1. Fundamental Questions about the SFC’s Type 9 Regulated Activity (RA9)

Q1: What is the Hong Kong SFC’s Type 9 Regulated Activity (Type 9 Licence)?

A:

• Type 9 regulated activity refers to managing a portfolio of securities or futures contracts in Hong Kong on a discretionary basis (i.e., with full authority to make investment decisions for clients).
• If the product under management is a fund (regardless of whether it is registered in Hong Kong or overseas), it also falls under Type 9 regulated activity.
• In other words, if you intend to “manage or invest in securities or futures for clients” in Hong Kong, you’ll need a Type 9 licence.

Example

• Private Fund Manager: If a Hong Kong company is set up specifically to make investment decisions for an overseas fund—investing, for example, in Hong Kong-listed equities—then it requires a Type 9 licence.
• Family Office: If you’re providing full-discretion management of a high-net-worth family’s assets (e.g. investment into stocks or bonds), a Type 9 licence is also required.

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Q2: Is a Type 9 Licence essentially the same as being a private/public fund manager in Mainland China?

A:

• Functionally, a Type 9 licence is indeed quite similar to being a private fund manager or a public (retail) fund manager within the Mainland China system. Both operate within a legal framework to manage client assets.
• However, Hong Kong does not further subdivide its regime by “equity private funds, securities private funds, bond private funds, public funds,” etc. As long as you’re managing securities/futures on a discretionary basis, you fall under the scope of Type 9 regulated activity.

Example

• If a mainland-based private equity firm sets up a Hong Kong subsidiary to manage funds investing in the Hong Kong market, it must apply for a Type 9 licence. There’s no distinction between “private Type 9” or “public Type 9” in official terms; it’s about the additional conditions on the licence.

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Q3: What are some common business scenarios where a Type 9 licence is needed?

A:

1. Discretionary Asset Management: For instance, a family office or External Asset Manager (EAM) serving high-net-worth clients, institutions, or funds.
2. Fund Management: This includes private funds or public funds (known in Hong Kong as “retail funds”), acting as a fund manager or investment adviser.
3. Virtual Asset Management: If you wish to manage cryptocurrencies or tokens, you need to apply to the SFC for additional approval or comply with relevant conditions on top of your Type 9 licence.

Example

• Family Office/EAM: A Type 9-licensed firm partners with a private bank so that the bank holds the client’s assets, while the licensed firm merely handles investment decisions and order placement.
• Private Fund Management: A Type 9-licensed firm sets up an offshore fund in conjunction with a third-party custodian to manage the fund’s investments.
• Virtual Asset Management: If you want to include Bitcoin or other digital assets in your portfolio, you must adhere to the SFC’s most recent guidance on virtual asset management.

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2. Common “Conditions” and Restrictions

Q4: Why do some Type 9 licences state “Not to conduct any business involving discretionary management of a Collective Investment Scheme (CIS)” ?

A:

• This restriction usually means the firm cannot act as a fund manager to issue or manage a CIS, and can only carry out discretionary management for individual client accounts.
• If the firm wants to manage private or public funds, it must not have this restriction, or it must apply for an appropriate exemption/waiver.

Example

• Firm A’s Type 9 licence specifically says “Not to manage CIS,” so it can only handle customised portfolio management for certain clients, rather than launching its own fund.
• Firm B, by contrast, successfully demonstrated its compliance systems and expertise to the SFC. It received a licence that allows it to manage CIS, enabling it to set up and manage private funds.

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Q5: What does “Not to manage futures contracts” imply?

A:

• It means that the firm is only permitted to manage the securities portion of a portfolio and cannot manage futures contracts.
• If you want to run a futures-based investment strategy, you must meet the SFC’s requirements for managing futures and ensure your Type 9 licence covers “managing futures contracts.”

Example

• A certain Type 9 licensed firm may only manage Hong Kong or US equities but not have permission to handle futures. If it wanted to launch an equity+futures hedging strategy, it would need to file an application with the SFC to expand or amend its scope.

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Q6: What does “Not to hold client assets” mean?

A:

• This is a common licence condition, requiring the firm not to act as a custodian or otherwise hold/come into direct possession of clients’ funds or securities.
• Clients’ assets are typically maintained under an independent third party (e.g. a bank, trust company, or licensed brokerage). The Type 9 firm merely has the authority to make investment decisions or place orders.

