Hong Kong: Overview of Stored Value Facility Regulatory Regime
Hong Kong’s Stored Value Facility (SVF) regime will come into full effect as of November 2016. Currently, a handful of licensees, including Octopus and Alipay Wallet, have already been authorised.
An SVF is the equivalent of the E-Money Institution in the European Union. As with an e-money institution, an SVF is required to ‘safeguard’ stored value and the licensing regime places a particular emphasis on ‘payment security’ and IT controls.
In the Hong Kong SVF framework, there is a carve out for closed-network stored value or limited-network stored value, although there are caps on these exemptions – formal licensing becomes necessary after HKD1m issued. In addition, the exemptions are partly discretionary allowing the regulator, the Hong Kong Monetary Authority (HKMA), to place additional conditions on exempt entities.
There are jurisdictional limits to the SVF regime. In section 13 of the explanatory notes the HKMA will consider a multitude of factors to determine if the stored value “appears to be issued in Hong Kong”. Part of these factors relate to establishment, location of marketing.
The HKMA expresses a slight concern about SVF businesses that are engaged in other business activities. They state that the “principal business of the applicant must be the issue of SVF”.
An add-on to the SVF license is that remittance and/or money changing services is in-built into the SVF licence meaning that an SVF will not need to apply for a separate licence from Hong Kong Customs and Excise (HKCE).
The capital requirements for a full licence is a HK$25m paid up share capital – compared to EUR350k base capital in the EU – which is not an insignificant sum. Other basic requirements include local executive directors, governance controls or reporting lines, internal controls and compliance or audit functions.