The Companies Registry responds to a number of questions raised by members of the Institute regarding Hong Kong's new trust and company service providers licensing regime.

On 1 March 2018, the Anti–Money Laundering and Counter–Terrorist Financing Ordinance (AMLO) (Cap 615) introduced a new requirement for trust and company service providers (TCSPs) to be licensed by the Registrar of Companies. This requirement, along with the requirement for TCSP licensees to comply with the statutory customer due diligence and record-keeping requirements, takes effect on 1 March 2018. Members of the Institute have been in the forefront of the compliance efforts in relation to the new TCSP licensing regime. The Institute formally presented members' questions to the Companies Registry, and the Institute is grateful for the Companies Registry's responses given in this article. The new TCSP licensing regime, together with the new requirement for Hong Kong private companies to create and retain a verified significant controllers register, is part of the government's effort to enhance Hong Kong's regulatory regime to combat money laundering and terrorist financing.

TCSP activities in group situations

Question 1

Listed and private groups sometimes have a sister company within the group to deal with administrative matters, including those matters falling within the definition of TCSP activities for the benefit of the group. Our members raised the question of whether such a sister company will be required to obtain a TCSP licence and be subject to the compliance requirements related thereto. In this connection, the Companies Registry issued a FAQ stating that, where a sister company serves other members of the group on TCSP related activities, there may be a need for a TCSP licence, irrespective of whether there is payment or not to the sister company. This depends on whether the sister company is carrying on the TCSP activities ‘by way of business’. This FAQ has resulted in a lot of questions among our members as it appears to be answering a question with a further question of whether the TCSP activities is 'by way of business'. Our members note that a sister company is required to obtain a business registration certificate as it carries on business. But is carrying on business equivalent to carrying on TCSP activities by way of business? The Institute has previously sought clarification on this question. If we take reference to the discussions under the FAQ relating to trust companies, it is stated that: ‘According to case law, the question of whether the provision of a service amounts to the carrying on of a business is a question of fact and degree to be answered upon a consideration of all the circumstances. In considering whether a person is providing a trust or company service by way of business, it is relevant to take into account whether the person:

1. undertakes one or more of the activities of a TCSP
2. advertises or publicises his or her business activity or receives referrals from other companies
3. aims to make a profit when he or she carries out the activity, and
4. carries out the activity with reasonable or recognisable continuity.’

For a sister company (b) and (c) are not the dominant purposes, since the activities are for group support. We believe that there should be similar explanation of the case law and practical analysis for a sister company serving a group function. In this connection, Institute members have obtained opinions from leading law firms that, where a sister company fulfils TCSP-related group functions for the group and its affiliates, this could hardly be said to be ‘by way of business’. In any event this is not intended to be the mischief addressed by the relevant legislation. While the advice to individual members may be fact dependent, what, for example, is the purpose of requiring an internal group service company to have a compliance officer/money laundering reporting officer within a group? We urge the Companies Registry to provide an explanation of the application of ‘by way of business’ and to provide a practical regulatory approach to this issue.

Companies Registry’s response

In considering whether a person is providing a trust or company service by way of business, reference can be made to FAQ number 7 under the topic 'licensing requirements for trust or company service providers'. FAQ number 8 under the same topic gives an example of when a TCSP licence is not required. FAQ numbers 7 and 8 should be read together. As regards your comments, we generally agree that a member of a group of companies that provides company services solely to other group members would not normally be considered to be providing the services by way of business and would not normally be required to apply for a TCSP licence. FAQ number 8 will be revised to cover this aspect. If a company is in doubt, it should seek independent professional advice. It should be noted that the general position of FAQ number 8 does not apply to affiliates of a group of companies.

Question 2

The Companies Registry provides the following practical analysis for trust companies: ‘If a company acts as the trustee for a trust, charges for the service, publicises the service and carries on the activity continuously, it is clear that the company is carrying on a business and needs to obtain a licence.' On the other hand, a licence is unlikely to be required if a person accepts a one-off appointment by a friend or relative to act as a trustee of a trust in a personal capacity and with no commercial gain. Does this extend to a trust company accepting a one-off appointment whether paid or unpaid? Does it also extend to a sister trust company serving a group function?

Companies Registry’s response

A person who carries on a trust or company service business in Hong Kong is required to apply for a licence. Please also see our response to the previous question. Subject to the facts of each case, as the provision of trust services would usually involve third parties, a company that provides trust services to other companies within the same group is required to apply for a TCSP licence.

Question 3

If the main business of a company is investment holding, but it occasionally provides company secretarial services including provision of a named company secretary to former subsidiary companies with or without fees, please advise if such a company is required to obtain a licence as a company services provider.

Companies Registry’s response

A person who carries on a trust or company service business in Hong Kong (unless exempted under Section 53B of the AMLO) is required to apply for a licence. The definition of 'trust or company service' is set out in Section 1 of Part 1 of Schedule 1 to the AMLO (Cap 615).

Question 4

Does a Hong Kong company need to obtain a licence for the provision of a registered office, business or correspondence address for its group companies on the basis that the office is leased by that Hong Kong company and used by the other group companies with or without any lease agreement and payment of rental charges?

Companies Registry’s response

Please see the response to question 1.

Question 5

Does a Hong Kong company need a licence to provide services as a process agent for the service of process in any proceedings before the Hong Kong courts to another group company? Would it make a difference if the process agent does not get paid for its services?

Companies Registry’s response

Please see the response to question 1. The definition of 'trust or company service' is set out in Section 1 of Part 1 of Schedule 1 to the AMLO (Cap 615), and covers the provision of a registered office, business address, correspondence or administrative address for a corporation, partnership or any other legal person or legal arrangement. As a process agent will provide a service address in Hong Kong to its client, the service provided by a process agent falls within the definition of 'trust or company service'.

TCSP licensing

Question 6

For TCSPs that carry on business activities for external clients (and not within an internal group and its affiliates), there are usually a number of group companies that take up appointment with clients. There is no doubt that such companies should apply for a TCSP licence. But in many instances, there will also be persons and entities nominated to discharge the functions of, say, being nominee directors for a client. For persons who are employees, the FAQs make it clear that there is no need for the person to obtain a TCSP licence. However, there is confusion as to whether companies nominated by the group to take up aspects of the TCSP business would be required to obtain a TCSP licence. This is an important issue for TCSP businesses. There appears to be no difference between the situation of an employee of an internally nominated company assisting the group to perform TCSP services, and a TCSP providing external client services.

Companies Registry’s response

If a company carries on a trust or company service business in Hong Kong, it is required to apply for a TCSP licence. Whether the company is appointed by another company to provide the trust or company services for any particular clients is not a relevant factor.

Question 7

Should the ultimate owner of a discretionary trust seek TCSP licensing and does the ultimate owner need to be approved under TCSP licensing?

Companies Registry’s response

Under the TCSP licensing regime, an applicant for a TCSP licence can be a sole proprietor, partnership or a corporation but not a trust. As to who is subject to the fit and proper test under the regime, please see FAQ number 5 under the topic 'licensing requirements'. The Companies Registry's responses to members' questions relating to the new significant controllers register requirement were published in last month's Technical Update article (CSj, May edition, pages 32–34). More information relating to the TCSP licensing requirements is available on the Companies Registry, ‘Registry for Trust and Company Service Providers’ website: www.tcsp.cr.gov.hk. The Companies Registry has also set up a dedicated hotline at: 3142 2822, to answer public enquiries.