Chapter

Hong Kong

Author(s):
International Monetary Fund
Published Date:
June 1985
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Author(s)

Central business district, Hong Kong

Courtesy British Embassy, Hong Kong Office

Financial System of Hong Kong1

Introduction

Hong Kong Island was ceded by China to Britain in 1842 under the Treaty of Nanking, with the addition of Kowloon in I860. In 1898 the New Territories were leased from China for 99 years. The Colony was set up as an entrepôt for trade with the Chinese mainland and for most of its history such trade was the main economic activity. However, following the Korean conflict, Hong Kong diversified its economic activity. Export-oriented industries grew rapidly during the 1950s and 1960s until they assumed a dominant position.

The banking system is considerably less rigidly controlled than most. Entry of new banks was for many years virtually unrestricted and the several stock exchanges and the gold market were largely unregulated. However, there have been a number of legislative changes within the last two decades designed to introduce somewhat more control over the financial system.

The financial system comprises the Government of Hong Kong in its role as financial authority; the Financial Secretary as controller of the Exchange Fund (which is used for regulating the exchange value of the currency of Hong Kong); 115 commercial banks; 302 registered deposit-taking companies; 107 representative offices; the gold market, the 4 stock exchanges and assorted nonbank financial intermediaries, such as insurance companies, the commodity exchange, and money brokers. There is no development bank or central bank.

Financial Institutions

Government

As there is no central monetary authority the Government has, perforce, assumed some of the responsibilities of a central bank. The Financial Secretary and the Monetary Affairs Branch, which includes the office of the Commissioner of Banking, carry out functions which elsewhere might be the responsibility of a central bank. The issuance of banknotes is handled by two commercial banks. There is no official lender of last resort and the Government’s banking is handled, for the most part, by the Hongkong and Shanghai Banking Corporation.

Ultimate responsibility for financial affairs is vested in the Legislative Council, which consists of the Governor, 4 ex officio members (the Chief Secretary, the Attorney-General, the Secretary for Home Affairs, and the Financial Secretary), 17 official members, and 26 unofficial members. While this Council is responsible for financial affairs in Hong Kong, the U.K. Secretary of State for Foreign and Commonwealth Affairs retains a veto power when major decisions are involved. For practical purposes the Financial Secretary is the most important member of the Council when financial matters are concerned, and it is unlikely that the U.K. Secretary of State would overrule decisions of the Council.

A Banking Advisory Committee advises the Governor upon any matter connected with the Banking Ordinance or relating to banking or the carrying on of banking business. The Committee consists of the Financial Secretary, as Chairman, the Secretary for Monetary Affairs, the Commissioner of Banking, and between 4 and 12 other members appointed by the Governor.

The Governor appoints the Commissioner of Banking and can issue directives to both the Financial Secretary and the Commissioner. The Commissioner is responsible for the prudential supervision of the banking system and advising the Governor in Council on the licensing of banks. Under the Banking Ordinance the powers of the Commissioner and the Governor are widely drawn and the banks’ rights of appeal are limited.

Currency

Prior to 1935 Hong Kong was on a silver standard, as was China. When China left the silver standard in November 1935, Hong Kong soon followed suit. At that time Currency Ordinance No. 54 established what is now known as the Exchange Fund.

Exchange Fund Ordinance.—The key to understanding the procedure of currency note issuance in Hong Kong is the Exchange Fund Ordinance. The Exchange Fund is used for the purpose of regulating the exchange value of the Hong Kong currency and for the management of the official reserves. The Exchange Fund is managed by the Monetary Affairs Branch of the Government Secretariat under the Financial Secretary. Assets of the Exchange Fund may be held in domestic or foreign currency, gold or silver, and may be invested in securities. The Financial Secretary may borrow amounts for the account of the Exchange Fund up to such limit as may be established by the Legislative Council.2

The basic procedure of note issuance is set forth in sec. 4 of the Ordinance. In accordance with this provision, the Financial Secretary may issue to any note-issuing bank noninterest-bearing certificates of indebtedness in return for which the note-issuing bank must transfer to the Financial Secretary collateral equal to the face value of banknotes that the bank may then issue to the public. The collateral that has been transferred by the note-issuing bank to the Financial Secretary must be held by the Exchange Fund for the purpose of redeeming the banknotes issued to the public. However, the Financial Secretary may employ the funds paid to him as collateral by the note-issuing banks for the purpose of purchasing foreign exchange or gold. In order to obtain funds for redemption of the currency, the Financial Secretary may sell the foreign exchange or gold thus purchased.

Funds paid to the Financial Secretary to back the note issue are sold for foreign currencies when this can be done without disturbing the exchange rate. In practice, the note and coin issues are backed almost entirely by assets denominated in foreign currencies. The Exchange Fund’s assets do not arise only from the note issue as the Exchange Fund has now taken over the bulk of the assets, which represent the Government’s accumulated fiscal surpluses. In exchange for these assets, Exchange Fund debt certificates, which are denominated in Hong Kong dollars, have been issued. In 1979, the Exchange Fund Ordinance was amended so as to require banks which hold short-term deposits from the Exchange Fund to maintain an equivalent holding in specified liquid assets within the meaning of the Banking Ordinance.

The Exchange Fund Ordinance authorizes the Financial Secretary to make transfers to the general revenue fund of Hong Kong whenever the funds in his possession are in excess of 105 per cent of the sum of (a) total borrowings made by him under the Ordinance plus (b) the face value of the outstanding certificates of indebtedness that he has issued.