Example

• Family Office Model: Family A keeps its funds in an account at a Swiss private bank. The Type 9 licensed firm does not physically handle the cash but only instructs the bank when to buy or sell.
• Private Fund: Assets are held by an independent custodian, while the manager (Type 9 firm) does not handle the money directly and focuses solely on investment decisions.

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Q7: Why do some Type 9 licences state they can only serve “Professional Investors” instead of retail investors?

A:

• This is one of the conditions: if the licence states “only allowed to serve Professional Investors (PI)”, the firm cannot approach the general public or ordinary retail investors.
• The term “Professional Investor” is defined in the Securities and Futures Ordinance (SFO) and typically covers individuals who meet certain asset thresholds, authorised financial institutions, licensed insurers, large corporates, etc.

Example

• A certain Type 9 firm accepts only clients with assets of HKD 8 million or more, or regulated entities such as banks and insurance companies.
• If a retail investor without sufficient assets tries to invest in that firm’s fund, they would be turned away due to the “Professional Investor only” restriction.

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3. “Big Type 9” vs “Small Type 9” as Understood in the Market

Q8: How do people generally distinguish between “Big 9” and “Small 9”?

A:

• There is no official definition. The terms “Big 9” and “Small 9” usually look at factors such as:
  1. Whether the firm can hold client assets (i.e. whether there is a “Must Not Hold Client Assets” condition)
  2. Scope of business (e.g. ability to manage CIS, manage futures, or to serve retail clients)
  3. Financial requirements (minimum capital and liquid assets)
  4. Types of clients (whether restricted to professional investors only)

Example

• “Big 9”: Often able to manage private and/or public funds, possibly serve retail investors, and hold client assets (i.e. clients’ funds may be paid into a designated account under the company’s name). Usually meets higher capital thresholds.
• “Small 9”: Licence typically comes with conditions such as “Not to hold client assets” or “Professional Investors only,” and hence lower capital requirements. This is usually sufficient for family offices or private funds in practice.

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Q9: What are the financial requirement differences between “Big 9” and “Small 9”?

A:

• Commonly, people say a “Big 9” may require a higher minimum liquid capital (e.g. HKD 4.5 million or above), whereas a “Small 9” might only need around HKD 1 million.
• The actual amount depends on the firm’s specific activities. If it also conducts other regulated activities (e.g. dealing in securities, futures brokerage), the requirement might be even higher. Final conditions are confirmed by the SFC.

Example

• If a firm plans to operate a retail fund business, the SFC may impose a minimum capital level of several million Hong Kong dollars and robust internal compliance systems.
• If the firm’s activities are more limited—for instance, focusing only on private fund or family office clients—then the minimum might remain at HKD 1 million or lower.

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Q10: Do most asset management firms actually need a licence that allows them to hold client assets?

A:

• For the majority of private fund managers, EAMs, or family offices, client assets are held by a third-party custodian; the manager only provides investment decisions and does not physically handle the funds.
• Therefore, a “Small 9” with a “Must Not Hold Client Assets” condition often suffices.
• Only those with a genuine need to pool client monies themselves (e.g. for public/retail fund business) would aim for a licence that permits holding client assets.

Example

• Some firms may wish to operate a retail fund where client money is directly deposited into an account under the manager’s name, entailing custody and settlement functions; hence they require a “Big 9” licence.
• But if you are only running a Cayman or BVI private fund, typically the fund’s assets are placed with an external custodian, so the manager does not physically handle the clients’ money.

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4. Other Derivative or Specialised Types: Public Type 9 & Virtual Asset Type 9

Q11: What is a “Public Type 9 Licence”?

A:

• It’s a Type 9 licence that permits the licence holder to offer or manage fund products for retail (non-professional) investors.
• Such a licence has stricter requirements for compliance, internal controls, the firm’s paid-up capital and liquidity, and the qualifications of Responsible Officers (ROs), all to protect general (retail) investors’ interests.

Example

• If an asset management company wants to issue a retail fund open to the public in Hong Kong (similar to a public unit trust in the Mainland), it must hold a Type 9 licence that allows it to serve non-professional investors, alongside meeting higher compliance standards.

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Q12: What is a “Virtual Asset Type 9 Licence”?

A:

• Ordinarily, a Type 9 firm is limited to a maximum 10% exposure to virtual assets in its portfolio.
• If a firm wishes to exceed that 10% threshold or predominantly invest in virtual assets, it must apply for or meet the SFC’s additional requirements related to virtual asset management. This then becomes known as being able to manage virtual assets under a Type 9 licence.

