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LE Paper 6 · Topic 2
Paper 6 tests the SFO's back-office rules from the fund manager's desk: what an asset manager must tell the SFC and when, how much capital it keeps, how it handles client securities and client money, what records it keeps, which client documents it sends, how it is audited, how open-ended fund companies are formed and run, and how OTC derivative trades are reported. Most questions turn on one figure or one condition: HK$100,000 or HK$3 million, one business day or 7, before or after the event, inside or outside the Rules. The licensing condition that a Type 9 firm must not hold client assets runs through all of it, so learn what 'hold' means first.
22 min read9 sections
Part A checked on 12 October 2026 against e-Legislation: SFO (Cap. 571) s.135, s.145, s.146, s.165 and Sch. 1; Securities and Futures (Licensing and Registration) (Information) Rules (Cap. 571S); Financial Resources Rules (Cap. 571N) s.2, s.5, s.6, s.35, s.55, s.56 and Sch. 1 (version of 2 October 2024); Client Securities Rules (Cap. 571H); Client Money Rules (Cap. 571I); Keeping of Records Rules (Cap. 571O); Contract Notes Rules (Cap. 571Q) s.3; SFC Licensing Handbook (October 2024) and SFC 'Ongoing obligations' webpage, as at October 2026. Checked on e-Legislation against the Securities and Futures Ordinance (Cap. 571) Part IVA (s.112R, s.112S, s.112U, s.112ZH, s.112ZI), Part VI (s.153-s.163) and Schedules 1 and 5; the Contract Notes, Statements of Account and Receipts Rules (Cap. 571Q, version 2 October 2024); the Accounts and Audit Rules (Cap. 571P); the Open-ended Fund Companies Rules (Cap. 571AQ); and the OTC Derivative Transactions - Reporting and Record Keeping Obligations Rules (Cap. 571AL), as at October 2026. Independent prep, not endorsed by HKSI Institute or the SFC.
Section 135 of the SFO and the Securities and Futures (Licensing and Registration) (Information) Rules (Cap. 571S) keep the SFC's picture of each licensee current. Section 4(2) of the Information Rules requires written notice of any change in the information listed in Schedule 3 within 7 business days after the change. A registered institution, such as a bank registered for Type 9, notifies both the SFC and the HKMA. An applicant whose licence application is still pending notifies the SFC alone (s.4(7)).
| Event for a Type 9 licensed corporation | Time limit | Source |
|---|---|---|
| Intended cessation of a regulated activity | At least 7 business days before | SFO s.135(1) |
| Change of business address | At least 7 business days before | SFO s.135(2) |
| Becoming or ceasing to be a director (both the person and the firm notify) | Within 7 business days after | SFO s.135(6) |
| Complaints officer, emergency contact, auditor's name, bank accounts (including trust accounts), charged assets, capital and shareholding | Within 7 business days after | Cap. 571S Sch. 3 Pt 1 items 4, 10-13 |
| Significant change in the nature of the business or in the business plan (internal controls, structure, contingency plans) |
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| Within 7 business days after |
| Cap. 571S Sch. 3 Pt 1 items 8-9 |
| A company becomes an associated entity (it notifies; the firm notifies the change in its associated entities) | Within 7 business days after | SFO s.165(1); Cap. 571S Sch. 3 Pt 1 item 3 |
An associated entity is a company in a controlling entity relationship with the intermediary that receives or holds its client assets in Hong Kong, typically a nominee subsidiary (SFO Sch. 1). Relevant information about criminal charges excludes minor fixed-penalty offences, and an investigation that a statute forbids you to disclose is reported within 7 business days after you learn it has ended (Cap. 571S s.2, s.4(9)).
Trap: applying 'within 7 business days after' to everything. A move of office and the end of a regulated activity are notified in advance, and a bank also tells the HKMA.
Takeaway: Changes: 7 business days after. Leaving an activity or moving office: 7 business days before. Banks notify the SFC and the HKMA.
A licensed corporation must keep paid-up share capital (s.5) and liquid capital not less than its required liquid capital (s.6) under the Securities and Futures (Financial Resources) Rules (Cap. 571N). The 'specified licensing condition' is the condition that a Type 4, 5, 6, 9 or 10 firm must not hold client assets (s.2). Client assets are client securities and collateral and client money; 'hold' includes possession and being in a position to transfer the property to yourself, but not carrying a cheque made payable to someone else to that person (SFO Sch. 1).
| Type 9 firm | Paid-up share capital | Liquid capital floor | Financial returns (s.56) |
|---|---|---|---|
| Subject to the no-client-assets condition | None (s.5(d)) | HK$100,000 | Half-yearly (June and December), within 3 weeks, with AUM analysis |
| May hold client assets | HK$5 million | HK$3 million | Monthly within 3 weeks; quarterly within 3 weeks with AUM analysis |
| Also licensed for another type | Highest amount in Table 1, never the sum (s.5(f)) | Highest amount in Table 2 | Monthly unless every type is conditioned 4, 5, 6, 9 or 10 |
Required liquid capital is the higher of the floor and the basic amount: 5% of adjusted liabilities plus client futures and options margin (s.2). Adjusted liabilities exclude client money held in segregated accounts and approved subordinated loans. Example: liabilities HK$4.6 million including a HK$1.5 million approved subordinated loan give 5% x HK$3.1 million = HK$155,000, above the HK$100,000 floor. Fees receivable count as liquid assets only if billed and outstanding one month or less, or accrued and billable within the next 3 months (s.35(a)).
Trap: taking 5% of total liabilities, or adding the floor to the 5% figure. Strip out segregated client money and approved subordinated loans, then take the higher figure.
Takeaway: No client assets: HK$100,000, no paid-up capital, half-yearly returns. Under 120%: one business day. Under 100%: notify and stop.