Hongkong and Shanghai Banking Ordinance.—Until 1978, there were two ordinances each of which applied to one of the note-issuing banks. The third note-issuing bank received its power in respect of note issue from its charter of incorporation (the Chartered Bank). Of the two ordinances, one specifically authorized the Mercantile Bank to issue banknotes. This was called the Mercantile Bank Note Issue Ordinance. It was repealed in 1978. Comparable, although not identical, provisions appear in the Hongkong and Shanghai Banking Corporation Ordinance, which is a general ordinance that applies to note issue as well as to the other activities of the Hongkong and Shanghai Banking Corporation. Mercantile Bank notes still in circulation are now the obligation of the Hongkong and Shanghai Banking Corporation.

Secs. 10 and 11 of the Hongkong and Shanghai Banking Corporation Ordinance provide the authority for that bank to issue banknotes. Sec. 11(1 and 2) authorizes a relatively small original issue not to exceed HK$30 million. As a cover for this issue, the Hongkong and Shanghai Banking Corporation must keep deposited with the Crown Agents, or with trustees appointed by the Secretary of State, approved securities not less in value than HK$30 million. Sec. 11(3) of this Ordinance authorizes the Hongkong and Shanghai Banking Corporation to issue banknotes in excess of the HK$30 million permitted under sec. 11(1 and 2) in accordance with the procedure contemplated by the Exchange Fund Ordinance.

Related ordinances.—Three other ordinances are relevant. The Foreign Notes (Prohibition of Circulation) Ordinance provides that the circulation of all bearer banknotes other than those issued by the named note-issuing banks is prohibited. The Bank Notes Issue Ordinance provides that all banknotes lawfully issued shall be legal tender and shall be deemed to be the currency of Hong Kong. A fine is provided for the unauthorized issue of banknotes payable to bearer. Finally, the Dollar and Subsidiary Currency Notes Ordinance authorizes the Financial Secretary to issue a small amount of low-denomination currency notes.

From 1935 to 1967 the currency was linked to sterling. After the sterling devaluation of November 1967 Hong Kong devalued by a smaller amount, breaking the informal link to sterling. (There was never a statutory link.) When the pound was floated in June 1972 the Hong Kong Government briefly switched to fixing the intervention rate in terms of the U.S. dollar, but when the U.S. dollar was devalued in February 1973 this link weakened and in November 1974 the Hong Kong dollar was allowed to float freely.

Before 1971 almost all of Hong Kong’s official foreign reserves were denominated in sterling. Since then diversification has taken place and in 1980 the Exchange Fund held less than 15 per cent of its reserves in sterling.

The Government of Hong Kong has the right to vary the currency issuance and, subject to formal approval by the U.K. Secretary of State for Foreign and Commonwealth Affairs, the external value of the dollar.

Commercial banks

Although nonbank financial intermediaries play an important role in the economy, the commercial banks are the dominant group of financial institutions in Hong Kong. Moreover, because of close links of some of the banks with the great trading companies and the willingness and ability of the banks to take equity stakes, even controlling interests, in industry and commerce, their influence upon the real economy is substantial.

The first bank in Hong Kong opened in 1859 (the Chartered Bank). It was quickly followed by several others, the most notable of which was the Hongkong and Shanghai Banking Corporation (established in 1865). By 1866, 11 banks were operating, but the banking crisis of the same year forced 6 of these to suspend payments. This pattern of “boom and bust” was to be repeated in future years.

For most of its history Hong Kong permitted the ready establishment of new banks. Entry into the banking business, as well as the opening of branches, continued to be relatively unrestricted until 1965. By the end of 1965 there were 91 banks with 94 branches, or a bank for every 28,000 people and a branch for every 27,000. After the 1965 banking crisis involving the failure of Canton Trust, the authorities declared a moratorium on the entry of new banks but not on the establishment of new branches by those banks already licensed. This moratorium applied until 1978, with the exception that a license was granted to Barclays Bank.3 Although the authorities refused to allow new banks to be established, the setting up of representative offices of foreign banks was not restricted. Between 1970 and 1975 the number of representative offices increased from 32 to 80 and, by the end of 1980, to 107. While these offices are not permitted to accept deposits in Hong Kong, they are able to facilitate offshore business.

The permission of the Governor in Council is required in order to transact banking business in Hong Kong and the authorities are able to impose conditions before granting a license to operate. Conceivably, the authorities might have been able to license new banks to carry out exclusively offshore banking or wholesale banking, as their counterparts have done in some other international financial centers. While some consideration was given to this in 1975, different ideas prevailed: from 1965 to 1978 foreign banks wishing to operate out of Hong Kong were forced either to rely upon representative offices or to establish or acquire finance companies. In a few instances, foreign banks, with the prior approval of the authorities, purchased substantial interests in the smaller local banks in order to gain entry. Since 1978 the authorities again began to license foreign banks albeit subject to certain conditions that are described subsequently. At the end of 1980, there were 115 banks in Hong Kong with over 1,200 branches.

Branching within Hong Kong is regulated by the Commissioner of Banking (with appeals permitted to the Governor in Council). While permission to branch has readily been given to indigenous banks, a policy of reciprocity has been applied to foreign banks in accordance with which they have had to show that Hong Kong banks would be able to open branches in their own jurisdictions. Branching abroad by banks incorporated in Hong Kong is legally subject to control.

Noteworthy among the provisions of the Banking Ordinance are the following:

(a) Each bank incorporated in Hong Kong is required to maintain a minimum capital of HK$100 million (secs. 8 and 20).