Example

• Scenario 1: A Type 9 manager who invests only 5% of its AUM in Bitcoin need not apply for a separate virtual asset licence so long as it remains under 10%.
• Scenario 2: Another company might heavily invest in DeFi tokens, surpassing 10% of the fund’s AUM, so it must submit detailed plans to the SFC and comply with additional virtual asset guidelines.

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5. When a Type 9 Licence is Suitable (and When It Isn’t)

Q13: Which business scenarios are most suitable for a Type 9 licence?

A:

1. Family Office / EAM: Serving high-net-worth clients, with funds held in private banks or brokerage accounts, while the Type 9 firm executes the investment.
2. Private Fund Manager: Fund assets are held by an independent custodian or trust company, with the Type 9 manager overseeing investment decisions.
3. Public Fund Manager: If the firm intends to launch retail funds for the public, it must meet more stringent capital and compliance requirements.
4. Virtual Asset Fund Manager: If the firm intends to include cryptocurrencies, it needs to apply for or qualify under the SFC’s virtual asset management rules.

Example

• Scenario 1: A newly established family office aims to manage the founder’s multi-billion HKD assets via a private bank account. A Type 9 licence with a “Must Not Hold Client Assets” condition is more than adequate.
• Scenario 2: A private fund manager wants to raise capital to invest in Hong Kong-listed shares, so it needs a licence that does not have “Not to manage CIS” or “Professional Investors only” restrictions if it intends to approach non-professional or retail investors (though that would require even higher standards).

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Q14: Under what circumstances might a Type 9 licence be unsuitable?

A:

1. If you want to target retail or general investors but your licence says “Professional Investors only,” you cannot proceed.
2. If you need to pool and handle client money but your licence carries the restriction “Must Not Hold Client Assets,” you cannot do so.
3. If you aim to manage futures but your licence stipulates “Must Not Manage Futures Contracts,” you’re not allowed until that restriction is lifted or changed.

Example

• A firm holds a licence that restricts it to serving only professional investors, yet it wants to raise funds from the public. It realises it does not meet the licensing requirements and must either seek a licence upgrade or a variation of its conditions.
• Another company wants to offer a futures-based hedging strategy but the licence specifically says “Must Not Manage Futures Contracts,” so it cannot commence that business unless it applies for a variation.

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6. Helpful Reminders and Summary

Q15: What should I pay attention to when applying for and operating under a Type 9 licence?

A:

1. Licence Terms and Conditions: Carefully check the SFC’s approval documents to see if conditions like “Not to manage CIS” or “Must Not Hold Client Assets” are present.
2. Client Type: Check if you’re restricted to professional investors only or allowed to conduct retail business.
3. Financial / Capital Requirements: Continuously ensure the firm’s minimum capital and liquidity meet statutory levels.
4. Internal Compliance: The SFC has stringent rules on internal controls and requires Responsible Officers (ROs) to have sufficient qualifications and presence in Hong Kong. Regular compliance inspections can be expected.
5. Virtual Asset Management: If you plan to invest in cryptocurrencies, adhere to the latest requirements and confirm your licence scope covers such assets.

Example

• The board and senior management must have at least one or more Responsible Officers (RO) with appropriate industry experience who is substantially based in Hong Kong for the licence application to succeed.
• Should the firm’s actual business activities expand beyond the original licensed scope, it must notify the SFC to avoid operating in breach of its licence.

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Conclusion

• The Hong Kong SFC’s Type 9 Licence (Asset Management) is essential for conducting business that involves “discretionary management of securities/futures portfolios.” It also covers fund management activities.
• The notion of “Big Type 9” vs “Small Type 9” is not an official concept; it primarily concerns whether client assets can be held, who the target clients are, and the capital requirements or additional conditions on the licence.
• In reality, many private fund managers, family offices, and EAMs do not require the ability to hold client assets. A “Small 9” with a “Must Not Hold Client Assets” condition may be sufficient.
• If your goal is to issue retail fund products or pool substantial client monies in your own account, a higher-tier “Big 9” licence is necessary, along with meeting stronger compliance and capital thresholds.
• If you intend to invest in virtual assets, you will need to apply for or comply with extra virtual asset conditions. Standard Type 9 licences without these supplementary conditions typically limit virtual asset investment to 10% of AUM.
• Finally, all the above information is for general reference only. For specific business activities, do consult licensed advisers, lawyers, or accountants to ensure full compliance.