as defined in Schedule of the SFO). This exemption will apply if:

• In relation to dealing in futures contracts: you as principal carry out the dealing activity concerned in relation to a futures contract traded other than on a recognized futures market as defined in Schedule 1 of the SFO by way of dealing with a person who is a professional investor (whether acting as principal or agent); or
• In relation to dealing in securities: you as principal carry out the dealing activity concerned by way of dealing with a person who is a professional investor (whether acting as principal or agent).

You are not required to be licensed for Type 4 (advising on securities), Type 5 (advising on futures contracts), Type 6 (advising on corporate finance), or Type 9 (asset management) regulated activity if you provide the relevant advice or services solely to your wholly-owned subsidiaries, your holding company which holds all your issued shares, or other wholly-owned subsidiaries of that holding company.

• In relation to advisory activities: the exemption should not be applied to a corporation advising its group company in respect of that group company’s client assets. However, where the investment advice and/or related research reports are provided to the group company for its own consumption, notwithstanding that the group company may rely, in whole or in part, on such advice/research reports to service its clients, the above exclusion will still apply if the advice/research reports are issued to the clients by the group company in its own name and that group company has assessed the corporation’s input before issuing such advice/research reports.
• In relation to asset management activities: the exemption is only applicable to a corporation providing asset management service to its group company (on a wholly-owned basis) in respect of that group company’s assets. It should not be read as applying to the management of assets belonging to the group company’s clients. Managing assets belonging to third parties would constitute “asset management” and attract a licensing requirement.

If you are a solicitor, a counsel or a professional accountant, you are not required to be licensed for Type 4 (advising on securities), Type 5 (advising on futures contracts), Type 6 (advising on corporate finance) or Type 9 (asset management) regulated activity if you provide such advice or services wholly incidental to your practice as a solicitor, a counsel or a professional accountant.

If you give advice on securities, futures contracts or corporate finance or issue related analyses or reports through:

• a newspaper, magazine, book or other publication which is made generally available to the public; or
• television broadcast or radio broadcast for reception by the public, whether on a subscription or otherwise,

you are not required to be licensed for Type 4, Type 5, or Type 6 regulated activity (as the case may be).

• In relation to dealing in securities: if you are a trusted company registered under Part VIII of the Trustee Ordinance, you are not required to be licensed for Type 1 regulated activity (dealing in securities) if you act as an agent for a collective investment scheme to distribute application forms, redemption notices, conversion notices, and contract notes, and/or receive money and issue receipts on behalf of your principal.
• In relation to investment advisory activities: as a trusted company, you are not required to be licensed for Type 4 (advising on securities), Type 5 (advising on futures contracts), Type 6 (advising on corporate finance), or Type 9 (asset management) regulated activity if you provide such investment advice or services wholly incidental to the discharge of your duty as a trustee.
• In relation to asset management activities: If a trustee company acting as the trustee of a discretionary trust has appointed an appropriate person to manage the portfolio or in practice acts on professional advice in carrying out its duties as trustee, it would not be required to be licensed. However, if the provision of portfolio management services becomes a separate or distinct business of the trustee company, it is unlikely that the trustee company could rely on the wholly incidental exemption and it would have to apply for a licence for Type 9 regulated activity.

Schedule 5 to the SFO provides a number of exclusions in the definition of “leveraged foreign exchange trading”. For example, if you are an authorized financial institution, you are not required to be registered for Type 3 regulated activity (leveraged foreign exchange trading) in order to carry out such activity. The Securities and Futures (Leveraged Foreign Exchange Trading – Exemption) Rules set out the requirements and conditions in applying the exemption provided in paragraph (xiii) of the definition of “leveraged foreign exchange trading” of Schedule 5 to the SFO. Please refer to the relevant provisions for details.