(b) All banks are required to report to the Commissioner of Banking. They must provide a monthly report on their assets and liabilities, a quarterly statistical return, and such further information as may be required by the Commissioner (sec. 38). In addition, powers of inspection and control are granted to the Commissioner (secs. 15 and 39).

(c) In accordance with sec. 27, acquisition of the share capital of other companies by a bank is allowed but it is not permitted to exceed, in aggregate, 25 per cent of the paid-up capital and reserves of the bank (although an exception is made for an affiliate engaged in a business related to banking). The aggregate of advances to directors, shareholdings, and investments in land is restricted by sec. 29 to 55 per cent of the paid-up capital and reserves (by including real estate adjudged by the Commissioner necessary to the conduct of the business of the bank and for providing housing and amenities for its staff, this percentage may equal 80 per cent).

(d) Although there are no minimum reserve requirements, banks are required by sec. 18 to satisfy a liquid assets ratio. The minimum holding of specified liquid assets was set at 25 per cent of deposit liabilities, with a subsidiary provision that primary liquidity (comprising cash, gold, call money, and demand deposits at other banks and deposittaking companies, as well as specified treasury bills) should not fall below 15 per cent of deposit liabilities.

(e) A bank incorporated in Hong Kong must appropriate to its published reserve out of the published profit of each year a sum equal to at least one third of such profit before declaring a dividend. Alternatively, it may appropriate a lesser sum so that the aggregate of its paid-up share capital and published reserve is not less than HK$200,000,000 (sec. 19). An additional restriction on distributions is found in sec. 21.

Maximum deposit rates are determined by a Committee of the Hong Kong Association of Banks. The Association was established in January 1981 and replaced the Exchange Banks’ Association. The prior association had been in existence since 1897 and from 1964 onward had administered a voluntary interest rates agreement. Membership in the new association is compulsory and its rules bind all of the commercial banks.

In 1980 the authorities enacted the Monetary Statistics Ordinance empowering the Government to collect detailed statistics from all banks and deposit-taking companies. Subsequently, the Commissioner of Banking was given further powers to inspect the operations of banks operating in Hong Kong. Moreover, under the Banking (Amendment) Ordinance 1982, he was empowered under Section 39A to allow examination by foreign banking supervisory authorities of Hong Kong branches, subsidiaries and representative offices of banks incorporated in their countries, as well as to provide information, at his discretion, to such authorities under sec. 53A. Disclosure of information relating to the affairs of individual customers is expressly prohibited.

The growth of banking business has more than matched the proliferation of banks and branches. Unfortunately, data are not available before 1954, but the figures for deposits and amounts due to banks have shown a substantial increase, especially during the 1970s, from HK$1 billion in 1954 to HK$6.5 billion in 1964, to HK$53 billion in 1974, and to HK$235 billion in 1980. Within this decade much of the impetus to the growth in deposits has come from offshore funds. In 1970 balances due to banks abroad equaled HK$2 billion (9 per cent of total liabilities); by 1980 this had increased to HK$118 billion (44 per cent of total liabilities).

The commercial banks may be divided into three categories:

Hongkong and Shanghai Banking Corporation and its subsidiaries.—This group is by far the most important single financial institution in Hong Kong: its deposits (including those of its subsidiary banks) make up a substantial proportion of total deposits; its currency issuance is about three fourths of the total; it operates the clearinghouse; it acts as banker to the Government; it has, on occasion, functioned as lender of last resort to both the banking system and to the domestic economy; it is the most important principal in the money market; and it plays a major role in determining interest rates.

The group in the thirty-third largest bank in the world. The Hongkong and Shanghai Banking Corporation had total worldwide assets at the end of 1980 amounting to some HK$239 billion,4 while the total assets of the Hong Kong offices of the licensed banks amounted to HK$268 billion. The Bank has substantial equity investments. Unlike the U.K. or U.S. banks, it has always been ready to acquire direct interests, even controlling ones.

The Bank owns several subsidiary banks in Hong Kong and elsewhere. It owned a controlling interest in one of the major trading companies, which it rescued, in much the same way as it acquired one of the local banks in 1965, and a substantial interest in the local airline. In 1980 the group purchased a major U.S. bank.

Although the Bank is still the most important commercial bank in Hong Kong, its relative importance has diminished partly as a result of intensified competition from foreign banks. At the same time, its international activities have expanded. While the Bank is in the last analysis a commercial undertaking, it has on occasion provided some of the functions usually carried out by a central bank. Thus, during the 1965 banking crisis—which saw runs on a number of the smaller Chinese banks—the Bank offered support to several of them.

Other domestic banks.—Besides the Hongkong and Shanghai Bank group, 40 other banks are organized under Hong Kong law. Of this number 13 are associated with the People’s Republic of China. The main business of the latter banks is servicing trade with and handling remittances to China and they account for about 40 per cent of domestic deposits.

Foreign banks.—There are 71 other banks that are foreign owned. They are a heterogeneous group, including the Chartered Bank (the second largest bank in terms of the number of offices which is registered in London), Malaysian and Bengali state banks, and the large international banks.

The major international banks are the most aggressive of the various foreign-owned banks. They have challenged the dominance of the Hongkong and Shanghai Banking Corporation. Generally “takers” on the interbank money market, they were the first to introduce certificates of deposit.

In contrast to the rest of the banks, many of the foreign banks are unused to taking equity positions as opposed to making advances, and, with the exception of the Chartered Bank, they lack a firm base of domestic deposits (partly because of their limited number of branches). Their interest lies more in Hong Kong’s position as a regional and offshore center than in the domestic economy alone.

