The Securities and Futures Commission (SFC) has published FAQs to provide additional guidance on the licensing obligations of single family offices and multi-family offices under the Securities and Futures Ordinance (SFO). The FAQs follow the SFC’s circular issued on 7 January 2020 relating to the licensing obligations of family offices which conduct business in Hong Kong (to read our previous blog post, please click here).

The SFC made the following key points in the FAQs:

  • The licensing regime under the SFO does not hinge on whether an entity is called a family office or whether its clients are families. It has therefore not sought to define the terms “family”, “family office”, or what relationships of blood or of law would constitute family membership as the licensing regime is not predicated on this.
  • A single family office typically refers to an arrangement under which the assets, investments and long-term interests of members of a single family are managed (often structured through a corporate vehicle owned or controlled by the family).  A multi-family office by definition serves more than one high net worth family and are typical established and run as commercial ventures.
  • The issue of whether a family office (single family office or multi-family office) is required to be licensed under the SFO is determined by reference to three key factors, all of which must be met in order to give rise to a licensing obligation: (i) the services provided by the family office must constitute one or more of the regulated activities as defined under the SFO; (ii) the family office is carrying on business in the provision of such services; and (iii) the business is carried on in Hong Kong.
  • The phrase “carrying on a business in Hong Kong” is not defined in the SFO and what amounts to “carrying on a business” will be determined by reference to the specific facts of each case, including for example, whether the activity involves a degree of continuity, whether the activity is capable of making a profit or is carried out for the purpose of making a profit.
  •  A genuine single family office arrangement established to serve the investment needs of members of a single family which is not being run as a business (i.e. not receiving any income other than reimbursement of operating expenses from the family nor has the objective of making a profit) should not, in the ordinary course, be considered as carrying on a business from a licensing perspective.
  • The sharing of office premises and administrative infrastructure by two or more single family offices (e.g. to reduce operating overheads) would not of itself automatically trigger a licensing obligation for such single family offices as it would depend on the three factors set out above.  However, if two or more single family offices make arrangements to share human resources involved in investment-related matters, research or the investment process, this could be regarded as a multi-family office structure and, where the provision of such services is carried on as a business, the risk of triggering a licensing obligation will increase.

A copy of the FAQs can be found here.