Obtaining a Payment System License in Hong Kong

Thanks to a well-established regulatory framework and reliable regulation, Hong Kong has become home to numerous fintech companies. This jurisdiction is often chosen by entrepreneurs whose businesses are related to payment systems.

Despite the attractive conditions for the financial sector, obtaining a payment system license in Hong Kong can be a challenging task. This is because it requires registering a company, considering numerous requirements, and preparing the necessary documentation.

In this material, we will review the main aspects of licensing a payment system business in the Special Administrative Region (SAR) of China, including the benefits of this step. However, if you are interested in accelerating this process and want to eliminate potential risks, seek help from professionals.

Lawyers of AA Lawrange will guide you through every step of establishing your business. From company registration to obtaining a license. Moreover, you can rely on our support in subsequent activities.

Advantages of Obtaining a Payment License in Hong Kong

A Hong Kong payment system license can provide its holder with a number of advantages:

Access to a Thriving Market

Hong Kong is recognized as one of the leading global financial centers. It allows entrepreneurs to reach the audience of Greater China, which is over 1.4 billion people. The country’s steadily growing economy contributes to the demand for financial services and creates healthy competition, fostering business development in this sector.

Transparency of Regulation

Hong Kong offers entrepreneurs a clear regulatory framework. Additionally, the industry in the jurisdiction is reliably regulated. This is overseen by the Hong Kong Monetary Authority (HKMA) and the Securities and Futures Commission (SFC). All of this creates a structured business environment, which means that payment systems can function smoothly.

Enhancing the Company’s Reputation

A Hong Kong payment license is recognized internationally and serves as proof of the safety and reliability of the financial company’s services. This helps in working with foreign clients and partners, as well as attracting international investors.

Conquering a Vast Target Audience

By obtaining a license in Hong Kong, you can expect to expand your market. For example, entrepreneurs gain access to the Asia-Pacific region. This means you can join the progressive fintech sector not only in China but also in Japan, Singapore, and others.

Favorable Tax Climate

Hong Kong’s favorable tax policy supports the development of businesses in the payment sector. There is no VAT or sales tax, and corporate tax rates are relatively low. Depending on the company’s profits, they will have to pay either 8.25% or 16.5%.

Hong Kong Payment System License Types

The jurisdiction offers two main types of payment system licenses. The differences lie in the requirements for the licensee and the opportunities they open for entrepreneurs.

Stored Value Facility (SVF) License

This license is issued to businesses that provide services involving stored value. These include prepaid cards, digital wallets, and online payment services.

It allows entrepreneurs to provide the following services:

• payment for goods and services
• money transfers to third parties
• payment processing
• storing of funds

The SVF License is issued by the Hong Kong Monetary Authority, and applicants must meet several requirements to obtain it. These include minimum capital, IT infrastructure security, and compliance with AML/CTF regulations. We will discuss these requirements in more detail later.

Money Service Operator (MSO) License

This type of license offers far fewer opportunities for financial companies. It is suitable only for businesses that operate in the fields of currency exchange or money transfers.

Due to the limited possibilities, obtaining an MSO License may be easier. It is issued by the Hong Kong Customs and Excise Department, and among the mandatory conditions are the presence of a physical office, adherence to AML/CTF policies, and proven professionalism of the directors.

SVF Systems Operating Without a License in Hong Kong

Generally, operating without a license can result in fines, cessation of activity, and even imprisonment for owners of SVF systems. However, there are exceptions to this rule — some SVF systems may operate without a license.

These typically include systems that operate within a closed environment. For example:

• prepaid cards valid only within a specific store network
• systems used for purchasing digital content (e.g., mobile games)
• tools for earning cashback
• membership cards for a single store, restaurant, or similar institution

Before launching any service without a payment system license (Hong Kong),  entrepreneurs should consult with a lawyer. The lawyer will analyze each specific case and request confirmation of the non-requirement for licensing from the HKMA.

Mandatory Requirements for a Payment System License in Hong Kong

For obtaining a license for a payment system in Hong Kong, the business must comply with a number of requirements. Due to the fact that the SVF License is more common in the considered jurisdiction, let’s discuss the requirements specifically for this type of licensing.

Minimum capital requirements

An SVF system operator must have a minimum capital of 25 million Hong Kong dollars (HKD). This ensures the proper functioning of the company and provides the ability to cover potential losses.

Note that the HKMA controls the maintenance of the capital at the required level. To do this, the business must undergo regular audits and maintain reporting.

Compliance with AML and CTF Regulations

In Hong Kong, the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (AMLO) is in effect. This legislative act aims to reduce the level of crime in the financial sector. It establishes clear rules that all holders of a Payment System License must comply with. These include:

• Regularly conducting comprehensive customer due diligence (including sanctions checks) and monitoring transactions.
• Maintaining records of customer transactions for at least six years.
• Developing and strictly adhering to an internal AML/CTF policy.
• Appointing a person responsible for ensuring compliance with the legislation in this area.
• Training staff on compliance with the rules outlined in AMLO.

Directors and Founders

Authorized persons of the company — its directors, founders, and shareholders — must undergo a mandatory suitability test. This is carried out by the HKMA. During such an evaluation, the management team must demonstrate:

• financial stability;
• experience with payment systems and IT technologies;
• no criminal record;
• a positive reputation.

Local Office

To operate legally, a licensed SVF system operator must register a physical office in Hong Kong. This office will serve as a place for necessary communications, including audits and other checks.

It is also important to ensure the office has enough local staff. This will help increase the efficiency of management and address daily operational tasks.