Deposit-taking companies

Following the 1965 banking crisis a moratorium on the licensing of new banks was introduced which applied, with one exception, for the next 13 years. During this period the Hong Kong economy was buoyant and the Pacific area as a whole became a major growth area. Not surprisingly, therefore, pressures to circumvent the restriction upon entry became great. As mentioned before, some banks were satisfied to set up representative offices but for those that wished to handle onshore business there was another avenue available, namely, the formation of a finance company.

According to sec. 2 of the Banking Ordinance, “banking business” was defined as either:

(a) (i) receiving money on current, deposit or other similar account from the general public, and

  • (ii) paying and collecting cheques drawn by or paid in by customers, and

  • (iii) making advances to customers; or

(b) receiving money on savings account from the general public repayable on demand or within 3 months or at 3 months’ notice or less or both.5

One interpretation of this definition was that financial institutions that limited their acceptance of deposits to those having more than three months’ maturity were not deemed to be carrying out banking business, and were not, therefore, subject to the Banking Ordinance.

The result of this interpretation, together with the moratorium on the licensing of new banks, was that a multitude of finance companies carrying out a multifarious business was soon established. Merchant banks, in particular, found the establishment of a finance company an attractive way of entering the Hong Kong market as they were then free of the constraints of the Banking Ordinance (such as the limitations upon equity investments). Even some of the commercial banks already located in Hong Kong found it expedient to establish subsidiary finance companies in order to pursue such activities as consumer finance and merchant banking.

The Ordinance required deposit-taking companies to register with the Commissioner of Banking (who was also designated the Commissioner of Deposit-Taking Companies). The business of deposit-taking companies was distinguished from the definition of banking business as that term was defined in sec. 2 of the Banking Ordinance. Deposit-taking companies were not allowed to take deposits of less than a specified sum unless the depositor was a licensed bank or the depositor was an employee of the deposit-taking company, or where the amount standing to the credit of the depositor was not less than the sum stipulated when the deposit was made. Deposit-taking companies were not permitted to operate checking or savings accounts. The purpose of these prohibitions was to confine the small depositor to the commercial banks, whose activities were more closely regulated under the Banking Ordinance. By ensuring that only large and presumably sophisticated depositors would deal with the deposit-taking companies, the authorities reasoned that they would simultaneously fulfill their responsibility to protect the small depositor while sanctioning a more flexible type of operation for the deposit-taking companies. The latter might then be expected to contribute to the growth of Hong Kong as an important international financial center.

In line with this philosophy, the minimum paid-up capital required of deposit-taking companies was initially set at only HK$2.5 million and, in contrast to the treatment accorded banks, no liquid assets ratio was required; neither was a limitation placed on their owning equity investments. While the companies were required to register with the Commissioner of Banking and to submit to him an annual report, they were not subjected to the system of prudential supervision that mandated monthly reports from the banks and made the latter subject to periodic inspection by the Commissioner.

As previously noted, the idea of promoting deposit-taking companies supplanted a proposal to issue restricted licenses to new banks in order to limit their activities to spheres not involving retail banking. The idea of differentiating commercial banks from other financial institutions caught on and in 1981 there were 302 companies registered under the Deposit-Taking Companies Ordinance. These companies comprise a heterogeneous group. While many of them are fully functioning merchant banks carrying on loan syndication and underwriting business both within and outside Hong Kong, others are involved in small-scale hire-purchase and consumer finance business.

Faced with a moratorium on the granting of licenses under the Banking Ordinance, a number of the major international banks established a presence in Hong Kong by registering under the new Ordinance. An anomaly soon became apparent. Only companies that carry on banking business and hold a valid banking license can use the word “bank” in their titles. The effect of this was that those major international banks whose titles did not include the prohibited word could and did merely register and operate branches under the Ordinance. In contrast, those foreign banks whose titles did include the word “bank” were forced to open subsidiaries under the Ordinance with titles similar to those of the parent but without the offending word. In a number of ways, the former method of operation accorded advantages over the latter. Aside from tax and other advantages that might derive from the law of the country in which the parent was incorporated, the Deposit-Taking Companies Ordinance, itself, created disparities. Thus, its limit on the size of a loan that can be made to an individual borrower is predicated on the amount of the deposit-taking company’s paid-up capital and reserves. Since the size of a Hong Kong subsidiary is unlikely to exceed that of the parent, larger loans may, as a rule, be made through a branch than through a subsidiary. Accordingly, an international bank that had registered a branch under the Ordinance would be in a position to undertake loans of a greater amount than would a similar bank that had been required to establish a Hong Kong subsidiary.

It was not long before pressure began to build for a review of the situation. Of course, it did not proceed merely from those who perceived inequity in the disparities that had developed among the deposit-taking companies. The commercial banks, noting the impressive growth of the companies and facing the resulting competition from them in various areas in which their activities overlapped, argued that certain requirements of the Banking Ordinance should be extended to the companies. In particular, the commercial banks felt that the application of the liquidity requirements to their own activities required them to keep a substantial proportion of their assets in relatively unprofitable assets while the exemption of the deposit-taking companies from this requirement allowed the latter a competitive edge.

The authorities also began to have second thoughts concerning the system. Several factors entered into their thinking. In the first place, they had come to view the debate over subsidiaries and branches of foreign banks in a different perspective. Many depositors appeared to act on the belief that, other things being equal, it would be safer to place deposits with the branch of a foreign bank than with a local subsidiary. These depositors reasoned that in the event they encountered difficulties in withdrawing their deposits from the branch in Hong Kong, they would be able to set up their claims against the home office abroad. The responsibility of a parent for the debts of its Hong Kong subsidiary might be less clear. If this line of reasoning proved correct, then the provisions of the Deposit-Taking Companies Ordinance that required many foreign banks to establish subsidiaries rather than branches in Hong Kong did a disservice to the interests of depositors.

