Family Office Compliance

What is a family office?

A family office is an institutional structure that manages the assets of high-net-worth (“HNW”) families. Their responsibility also extends beyond wealth management to areas such as tax services, family governance, succession planning and philanthropy. Family Offices are arranged either as a single-family office or a multi-family office.

Is an SFC license required to operate a family office in Hong Kong?

There is no specific licensing regime for family offices in Hong Kong. In determining whether a family office is required to be licensed under the Securities and Futures Ordinance (“SFO”), the following three factors must be present to give rise to a licensing obligation:

1. the services provided by the family office constitute one or more types of regulated activity, as defined under the SFO. Examples of regulated activities include dealing in securities, advising on securities and asset management;
2. the family office is carrying on a business; and
3. the business is conducted in Hong Kong.

As the licensing regime under the SFO is activity-based, a family office would not be required to be licensed under the SFO if the services provided do not constitute a regulated activity. Examples of such instances include:

1. Intra-group carve-out whereby services are provided solely to the group company (on a wholly owned basis) in respect of the group’s assets; and
2. Activities conducted are incidental to the trust service of a registered trust company under the Trustee Ordinance.

What is the difference between a Family Office and an Asset Management Company?

Both family offices and asset management companies are involved in the management and investment of assets. A Family Office mostly manages the wealth of the family only. Asset Management Company or Multi-Families Offices manage assets of clients or multiple family offices or professional investors and wealthy individuals etc.

Here are some points to consider whether operating as a Family Office or an Asset Management Company;

1. whether the intended client base will be a single-family or multi-families (more than one HNW families), or a broader range of clients such as institutional and retail investors;
2. the investment approach such as focusing on preserving and growing the family’s generational wealth or meeting the investment targets with a goal to offer investment services to third party as well; and
3. whether the intended services to be provided to clients will constitute a regulated activity or not etc.

Our company is SFC licensed with Type 9 Asset Management License, what should we need to do if we want to offer services to a Family Office?

SFC Type 9 Asset Management License enables licensed corporations to provide asset management services to clients that additional license will mostly not be required for a Type 9 licensed corporation to provide investment services to a Family Office Client.

However, some steps may need to be taken as below prior to onboarding a Family Office client:

1. signing discretionary account agreement/ investment management or investment advisory agreement with the Family Office Client to document the scope of services and fee arrangement;
2. preparing client onboarding documentation such as Professional Investors Certification Form, Annual Confirmation, Risks Profiling Form, Corporate Professional Investors Assessment Form etc. to ensure the Family Office Client is a Professional Investor if the licensed corporation can only provide investment services to Professional Investors and to obtain the relevant Know Your Clients documentation and to know the risk profile and investment objective and investment limitations/restrictions of the Family Office; and
3. building a related investment risks framework in managing the mandate/asset of the Family Office with reporting on performance and risks controls in place to ensure compliance with the SFC Fund Manager Code of Conduct.

How we can help

We have assisted our family office clients in maintaining compliance with regulatory standards, including helping them applying for licenses from the SFC and addressing related compliance inquiries such as preparing compliance manual, reviewing investment agreement and client onboarding documentation, handling AML inquiries, providing compliance training, ongoing compliance services and advice to family offices to help them stay up-to-date with regulatory requirements and ensure that they are operating in a compliant and responsible manner.

Please click here to download our Compliance Points To Note about Family Office