Licensing Fees

In response to media enquiries, the SFC issues the following statement.

The SFC clarifies that brokers will not pay more licensing fees under the Securities and Futures Ordinance (SFO) than they are already paying.

Licensing fees relating to Type 7 regulated activity (providing automated trading services)

Under the SFO, a stockbroker who conducts securities dealing through the Internet will be required to be licensed for Type 1 (dealing in securities) and Type 7 regulated activities.  Likewise, in the case of a futures broker providing Internet dealing services, it will need a licence for Type 2 (dealing in futures contracts) and Type 7 regulated activities.

The SFC considers that the Internet dealing activity provided by a broker would generally form a part of the broker’s dealing business.  As such, levying separate licensing fees on Type 7 regulated activity is unnecessary as the broker concerned is already licensed for Type 1 or Type 2 regulated activity. 

In making the Securities and Futures (Fees) Rules, the SFC had already taken into account this particular factor and provided certain waivers of licensing fees in relation to Type 7 regulated activity.  Where a person is applying or licensed for Type 1 or Type 2 regulated activity, the licensing fees (including application fee and annual fee) payable by that person in relation to Type 7 regulated activity will be waived.

In addition to the above waivers, a 3% across-the-board reduction in fees will be introduced for all licensed intermediaries. For example, the annual and application fees for a securities dealer’s representative will be reduced to $1,790 from the existing $1,850.

Furthermore, existing intermediaries seeking to convert their licences under the new licensing regime in the first year of the two-year transitional period will enjoy a further 5% early bird discount on their annual fees till the end of the transitional period, i.e. a possible saving of up to 8%.

“Incidental” exemption

The SFC would like to remind that under the SFO, a stockbroker (who is already licensed for Type 1 regulated activity) does not need a licence for Type 4 (advising on securities), Type 6 (advising on corporate finance) and Type 9 (asset management) if the latter activities are carried out wholly incidental to the stockbroker’s dealing in securities.

With this “incidental” exemption, a stockbroker holding a licence for only Type 1 regulated activity may also, for instance, issue research reports concerning securities, provide corporate finance advisory services and manage discretionary accounts for its securities clients if such activities are carried out incidental to its dealing business.   

Therefore, in choosing the regulated activities required in the new regime, intermediaries should consider the nature of their business and the “incidental” exemption provided under the SFO.  It is not necessary for them to be licensed for those incidental activities.  Licensees are welcome to discuss with the Licensing Department of the SFC if they have any queries.

To provide further information on this matter, the SFC plans to post some Frequently Asked Questions relating to “incidental” exemption and other licensing matters on its website by the end of this month.

The SFC believes that the new licensing regime will help reduce compliance costs to intermediaries if they streamline their businesses and seek only to be licensed for those regulated activities necessary to run their businesses.

Ends

Note:

The licensing fees have not been increased since 1993/94 despite a rise in the Composite Consumer Price Index of 23.1% since March 1993.  It should also be noted that the revenue of licensing fees is insufficient to cover the SFC’s costs of licensing and supervision work.  For the financial year of 2002/03, the SFC’s estimated deficit is about $79 million.