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In the world, Hong Kong is considered one of the easiest places to carry out business activities. Added to this, the supportive government makes it easy for a person to carry out business. Financial businesses are well regulated in Hong Kong. Hence it is relatively straightforward to start a financial business in Hong Kong. SVF license is known as Stored Value Facility. This facility allows businesses to store money and carry out money-related activities.
To establish a business carrying out SVF facilities, the business must have an SVF license
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A stored value facility is a system of payment which is increasingly become more prominent amongst business users. This facility is similar to a retail payments system, which allows payments to be carried out locally. Apart from this, an SVF allows a particular business or an individual to store value in the form of Hong Kong Dollars or foreign currency for a specific period.
As the system is regulated in Hong Kong, the applicant must receive an SVF license.
As mentioned earlier, financial systems in Hong Kong are heavily regulated. Hence, SVF facilities would also be regulated by competent monetary authority. An applicant starting this form of the facility would require an SVF license.
The primary law that deals with SVF license is the Payment Systems and Stored Value Facilities Ordinance. This ordinance regulates all the SVF licenses which are issued in Hong Kong. The ordinance can understand the meaning of SVF.
A Stored Value Facility would include the following:
If the SVF suffices the following criteria, then under section 2(A) 1B of the Payment Systems and Stored Value Facilities Ordinance, the SVF or the stored value facility can be used for the following purposes:
There are two types of SVF which can be used by an entity or an individual user. The SVF license would be in accordance with the requirements of the user. Hence, businesses that want to start a finance business can make an application for an SVF license.
The ordinance for regulating SVF facilities gives the applicant to either consider the following types of SVF licenses.
The following are the types of SVF licenses which can be utilized by the business:
Device-Based SVF- Typically a device based SVF would include any form of transaction which is physically stored in the server or the processor. There would be a physical device used to store the facilities which are offered by the SVF. Such a facility would work based on a synchronised network. This network is accessible through wearable devices and smart watches.
Non-Device Based SVF- Device Based SVF facilities would also be accessible through the form of cloud-based facilities, internet, or through a mobile-based network. This non-device based SVF would not use the devices such as cards or electronic chips to access the funds which are available in the system.
Businesses can benefit both the uses of Device-based SVF and Non-Device Based SVF to carry out finance-based transactions.
An individual who is starting a finance business or a facility which allows cash to be stored would be allowed to start an SVF license facility.
However, the individual or business entity would have to satisfy the following eligibility criteria to commence the business of an SVF facility in Hong Kong:
Principal Place- For operating an SVF facility, the applicant must own premises for SVF business. Apart from this, the applicant can use leased premises to carry out the SVF business. Any form of facilitation under this scheme is also allowed to carry out respective businesses. Part 2(1) of the ordinance speaks about the requirement of having proper premises to carry on an SVF business.
Net Worth and Other Requirements- The applicant must have sufficient net worth and other requirements to carry out the SVF license. The requirement of net worth is present under Part 2(2) of the Ordinance.
The following requirements have to be complied by the company:
Fit and Proper Person Test- Apart from the above, the applicant will have to qualify the fit and proper person test. To qualify for this test, the applicant will have to satisfy the condition that all the key management executives are competent.
Hence, to satisfy the requirements of being fit and proper, the executives of the business must be fit to carry out the business. Being fit means having the necessary experience and qualifications to deal with the SVF license business. The requirement of the business being fit and proper comes under part 2(3) of the ordinance.
Sufficient Experience-Having sufficient experience in conducting the activities of an SVF business or facility is another requirement. Experience would not only mean having the necessary qualifications for carrying out the business, but also deal with managing the business. Managing the business would only come through sufficient experience and exposure for carrying out the SVF facility or business. Hence, the management of the SVF facility needs to have enough exposure for carrying out the business. The requirement of sufficient experience is present under part 2(4) of the ordinance.
Prudence, Diligence and Management of Risk-The applicant of an SVF facility should have sufficient systems in place to handle risks. These systems have to ensure that the SVF facility avoids risk. If the risk is apparent, then there must be measures to reduce or mitigate the risk factors which affect the business.
Experts are required to carry out diligence when dealing with financial transactions for an SVF facility. There are different forms of risks which have to be analysed and categorised according to the apparent risk caused by the issue.
Along with the above factor, it is important to emphasize the requirement of prudence when it comes to the management of risks. This requirement is present under Part 2(5) of the ordinance.
Anti- Money Laundering Measures- Apart from prudence and risk management procedures in the facility, there also has to be sufficient anti-money laundering measures in place. For example, every finance business would have these measures in place to ensure that money laundering practices are not committed. Documents which have to be collected by the applicant business for carrying out compliance must be adhered. While carrying out anti-money laundering measures, the applicant has to ensure to carry out sufficient customer due diligence.
For example, there are different forms of due diligence which can be carried out on the customer.
These forms of due diligence would include:
Simple Due diligence would be carried out on customers coming from less risky jurisdictions. On the other hand, enhanced due diligence would be carried out on customers coming from risky jurisdictions. Such jurisdictions would be under scrutiny and included under the grey listed countries of the Financial Action Task Force[1] (FATF). The requirement of carrying out due diligence by the applicant is present under part 2(6) of the ordinance.
Deposit- The entity must ensure that sufficient funds are present to combine the same with the application for the SVF license. Apart from this, the applicant has to make sure that the deposit amount is not mixed with other forms of funds. The amount of deposit can be used for redemption money. This provision is present under part 2(7) of the ordinance related to payment systems.
Redemption- If required, the applicant would have to make an application for redemption for deposit money. This provision is present under part 2(8) of the ordinance.
Scheme of Operation- After securing necessary permission and getting the licenses for the SVF business, the applicant must ensure that the business is operating properly. Apart from this, the applicant must ensure that compliance is maintained regarding the relevant laws of the SVF facility in Hong Kong.
Other Requirements for the Facility-There are other requirements which have to be met by the applicant to ensure that the license is granted for carrying out the SVF business.
These other requirements would be the following:
If the applicant meets all the above criteria, then the SVF license will be granted to the applicant. Once this license is granted, the applicant can start the business of an SVF facility.
While both the SVF business and the Money Lender Business have their regulations under Hong Kong Law, the activities which are carried out by the SVF business is completely different from the activities carried out by a Money Lender’s business.
Hence to start an SVF facility, the applicant must secure an SVF license.
Read our article:How to get a Money Lender License in Hong Kong?
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