In the second place, finding that deposit-taking companies were to a substantial degree dependent on the commercial banks for their sources of funds, the authorities began to be persuaded that their duties to bank depositors required an extension of the system of prudential supervision to deposit-taking companies. This concern was borne out when, after a precipitous decline in the stock market, a run developed on an important finance company and the company required increased financial support from the Hongkong and Shanghai Banking Corporation.

Finally, the authorities had become convinced that the deficiencies of the banking system that had become apparent in 1965 had largely been overcome during the intervening years. They attributed the changes in the atmosphere basically to two causes. Not only had the requirements of prudential supervision worked to ensure banking safety, but there had been an impressive growth of the total assets of licensed banks. These assets had grown from HK$12 billion to HK$100 billion during the period of the moratorium.

In the end, the authorities decided (1) to repeal the moratorium on banking licenses, (2) to extend the system of prudential supervision to the deposit-taking companies, and (3) to make a liquidity requirement applicable to these companies.

Foreign banks, once again, were allowed to open full branches in Hong Kong. The authorities, however, imposed three general criteria. First, applicant banks had to be incorporated in countries whose monetary authorities exercise effective supervision and have, if necessary, approved the establishment by the applicant of a branch in Hong Kong. Second, the applicant bank had to have assets in excess of the equivalent of US$3 billion. Third, the Hong Kong authorities had to be satisfied that some form of reciprocity was available in the applicant’s country of incorporation to Hong Kong banks seeking entry there. If these criteria were met and a license was granted, the successful applicant was limited to the establishment of a single office in Hong Kong. The matter is currently governed by Section 12A of the Banking Ordinance which requires the approval of the Commissioner of Banking for the establishment of a branch, while Section 12C governs the establishment of a representative office by a bank incorporated outside Hong Kong.

Following a series of amendments culminating in the Deposit-Taking Companies (Amendment) Ordinance 1982, the law governing these companies has changed substantially. A distinction is now made between a registered and a licensed deposit-taking company. The former may not take a short-term deposit from any person other than a bank or another deposit-taking company. By contrast, a licensed deposit-taking company may accept short-term deposits. A short-term deposit is one with an original maturity (or period of call or notice) of less than three months. Only a registered deposit-taking company can become licensed and thereafter it ceases to be a registered company. The two have different capital requirements and pay different fees to the authorities. All deposit-taking companies must submit monthly reports on their financial condition, must open their books for regular inspection and are now subject to a liquidity ratio. They are required to build a reserve position before declaring dividends, are limited in the amount of credit that they may extend to any single borrower, and are subject to a limitation on the acquisition of share capital in another company. The 1982 amendments to the law introduce provisions for the prudential supervision of activities carried on outside Hong Kong by deposit-taking companies incorporated in Hong Kong. Moreover, they permit the Commissioner, if he considers that it would be in the interest of the depositors, to disclose to a recognized banking supervisory authority outside Hong Kong information relating to the affairs of a deposit-taking company incorporated in the jurisdiction of that authority and of a deposit-taking company incorporated in Hong Kong which has or is proposing to establish in that jurisdiction a foreign branch, representative office, subsidiary or associate. Moreover, the law permits, with the approval of the Commissioner, the examination by such an authority outside Hong Kong of the books, accounts and transactions of a deposit-taking business in Hong Kong and of a subsidiary in Hong Kong of a bank or other deposit-taking institution which is incorporated in the jurisdiction of the foreign authority.

Deposit-taking companies have grown apace. At the end of 1978 their deposits from the public accounted for HK$11 billion of the broad money supply (14 per cent of the total), while by the end of 1980 their deposits had grown to HK$43 million (31 per cent of the total). In terms of total assets/liabilities the growth was equally striking. Between the end of 1978 and 1980 their total assets/liabilities grew by 148 per cent to HK$130 billion, which compares favorably with HK$268 million for the commercial banks. Much of the growth may be ascribed to the flexibility of the deposit-taking companies concerning interest rates. Unlike the commercial banks they have never been subject to an interest rates agreement. Moreover, for much of their existence they have not been subject to liquidity requirements. They were, therefore, able to compete effectively with the banks. This, in turn, led many of the banks to open their own subsidiary deposit-taking companies.

Other financial institutions

Besides the institutions already mentioned, there are a number of other nonbank financial institutions serving both the domestic economy and offshore business.

(a) The Commodities Exchange started operations in May 1977. It is international in scope and is closely regulated (under the Commodities Trading Ordinance of 1976).

(b) There are a large number of life insurance companies, as well as a multitude of general insurance companies. Many of the insurance companies are branches of major international firms; however, there are also a number of small locally incorporated companies. There is little regulation of insurance operations, apart from a minimum security deposit of HK$50,000. The Government plans to introduce legislation to regulate more closely the insurance industry in Hong Kong.

(c) There is a limited number of mutual funds and unit trusts. As of December 1979, 59 such companies were registered with the Securities Commission. However, most of these specialize in foreign shares rather than in Hong Kong shares and their assets are not substantial.

(d) While there is no development bank, there are several quasi-governmental entities whose activities impinge upon financial markets. The most important of these is the Mass Transit Railway Authority. The Authority was established in 1975 with an authorized capital of HK$2 billion (HK$800 million for subscription by the Government). Additional funds were provided by the domestic and international capital markets and the impact upon the domestic securities market was substantial.

