HKSI Paper 6 Back-office compliance question: Kowloon Peak Asset Management Ltd

HKSI Paper 6Back-office compliance

Kowloon Peak Asset Management Ltd holds a Type 9 licence with the condition that it must not hold client assets. Which of the following arrangements are consistent with the condition? I. Clients' portfolios sit in accounts in their own names with an independent custodian bank; the firm only gives trading instructions. II. Its broker settles trades delivery-versus-payment against the clients' custodian accounts. III. It collects clients' cheques payable to the custodian bank and passes them straight to the custodian. IV. Its client agreement lets it move cash from clients' custodian accounts to any account, including its own.

A I and II only
B I, II and III only
C I, III and IV only
D I, II, III and IV

Show the answer and explanation

Answer: B. I, II and III only

Client assets are client securities and collateral and client money (SFO Sch. 1). 'Hold' includes possession and, for a business, being in a position to transfer the property to itself or otherwise benefit from it where another person has an interest in it. Statements I and II are consistent: the assets stay in the clients' own custodian accounts and the firm only instructs. Statement III is consistent because the definition of 'hold' excludes possession of a cheque made payable to another person while dispatching or delivering it to that person. Statement IV breaches the condition: a power to move client cash to its own account puts the firm in a position to transfer the property to itself, which is holding. Source: SFO (Cap. 571) Sch. 1 Pt 1 ('client assets', 'client money', 'hold'); Securities and Futures (Financial Resources) Rules (Cap. 571N) s.2 ('specified licensing condition') (as at October 2026).

Common mistake

Thinking 'hold' means only physical possession. Being in a position to transfer client property to yourself is also holding it.

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Related HKSI Paper 6 questions

Pine Ridge Asset Management Ltd, licensed for Type 9 only, has the following events in November 2026. Which of them must it notify to the SFC in writing within 7 business days after the event takes place?Lantau Bank Ltd, an authorized institution registered with the SFC for Type 9 regulated activity, makes a significant change to the internal control framework in the business plan for its asset management business. Under the Licensing Information Rules, what must it do?From Monday 2 November 2026, Jade Harbour Nominees Ltd, a wholly owned Hong Kong subsidiary of Jade Harbour Asset Management Ltd (Type 9, free of any no-client-assets condition), starts holding the manager's clients' listed shares in Hong Kong. Which notification requirement applies?

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Original study material mapped to the public HKSI Paper 6 syllabus. Unofficial, not endorsed by HKSI Institute or the SFC. Verify figures and rules against current guidance before relying on them.