Regular Reporting

Depending on the type of data provided, SVF operators may be required to submit reports to the HKMA with varying frequency. These may include monthly, quarterly, or annual reports.

They may contain the following information:

• volume and value of transactions;
• balances on customer accounts;
• user payment activity;
• financial data of the company confirming its solvency (including the amount of paid-up capital);
• proof of compliance with AML/CTF policies;
• information on operational resilience, including system security and risk management measures.

Additionally, SVF licensees must immediately provide the HKMA with information on any incidents. These may include data breaches, system failures, or violations.

Steps to Obtain a Payment System License in Hong Kong

To obtain a Hong Kong payment system license, entrepreneurs are advised to secure the support of professional lawyers. This will help avoid unnecessary risks at each stage of the process — there are six key steps.

Set Up a Local Company

The first step is Hong Kong company formation. That is, you must establish a legal entity that will be the applicant for the license. To do this, you need to:

• Apply to the Hong Kong Companies Registry with the necessary documentation.
• Register a local physical office to meet the requirements.
• Appoint at least one director and a secretary, with at least one director being a resident of the SAR.
• Ensure an adequate amount of share capital.
• Obtain a Certificate of Incorporation and a Business Registration Certificate.

Document Preparation for License Application

To apply to the Hong Kong Monetary Authority, the future licensee must prepare the documentation required by local law.

This includes:

• A detailed business plan. It should list the services to be offered, describe the business model and target audience, and provide projected profit.
• Information about the management team. The HKMA requires details of the directors, shareholders, and founders of the company. Be sure to include the suitability check forms.
• Internal company policies. It is important to prepare policies and procedures for ensuring AML/CTF compliance in advance.
• A risk management plan. This should include measures to prevent operational, financial, and cyber risks.
• Financial reports. These are necessary to confirm the financial stability of the company.

For document preparation, it is advisable to seek assistance from professional lawyers. Even the slightest inaccuracies could result in a refusal to issue the license.

Submitting the License Application

After registering the company and preparing the documents, you can apply to the local regulator for licensing.

To begin the application review at the HKMA, you should provide:

• the application form;
• the aforementioned documents;
• a receipt for the payment of the registration fee.

The average processing time for the application is from 4 to 6 weeks. However, this time frame may vary depending on the complexity of your case, the completeness of the document package, the presence of comments, and other factors.

Ensure Compliance with Regulatory Standards

To ensure a positive response to your application from the HKMA, the SVF operator must ensure full compliance with the established standards, including:

• AML/CTF policies. Conduct regular customer checks and transaction monitoring. Also, be prepared to provide a report on the conducted activities.
• Cybersecurity fortification initiative standards. Maintain the security and reliability of your IT infrastructure at an appropriate level.
• Operational resilience requirements. Create an action plan in case of system failures or other unforeseen situations.

Be prepared for audits by the HKMA to confirm compliance with the aforementioned standards.

Opening a Bank Account

Opening a bank account in Hong Kong is a mandatory requirement for obtaining the SVF license. This will be needed at the initial stage of licensing for the deposit of the minimum share capital.

Subsequently, this step will simplify payment operations, separate personal and corporate finances, and effectively fulfill the company’s obligations.

To open a bank account, choose a financial institution that provides the services you need and provide the required documentation. Note: some banks may require you to provide the pending license application.

Receiving the License

After final approval from the HKMA, the applicant will receive the SVF license and can begin operating as a legal payment system operator.

It is important to start operations no later than six months after receiving the license. Otherwise, the license may be canceled.

Ongoing Obligations for Payment Systems Post-License in Hong Kong

Be prepared for the HKMA to monitor your activities after the license is issued, and they may require you to provide certain documents or undergo inspections.

Here is a list of what the Hong Kong Monetary Authority is entitled to do:

1. Scheduled inspections. These may address the financial aspects of the company’s operations or focus on customer transactions, cybersecurity, and AML/CTF compliance.
2. On-site inspections. These involve monitoring the daily activities of the operator. They may concern transaction processing, risk management methods, complaint handling procedures, etc.
3. External monitoring. For this, the HKMA reviews various reports prepared by the SVF system operator.
4. Special investigations. These may be conducted by the regulator in response to an incident, such as a customer complaint or the discovery of suspicious activities.

Note that any detected non-compliance may lead to penalties and restrictions or even the cancellation of the license.

Payment System License Expiry Period in Hong Kong

The validity period of a Hong Kong payment system license depends on its type. If you are obtaining an SVF license, be prepared to go through the licensing procedure again in five to ten years. However, this will be done under a somewhat simplified scenario.

The MSO license is issued for two years. After that, the licensee must apply for an extension. It is important to contact the regulator no later than the expiration date of the license.

Why Choose Lawrange

AA Lawrange is a team of experienced lawyers who specialize in supporting international businesses. Our expertise spans many industries, including payment system operators.

By contacting us, you will receive:

• Comprehensive support at all stages of your business development. This includes company registration, obtaining a payment system license in Hong Kong, and opening a corporate bank account.
• Detailed consultations on tax, accounting, and legal matters.
• Over 10 years of experience working with international companies, which we are ready to apply to your project.

Contact a Lawrange manager and start your profitable payment system business quickly and easily.

Conclusion

Obtaining a license for payment system in Hong Kong is a mandatory condition for legal operation as an SVF operator in this jurisdiction.

This step opens wide opportunities for entrepreneurs, thanks to transparent regulation, access to a promising market, and a favorable tax system.

To ensure the process is quick and free from unnecessary issues, we recommend entrusting it to the lawyers at AA Lawrange. We will guide you through every step — from company registration to post-licensing activities.

Focus on the company’s global goals, leaving organizational matters to professionals.

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