It might appear that there is a dearth of certain specialized financial institutions, such as discount houses and development banks. From a functional standpoint, however, the banks and many of the finance companies perform services ordinarily associated with such institutions. They carry out universal rather than specialized banking, thus obviating much of the need for narrowly specialized financial institutions.

As the Government has followed a minimalist philosophy where its own actions are concerned, there has not been a proliferation of government-owned financial institutions.

Markets

Money and capital markets

Unfortunately there is a lack of published data concerning monetary flows within the Hong Kong financial system. Data has traditionally been gathered from the banks alone, with little attempt to trace flows of funds to other financial institutions. Moreover, the reports of the banks are less than revealing, particularly where the division between foreign and domestic business is concerned. For example, until recently there was no breakdown between deposits of residents and nonresidents or between foreign currency and Hong Kong dollar assets and liabilities. Despite this paucity of data, a few points may be made.

Money market.—There is a marked lack of money market instruments in Hong Kong and for the most part the market has been an interbank one. However, with the growth in importance of the deposit-taking companies, transactions between banks and these companies have become increasingly important.

The main characteristics of the money market are the increasing internationalization of the market and, as has previously been noted, the rapid increase in transactions between the licensed deposit-taking companies and the banks.

In 1964 balances due by Hong Kong banks to banks abroad amounted to a half a billion Hong Kong dollars (6 per cent of total liabilities). By 1974 these balances had grown to HK$l6 billion (25 per cent of total liabilities) and at the end of 1980 they amounted to HK$118 billion (44 per cent of total liabilities). A similar breakdown for assets is only available from 1978. Foreign assets, largely in the form of claims on banks abroad, accounted at the end of 1980 for HK$130 billion (48 per cent of total assets).

Data on the banks’ positions vis-à-vis the deposit-taking companies have also only been available since 1978. In 1978 banks held HK$7 million of balances with deposit-taking companies but had a net liability position of a half a billion Hong Kong dollars. By the end of 1980 balances of banks with deposit-taking companies had grown to HK$21 billion (8 per cent of total assets of banks) but balances of deposit-taking companies with banks had grown even more rapidly to HK$29 billion (11 per cent of the banks’ total liabilities). The deposit-taking companies have thus been a net supplier of funds to the commercial banking system, while the banks, in turn, channel funds to and from abroad. The flows to and from abroad reflect both the international character of many of the banks and the process of maturity transformation of funds by the banks, while the flow of funds from the deposit-taking companies reflects their ability to tap local deposit sources.

Capital market.—In its broadest sense the capital market is the complex of institutions and channels whereby surplus and deficit financial units are brought together, rather than simply the market for stocks and bonds. In Hong Kong, although the latter market appears to be relatively unimportant as a means of domestic finance, a high rate of investment has nevertheless occurred.

The stock exchanges have seen a great deal of speculation. In 1972 alone HK$2.8 billion of new issues were launched, an amount equal to almost half of gross capital formation. However, the market fluctuated erratically and many of the new issues do not appear to have contributed to productive investment.

Similarly, the bond market has for many years been almost moribund, partly because of the reluctance of both companies and the Government to raise funds via this avenue. Although the bond market remains small, some major companies have issued convertible debentures and the Government and the Mass Transit Railway have floated issues, although the Government has not retired its bond issues.

An additional factor militating against the issuance of bonds on the domestic market has been an interest withholding tax. Because of this tax it has been more attractive to fund projects offshore. However, several borrowers have taken advantage of a loophole in the taxation system and have issued “offshore bonds” denominated in Hong Kong dollars. Over HK$750 million was raised in this manner in 1977. To the extent that the final borrowers are not located in Hong Kong—the Canadian province of Manitoba raised HK$150 million—there might be some “crowding out,” as the absorptive capacity of the market is limited. Moreover, the authorities have evinced some wariness where internationalization of the Hong Kong dollar is concerned.

For the most part, the domestic capital market is still dominated by the banking system perhaps because the banks have traditionally been willing to provide longer-term investment financing as well as shorter-term trade financing.

Stock exchanges

The Hong Kong Stock Exchange was established in 1891 and for most of the subsequent 70 years enjoyed a monopoly. In 1969, the Far East Exchange was set up, and in 1971 and 1972, respectively, the Kam Ngan and Kowloon Stock Exchanges began trading. The authorities have viewed the dispersal of stock exchange business among four markets as undesirable. On August 7, 1980 the Stock Exchanges Unification Ordinance was promulgated. It provides that the Stock Exchange of Hong Kong Limited (which was incorporated on July 7, 1980) will become the sole stock exchange upon a date to be prescribed by the Financial Secretary within three years from the commencement of the Ordinance.

Until 1973 the stock market was essentially unregulated and speculative surges swept share prices to excessive heights. For example, by March of 1973 the Hang Seng index of share prices had reached 1,775; in the subsequent collapse of the market the index fell to 150. Later prices rose again, the average for September 1977 being 417. Turnover paralleled price developments to some extent. In 1973 the total turnover of the four stock exchanges reached HK$48 billion, but in subsequent years fell to less than a fourth of that amount, and in 1977 was even more depressed, decreasing to HK$285 million in August. However, by 1980 the turnover had risen to HK$96 billion.

