Obtaining a payment system license in Hong Kong

Hong Kong attracts a large number of fintech projects, payment systems are no exception. Since 2015, special regulation has been in effect in Hong Kong, which stimulated the receipt of payment system licenses in Hong Kong. The HKMA (local regulator) has clear and specific requirements for obtaining a license. You can read about the requirements for obtaining a payment system license in this article.

Contents: 

• Types of Hong Kong payment system licenses
  • What is the right to carry out a payment system in Hong Kong under the SVF license?
  • SVF systems that do not need a license in Hong Kong
• Requirements for obtaining an SVF license in Hong Kong
• The procedure for obtaining a license for a payment system in Hong Kong
• Obligations of the payment system after obtaining a license in Hong Kong
• Hong Kong payment system license validity period 

Types of Hong Kong payment system licenses

In 2015, a special Ordinance entered into force in Hong Kong. The payment system in this jurisdiction has a different meaning: their number is limited (4), and they are established by the local regulator. However, the law provides for private institutions, which are payment systems in a generally accepted, familiar sense. The article uses the second meaning. It fixes two types of payment systems:

1. Money Service Operator (MSO);
2. Stored Value Facility (SVF). 

MSO can carry out money transfers and currency exchanges, and their possible actions are significantly limited. SVF can carry out actions including with electronic money. There are similar types of licenses in European regulation:

• The functions of the Cash Operator are similar to those of the Payment Institution;
• The SVF license complies with the Electronic Money Issuer (EMI) license.

Therefore, in order to provide more services to your customers, it is better to obtain an SVF license, but the process of obtaining a license will be both more complicated and expensive.  

Payment system functions in Hong Kong under SVF license

With an SVF license, the system can carry out the following activities:

• Keeping money
• Means of payment for goods and services
• Means of payment to another person 

SVF systems that do not need a license in Hong Kong

The regulator clarifies that some SVF systems are exempt from the licensing obligation. These include:

• SVF systems used for certain rewards such as loyalty programs;
• SVF systems used to purchase digital goods or content, such as buying a game for a smartphone;
• SVF systems used for cashback accrual;
• SVF systems used for a limited range of goods and services, such as membership cards, which can only be used in one store or restaurant.

Requirements for obtaining an SVF license in Hong Kong

Due to the fact that the SVF license provides a wider range of services, the requirements for this type of system are more stringent:

• The authorized capital must be at least 25 million HKD (Hong Kong dollars);
• Management of risks. The payment system should provide for procedures that are related to the activities of the payment system. For example, one of the conditions for this is that the company has a Risk Management Policy;
• Compliance with AML / CTF regulation. The financial activities carried out by the payment system are fraught with high risks of fraud, therefore, the filing company is imposed by law with obligations to prevent money laundering and obligations to counter the financing of terrorism;
• System reserves. The applicant must ensure that a cash flow management procedure is in place so that the company always has a minimum reserve.
• Founders and directors must pass the fir and proper test. This test confirms that these individuals have a good reputation, relevant experience and the necessary qualifications.

It is much easier to obtain an MSO license, for example, there are no requirements for authorized capital. However, they are required to comply with AML / CTF regulation.

The procedure for obtaining a license for a payment system in Hong Kong

The regulator in Hong Kong is the Hong-Kong Monetary Authority (HKMA), so it will issue the license. In order to obtain an SVF license, you must complete the following steps.

Step 1. Consultation with HKMA, which will explain all the requirements to you. In addition, the regulator wants to be confident in your intentions to obtain a license.

Step 2. Consultation of HKMA with local regulator. If the company is incorporated by a foreign person, HKMA may consult with the regulator where the individual resides or is incorporated.

Step 3. Filling out the application and submitting documents. When submitting an application for the first time, you must also provide an independent assessment in 6 areas:

1. Corporate governance and risk management
2. Cash management
3. Technological risk management
4. AML / CTF systems
5. Payment security
6. Ensuring the continuous functioning of the system

Step 4. Consideration of the HKMA application. If the regulator is not clear about any documents, he may ask for clarification.

Step 5. Approval or refusal of the license

Obligations of the payment system after obtaining a license in Hong Kong

HKMA monitors that the payment system complies with the requirements after the licensing procedure. In this regard, the regulator takes the following measures:

1. On-site examinations;
2. Verification of the documents that the fintech project submitted with the application;
3. Also, HKMA has the right to demand 
4. Conducting an independent verification;
5. Providing an audit report;
6. Meetings with the management of the company. 

Hong Kong payment system license validity period 

The MSO license is issued for a period of 5-10 years. The MSO license is issued for a period of two years.

Thus, Hong Kong is trying to stimulate the acquisition of licenses in their jurisdiction. The most common form of payment system is SVF. This type of license will allow you to carry out a large number of activities without any restrictions. Before submitting an application, it is necessary to devote a lot of time to drafting documents, the requirements for which are established in various acts. If you still have questions about the procedure for obtaining a payment system license in Hong Kong or you need help, please contact A4 Law Firm lawyers.