What is an SVF License in Hong Kong?
The Payment Systems and Stored Value Facilities Ordinance (the ‘Ordinance’), is promulgated by the Monetary Authority of Hong Kong. SVF is an abbreviation for Stored Value Facility and is a form of financial service in Hong Kong. For issuing SVF to other users, the applicant must apply for an SVF license in Hong Kong. The Hong Kong Monetary Authority has made it mandatory for applying for an SVF license. As per the ordinance, an SVF is defined under section 2(A) (1) a of the Payment Systems and Stored Value Facilities Ordinance.
A stored value facility will include the following:
- Where cash is paid, or some form of remittance arrives into the facility from time to time.
- The remittance of cash deposits may be stored for a particular period in the facility as per the authority rules.
Under section 2(A) (1) b of the Payment Systems and Stored Value Facilities Ordinance, the SVF (stored value facility) can be used for the following:
- A stored value facility can be used to disburse different forms of payments under the agreement made by the issuer.
- The payment can be made to another person or individual as per the agreement.
Under section 2(A) 2 of the ordinance, the individual procured by the issuer of the SVF license has to accept the form of payment that is made.
SVF License would include both any form of device or non-device SVF.
What are the types of SVF?
Device-based type of SVF is where the value of the money is stored in a chip format. This is predominantly used in electronic cards which have the facility of the chip. Such device-based SVF are found on smart devices and watches.
Non- Device Based SVF
This form of SVF is stored in a network form. For example, the use of this form of SVF can be carried out through any form of device connected through some form of network connection.
Regulatory Authority for SVF License in Hong Kong
The primary regulatory for the SVF License in Hong Kong is the Hong Kong Monetary Authority. The law that regulates SVF license in HK is the Payment Systems and Stored Value Facilities Ordinance (the ‘Ordinance’)
Eligibility Criteria for SVF License in Hong Kong
To fulfill the eligibility criteria, the applicant for an SVF license must fulfill the requirements as per Part 2 of the Ordinance.
Principal Business (Part 2 (1) of the Ordinance)
The business's principal place for an SVF license must be meant for carrying out an SVF business. Even if it allows the facilitation of SVF business, then it is allowed under this scheme.
Finance (Part 2(2) of the Ordinance)
The business has to have sufficient finance to carry out the business of an SVF. The following criterion has to be present in the company for an SVF business:
- Paid-up capital of the company- HKD 25,000,000 or any other foreign currency that can be freely converted to any other foreign currency as per the regulation and rules of HK's monetary authority.
- This will not apply to a company that is carrying out banking and other financial activities.
Fit and Proper Individual (Part 2(3) of the Ordinance)
The company must ensure to intimate the monetary authority with the executives in control of the SVF. All the company's key executives, such as the Chief Executive, director, and other individuals, must be competent to carry out the business of an SVF license. Apart from this, the company has to ensure that the business's management is fit and competent to carry out the activities as required by the SVF license.
Experience (Part 2(4) of the Ordinance)
The officers, directors, and shareholders of the SVF who are making new plans and schemes must know to perform their duties. Compliance has to be maintained when it comes to performing the responsibilities of all the individuals in the SVF.
Risk Management and Prudence (Part 2(5) of the Ordinance)
The applicant must also have different forms of risk management procedures to ensure that there is less risk present in the SVF. An applicant seeking an SVF license must make sure that there is a risk mitigation protocol followed by the organization. The risk management procedure should ensure that the following is not carried out in the SVF firm:
- Cybersecurity risks which help to reduce the number of threats caused to the company.
- Mitigation procedures to reduce the amount of risk which is prone to an organization.
- Any other form of safeguards which allows the company to ensure that internal procedures are carried out properly.
AML (Part 2(6) of the Ordinance)
The applicant seeking an SVF license must ensure that proper Anti-Money Laundering and counter-terrorism measures are carried out as per the Anti Money Laundering Ordinance (AMLO).This would include having adequate measures for the company to reduce any form of terrorist activities which help in financing terrorism.
SVF Deposit (paragraph 7, part 2(Schedule 3))
The management of the SVF must ensure that adequate funds are maintained for the facility's redemption. The amount of deposit which is key with the SVF has to be maintained separately as per the rules.