The collapse of the speculative boom led to demands for closer regulation of the stock market. The Securities Ordinance and the Protection of Investors Ordinance were introduced and both became effective in 1974. The Securities Ordinance set up a Securities Commission with a Commissioner to regulate dealings in securities. The Protection of Investors Ordinance provides for regulation of prospectuses and advertisements. As the two ordinances were viewed as a useful first step, there has been continuing review of related matters.

Although its turnover makes the Hong Kong stock market the second largest in the Pacific area after Tokyo, its contribution to domestic investment financing is less clear. The number of new issues has been limited and, as a source of major financing, the market has diminished in importance relative to bond issues and direct loans. However, the internationalization of the market has increased substantially. A number of foreign stockbroking firms are represented in Hong Kong and it is possible that the major contribution of the stock market may be to Hong Kong’s position as a regional financial center rather than to the domestic economy.

Gold markets

The Hong Kong gold market has been an important regional market often acting as a conduit for flight capital. In effect, there are two markets: the Gold and Silver Exchange Society, which is limited in its membership and deals exclusively in “tael” bars that are not accepted as “good delivery” by western gold markets; and a standard bullion market, with complete freedom since 1974 for residents and nonresidents to deal in gold. The latter has expanded rapidly and because of Hong Kong’s favorable time zone, it has played an important price-setting role. While turnover has fluctuated widely, it is among the four largest in the world.

Offshore Finance

In a sense, Hong Kong’s offshore and onshore financial markets are indivisible. Until recently statistics of Hong Kong financial institutions did not differentiate between Hong Kong dollar assets and liabilities and those denominated in foreign currency; neither did they identify assets and liabilities relating to residents and nonresidents. This lack of data partially may be the result of the lack of exchange controls, as well as the laissez-faire attitude of the authorities. In analyzing the system, however, it is useful to differentiate between offshore and onshore financial markets.

Until the late 1960s Hong Kong was the major regional financial center for southeast Asia. Since then Singapore has emerged as its major challenger, while Manila is taking measures designed to attract international business. Tokyo—potentially the most important competitor of all—has maintained a relatively closed market.

Hong Kong has not, unlike some other centers, offered special inducement to financial institutions to engage in offshore business. Nonetheless, it has managed to maintain a high rate of growth in foreign business. Between 1968 and 1980 the liabilities of Hong Kong banks to foreign banks grew from US$234 million to US$22.96 billion.

Offshore banking is at present virtually unregulated in Hong Kong. Banks that transact offshore business are subject to the Banking Ordinance and merchant banks have been, since 1977, subject to the Deposit-Taking Companies Ordinance, but these two ordinances, as discussed earlier, are not restrictive. Indeed, there is little or no distinction drawn between onshore and offshore business since there is no exchange control and the authorities have never tried to compartmentalize the market.

In 1978 a change in the fiscal regime was made in Hong Kong that, arguably, may influence the course of some of its offshore business. Hong Kong had traditionally applied a 15 per cent interest withholding tax on interest paid to residents and nonresidents but had not imposed a profits tax on offshore business, as such. Accordingly, in the past, it had sometimes been found expedient to book transactions in financial centers other than Hong Kong even if the transactions, in fact, had originated and were managed in Hong Kong. In this way, the interest withholding tax was bypassed.

As a consequence of a change made in 1978 to the Inland Revenue Ordinance offshore interest income of banks and deposit-taking companies is now subject to taxation in Hong Kong. Before the change, the profits tax charge had been limited to profits satisfying a double test. The first test was that the profits had to have arisen from the carrying on of a trade, profession, or business in Hong Kong. The second test was that the profits themselves had to have arisen in or been derived from Hong Kong. No particular way of determining where interest arose or whence it was derived was provided in the Ordinance, and the Commissioner for Inland Revenue had traditionally applied a test based on the place where the credit was made available to the borrower. It was thus possible for banks and deposit-taking institutions to carry out all necessary operations in Hong Kong and yet escape the profits tax by making the credit available outside Hong Kong. The Ordinance was amended to close this loophole, so that profits derived from interest are subject to the profits tax when it arises through, or from, the carrying on by a bank or deposit-taking company of business in Hong Kong, regardless of whether the credit is made available elsewhere. The rate is currently chargeable at 17 per cent.

Much controversy was generated in the financial community as to whether this change in the tax law was likely to lead to a flight of offshore business from Hong Kong to other financial centers. It was the view of the authorities that this was not likely to occur.

Bank Notes Issue Ordinance 1

To regulate the issue of bank notes and to provide for certain notes being legal tender and for purposes ancillary thereto.

[20th March, 1895]

Short title.

1. This Ordinance may be cited as the Bank Notes Issue Ordinance.

Interpretation.

2. In this Ordinance, unless the context otherwise requires—

“bank” includes any person, partnership, or company carrying on the business of banking within the Colony;

“bank notes lawfully issued” means notes issued in the Colony by any of the note-issuing banks in accordance with the provisions of The Hongkong and Shanghai Banking Corporation Ordinance and the charter of incorporation of The Chartered Bank, or any supplemental charter of that bank, or issued in accordance with the above-mentioned provisions as modified by the Exchange Fund Ordinance, or by this Ordinance;

“note-issuing bank” means The Chartered Bank, and The Hongkong and Shanghai Banking Corporation.

Notes to be legal tender and the currency of the Colony.

3. As from the 6th December 1935, all bank notes lawfully issued shall be legal tender in the Colony to any amount and any liability to pay silver currency may be discharged in such notes and in particular every bank note lawfully issued shall be deemed to be the currency of the Colony for the purpose of any promise to pay printed on such note.

Issue of bank notes.

