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Hong KongSFC capital requirements: how the rule is built, and what changes it
Licensed corporations must meet two capital tests: a minimum paid-up share capital and a minimum liquid capital. Both are set by the SFC's financial resources rules and vary by regulated activity type and by whether the corporation holds client assets. A firm with several licences meets the highest requirement, not the sum.
Two numbers per activity, and neither of them is printed on this page. Before you close the tab, read the next paragraph, because the structure of the requirement is what gets examined most often and it is what you can actually learn once and keep.
The shape of the rule
Capital requirements for licensed corporations are set in the SFC's financial resources rules, subsidiary legislation made under the Ordinance. Each regulated activity type has two figures attached to it.
| Test | What it measures | Why it exists |
|---|---|---|
| Minimum paid-up share capital | Permanent capital contributed by shareholders | A standing commitment of the owners' money to the business |
| Minimum liquid capital | Liquid assets less ranking liabilities, computed under the rules | An ongoing test that the firm can meet obligations as they fall due |
The distinction matters. Paid-up capital is a one-off structural requirement. Liquid capital is a continuing test computed under a prescribed method, and a firm can satisfy the first and fail the second on any given day. Failing the liquid capital requirement is a serious regulatory event with immediate reporting consequences.
What moves the figure
- Which regulated activity. Each type carries its own requirement, and dealing activities generally sit higher than advising activities.
- Whether client assets are held. A licensing condition that the corporation shall not hold client assets reduces the requirement substantially.
- Whether the corporation also does securities margin financing. Type 1 firms conducting margin financing are treated differently from those that are not.
- How many activities are held. Where a corporation is licensed for more than one, it must meet the highest requirement among them, not the total.
This is the single most examined point on this subject and the most commonly got wrong. A corporation licensed for three activities does not add three sets of figures together. It satisfies the most demanding of them. Options built on addition are a standard distractor.
The no-client-assets condition
A licensing condition stating that the corporation shall not hold client assets is the single biggest lever on its capital position, and it is why so many advisory and asset management firms operate on a very light capital base. If the firm never touches client money or client securities, the failure of that firm cannot strand client property, and the rules reflect that.
Watch for the condition in the stem. Almost every capital item turns on whether it is present, and the examiner will state it plainly rather than hide it. The mistake candidates make is reading past it, not failing to understand it.
Why we send you to the SFC for the numbers
Because they change, and because a wrong figure is worse than no figure. Capital minima are set in subsidiary legislation, they have been amended before, and study notes have a habit of outliving the rules they describe. We have seen circulating revision material carrying figures that were superseded years earlier, repeated with total confidence.
The current tables are published by the SFC alongside its other rules. Go to the SFC's codes and guidelines index, find the financial resources rules, and copy the figures for the activity types you care about into your own notes with the date you took them. Do that once, a week or two before your exam, and you have the numbers with a provenance you can trust.
What the rules are trying to achieve
Capital regulation is not there to make firms profitable. It is there so that a firm which is failing has enough resource to stop trading in an orderly way, and so that client property is not the buffer that absorbs the failure. Read every capital rule with that purpose in mind and the pattern of the requirements makes sense: more risk to clients means more capital, and no client exposure means very little.
That is also why liquid capital is a continuing test rather than an annual one. Solvency at the year end tells a regulator nothing useful about whether a firm can settle tomorrow.
How to revise it
Learn the structure from this page. Get the figures from the SFC. Then build a single small table of your own with one row per activity type and two columns, and test yourself on it cold. It is a short table and it does not repay elaborate study techniques.
The opinion: capital is over-studied relative to client assets. Both sit in Topic 4, both are number-heavy, and in our experience the client money and client securities rules produce more examinable discriminations than the capital tables do. If you have one evening and two subjects, spend it on the client securities and client money rules.
The concession: that preference is based on how we see items cluster when building question banks from the syllabus, and HKSI publishes nothing that would let anyone check it. A candidate who has just failed on three capital questions will reasonably disagree, and this is a subject where the marginal cost of covering both properly is only an hour.
Common questions
What capital does a licensed corporation need in Hong Kong?
Two things: a minimum paid-up share capital and a minimum liquid capital, both set in the SFC's financial resources rules. The figures depend on the regulated activity types held and on whether the corporation holds client assets. Take the current amounts from the SFC's published rules.
What is the difference between paid-up capital and liquid capital?
Paid-up share capital is permanent capital contributed by shareholders and is a structural, one-off requirement. Liquid capital is liquid assets less ranking liabilities, computed under a prescribed method, and it is a continuing test. A firm can meet the first and still breach the second on a given day.
If a firm holds several licences, are the capital requirements added together?
No. Where a corporation is licensed for more than one regulated activity it must meet the highest applicable requirement, not the sum of them. Answers built on adding the figures together are a standard distractor in exam questions on this subject.
How does a no-client-assets condition affect capital?
It reduces the requirement substantially. A licensing condition that the corporation shall not hold client assets means the firm's failure cannot strand client money or client securities, and the rules set a much lighter capital requirement to match. Look for that condition in any exam stem about capital.
Where can I find the current SFC capital figures?
In the financial resources rules published on the SFC website alongside its other rules, codes and guidelines. Copy the figures for the activity types relevant to you, note the date you took them, and check again shortly before your exam. Figures in circulating study notes are frequently out of date.