Redemption (Part 2(8) of the Ordinance)
The applicant has to make a redemption of the SVF deposit if requested.
Operating Scheme (Part 2(9) of the Ordinance)
The applicant making an application for the SVF license must be prudent in making specific decisions for the company.
Relevant Scheme Should Operate Properly
An applicant for the SVF license must ensure that the scheme is operating properly. There must be a model in place for the scheme to operate. The applicant of the SVF must ensure that the country's financial stability will not be affected due to the operation of the SVF. The SVF should also ensure that users' interests will not be affected in any form of way.
Other requirements- Section 8F (3) of the Ordinance
requires that the applicant must fulfill the eligibility criteria to apply for an SVF license. Apart from this, the applicant has to ensure that the relevant fee is paid based on the SVF license requirement. Apart from this, the licensee (the applicant) has to carry out the following:
Under Section 8M of the Ordinance, the applicant for the SVF has to pay the prescribed fee to the relevant authority.
- If the applicant is not able to meet any of the requirements stipulated by the Monetary Authority of Hong Kong, then the same must be reported under section 8R of the ordinance.
- If there is any form of material adverse change relating to the SVF, the same must be mentioned to the authority.
Procedure for Applying for the SVF License
An individual cannot provide an SVF if the monetary authority of Hong Kong provides no form of license. This is under section 8B of the SVF ordinance. Section 8E (2) only allows entities such as the body corporate to apply for an SVF license.
- The company or entity applying for the SVF has to satisfy the minimum criteria required for procuring this form of license. To secure this license, the management of the SVF has to be a consultation with the authorities on the schemes provided in the SVF.
- The applicant's parent company is also allowed to apply for an SVF if they consult the monetary authority of Hong Kong regarding the aspects of the business activities carried out.
- Under section 8E (3), the applicant has to provide the completed application form. In this application form, the individual applicant must provide the principal place of carrying out business activities. Apart from this, the applicant must provide information such as correspondence related to post and email.
- After receiving the application, the Monetary Authority will process the application. If there are any forms of documents missing, then the monetary authority will intimate the applicant regarding the same. The monetary authority will require this information to grant the SVF license.
- When a fresh application for the SVF license is made to the monetary authority, the following documents must be provided:
a) Governance and Risk.
b)Float Management Policy of the Company.
c) Information on the Anti Money Laundering Measures Followed by the Applicant.
d) Risk Management when it comes to technology.
e) Management of Information related to Payment Security.
f) Risk mitigation process and business continuity procedures.
- If specific information is missing in the application, the authority will intimate the applicant. When information regarding the risk assessment is not submitted, the application would not be processed as the authorities would find it difficult to carry out the approval process.
- If the application is not received after intimation within a specific period, then it will be suspended. If the application is suspended, the applicant will be informed regarding this.
- Suspended applications will only be reactivated if the information on the application is provided.
- Senior executives will review applications that are processed.
- Under section 8F (1) A of the ordinance states that the application will be reviewed. If the application satisfies all the eligibility criteria, then it will be approved. However, the authority can impose specific conditions on the license.
- When the license is granted to the applicant, a unique reference number will be granted. This number will be an alphanumerical sequence. The license certificate will specify the date to which it is valid.
The following documents are required for the license:
- Application form.
- Information on the paid-up capital of the company.
- Information on the ownership structure of the company.
- For each institution, the copy of the audited financials must be provided.
- All controllers have to submit the completed application form.
- Structure and Details of the Senior Management and the Staff.
- Information on the appointment of directors and executives of the organization.
- Any form of information on the system of control followed in the organization.
- Information and copies of the risk management followed in the organization.
- AMLO report which is followed in the organization.
- Investment policy followed by the company for the deposit amount.
- The agreement followed by the company and the operation of the scheme.
- Any other contracts which are entered into by the company.
- Resolution of the board of directors of the company.
- Business plan and activities which are carried out by the SVF for three years.
- AOA (articles of association) of the company which are stated in English as well as Chinese. The Chief Executive Officer must sign the articles of association of the company.
- Business Registration Certificate.
- Certificate of return on the allotment.
- Certificate of incorporation of the company (Form NC1 or Form NNC1).
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