Hong Kong: Non-bank money lenders – New guidelines on business plan submission and suitability and relevance criteria
Hong Kong continues to have an active and growing money lending market. Since 2016, the Hong Kong government has taken a four-pronged approach to improving compliance standards for non-bank money lenders. The Hong Kong Companies Register (CR), which currently acts as the Registrar of Money Lenders (“Registrar”) under the Money Lenders Ordinance (MLO), 1 recently issued a new directive on the criteria of suitability and relevance for the approval of money lenders2 (“Adapted and appropriate guideline”) and a guideline on the submission of a business plan by the applicant for a lender’s license money3 (“Business Planning Guideline”). The new guidelines (“Guidelines”) will take effect on April 1, 2021. In this publication, we provide an overview of the regime for money lenders in Hong Kong and the implications of the new guidelines for new and market participants. existing.
- Background: The Hong Kong Money Lending Scheme
- The new guidelines
- Next steps
Background: The Hong Kong Money Lending Scheme
The regulation of money lending in Hong Kong is largely contained in a combination of the Banking Ordinance, which applies to banks, and the MLO, which applies to non-banks. The MLO requires non-bank money lenders to obtain a money lender license. Under the MLO, the three governance authorities are:
- the licensing court (which is responsible for adjudicating applications and granting of money lender licenses)
- the RC (being the current registrar who is responsible for processing license applications and renewal requests from money lenders)
- the police commissioner (who is responsible for reviewing requests, investigations and enforcement)
The money lender’s license is subject to annual renewal. In order to obtain a money lender license, the essential factors to be satisfied include:
- that the applicant is fit and able to operate as a money lender
- the premises to which the request relates are suitable
- the granting of such a license is not contrary to the public interest
The money lending regime has been tightening since 2016, when the Registrar began imposing more stringent licensing conditions on money lender licensees. This trend continues, and recent guidelines provide additional guidance on the suitability and relevance criteria and the business plan to be submitted to the Registrar to facilitate its assessment.4
The new guidelines
Fit and appropriate guideline
The Fit and Proper Directive will apply to money lender license applicants, approved money lenders and their associates. The criteria and the non-exhaustive list of questions that the Registrar will consider in determining the suitability and quality of applicants include:
If there is a case of non-compliance with the provisions of the MLO, the Money Lenders Regulations, the conditions of license, the directives issued by the Registrar on money lenders and (for companies incorporated or registered at Hong Kong) of the Companies Ordinance.
Is the person’s financial situation suitable for carrying out a money lending activity.
|Ability to engage in money lending activity||
|Reliability and integrity||
If the person has been found liable by a court or other competent authority in Hong Kong or elsewhere for fraud, dishonesty, fault or other misconduct.
If the person has been denied or restricted, in Hong Kong or elsewhere, the right to engage in any business, trade or professional activity for which a license, registration or other specific authorization is required by law.
Business plan guideline
Applicants for new licenses and those looking to renew an expired license will need to submit a business plan with their application to show that they have a comprehensive understanding and are ready to engage in the money lending business. The business plan should provide complete information about the money lending business proposed by the applicant to demonstrate that the applicant has a genuine intention to carry on a money lending activity and the resources necessary to carry out the business. business plan. In addition to a delay in the application process, failure to provide the necessary information in the business plan can cast doubt on the applicant’s ability to operate as a money lender.
An applicant should confirm that they are fully aware of and will comply with the provisions of the MLO, the conditions that may be imposed on the license by the licensing and anti-money laundering and financing court. Terrorism (AML / CFT) Requirements for Approved Money Lenders.
In summary, the business plan should address the following topics:
|Business and operations||
|Management and human resources||
When considering making digital arrangements, outsourcing or third party appointments, the business plan should also include the following:
|Digitized / screening systems||
Information on digitized and automated systems to be used, for example, for customer vigilance, verification using artificial intelligence, the online approval process and risk assessment in person of the customers, as well as the names and addresses of the suppliers of the systems.
|Use of intermediary or outsourced services for AML / CFT purposes||
Information on intermediaries or outsourced services which are used by the applicant in the activity of lending money for AML / CFT purposes.
|Use of a third party / designated collection agent||
Information on any third party intended to be appointed to grant loans or act as a debt collection agent in the money lending industry and details of their intended functions.
Existing money lender licensees and new applicants should ensure that they are aware of the requirements of the new guidelines and that they are aware of any additional guidelines that may be issued by the Registrar from time to time. .
When preparing the business plan, we suggest that it will be important to:
- Capture all necessary content as required under the new Business Plan Directive.
- Take a close look at the scope of the proposed money lending business, the target customers and how the business will be operated, which should be implemented in a genuine and realistic manner.
- Ensure the sustainability of the company in terms of financing and profitability.
- Consider and ensure that the structure of the organization and the management team meet the relevant requirements.
- Know any digital / filtering systems, third party appointments or outsourced services (to the extent that there are any), their nature and operation and discuss with providers, if applicable, to obtain all the information necessary (and perform due diligence before entering into such agreements).
- Properly conduct and document an internal adequacy and appropriate assessment to ensure that the money lender and related persons can meet the criteria set out in the Fit and Proper guideline.