4. (1) It shall not be lawful for any bank to make, issue, or circulate within the Colony bank notes payable to bearer on demand, except with the sanction of the Secretary of State signified through the Governor.

(2) This section shall not affect any right or privilege possessed by any bank under Royal Charter or Ordinance of issuing or reissuing within the Colony bills or notes payable to bearer on demand.

(3) If any bank makes, issues or circulates within the Colony any bank notes payable to bearer on demand in contravention of the provisions of this section, it and its principal manager or agent in the Colony and each of the partners (if any) therein shall be liable on summary conviction to a fine of $5,000, and in the case of a second or subsequent conviction to imprisonment for 3 months and to a fine of $5,000:

Provided that if the offender be a body corporate it shall be liable on a second or subsequent conviction to a fine of $10,000.

(4) For the purposes of this section “bank note payable to bearer on demand” means a bill of exchange or promissory note, issued by any bank, payable to bearer on demand.

5. [Replaced, 21 of 1978, s. 2]

Saving.

6. Nothing in this Ordinance shall affect or be deemed to affect the rights of Her Majesty the Queen, Her Heirs or Successors, or the rights of any body politic or corporate or of any other persons except such as are mentioned in this Ordinance and those claiming by, from or under them.

Foreign Notes (Prohibition of Circulation) Ordinance 1

To prohibit the circulation of foreign notes.

[1st August, 1913]

Short title

1. This Ordinance may be cited as the Foreign Notes (Prohibition of Circulation) Ordinance.

Interpretation.

2. In this Ordinance, unless the context otherwise requires—

“note” includes all promissory notes made by a banker, payable to bearer on demand, and intended to circulate as money, and also all deeds, papers or parchments, written or printed, or partly written and partly printed, by whomsoever issued, purporting to be or to represent money and intended to circulate as money.

Circulation of notes prohibited save in certain authorized cases.

3. The circulation of all kinds of notes other than those of The Hongkong and Shanghai Banking Corporation, the Chartered Bank and Mercantile Bank Limited is prohibited.

Penalty for unlawful circulation of notes;

4. (1) Any person who circulates or attempts to circulate any note or notes the circulation of which is prohibited by this Ordinance shall be liable on summary conviction to a fine of twenty-five dollars, and the note or notes so circulated or attempted to be circulated shall be forfeited.

(2) For the purposes of this section, a person shall be deemed to circulate notes if he tenders, utters, buys, sells, receives or pays them, or puts them off: Provided that—

circulation defined.

  • (a) a person shall not be deemed to circulate notes if he gives or receives such notes to or from a bona fide banker or licensed money-changer in exchange for other notes or coin or for any other purpose;

  • (b) this section shall not be construed so as to prevent or restrict the legitimate business of a bona fide exchange banker or licensed money-changer.

Provisions for addition to authorized exemptions from Ordinance.

5. Whenever a notification appears in the Gazette under the hand of the Colonial Secretary to the effect that the issue of notes other than those specified in section 3 has been sanctioned by Royal Charter or Ordinance, then such notes shall be exempted from the provisions of this Ordinance in the same manner as those specified in the said section.

Exchange Fund Ordinance1

To make provision for the establishment and management of an exchange fund and as to the employment of its assets in Hong Kong.

[6th December, 1935]

Short title.

1. This Ordinance may be cited as the Exchange Fund Ordinance.

Interpretation.

2. In this Ordinance, unless the context otherwise requires—

“bank notes lawfully issued” means notes issued in the Colony by any of the note-issuing banks in accordance with the provisions of The Hongkong and Shanghai Banking Corporation Ordinance and the charter of incorporation of The Chartered Bank or any supplemental charter of that bank, or issued in accordance with the above-mentioned provisions as modified by this Ordinance, or the Bank Notes Issue Ordinance;

“foreign exchange” means all currencies other than Hong Kong currency and includes sterling and other Commonwealth currencies;

“note-issuing bank” means The Chartered Bank, and The Hongkong and Shanghai Banking Corporation.

Establishment control and management of Exchange Fund.

3. (1) There shall be established a fund to be called “the Exchange Fund” which shall be under the control of the Financial Secretary and shall be used for the purpose of regulating the exchange value of the currency of Hong Kong. The control of the Financial Secretary shall be exercised in consultation with an Exchange Fund Advisory Committee of which the Financial Secretary shall be ex officio chairman and of which the other members shall be appointed by the Governor.

(2) The Fund, or any part of it, may be held in Hong Kong currency or in any other currency or in gold or silver or may be invested by the Financial Secretary in securities approved by the Secretary of State; and the Financial Secretary may for the account of the Fund buy or sell such currency or gold or silver or securities accordingly.

(3) Subject to subsection (4), the Financial Secretary may borrow for the account of the Fund either in Hong Kong or elsewhere on the security of any asset held by the Fund or on the general revenue of the Colony.

(4) The aggregate amount of borrowing under subsection (3), other than on certificates of indebtedness issued under section 4, outstanding at any one time shall, subject to subsection (5), not exceed thirty thousand million dollars, or, if held in foreign exchange, the equivalent at the current rate of exchange.

(5) The Legislative Council may from time to time, by resolution proposed by the Governor with the approval of the Secretary of State, determine some other amount to be the amount which the aggregate amount of such borrowings outstanding at any one time shall not exceed.

Certificates of indebtedness.

4. (1) The Financial Secretary is authorized to issue to any note-issuing bank, to be held as cover for bank notes lawfully issued in the Colony, certificates of indebtedness in the form in the Schedule and to require such bank to pay to him for the account of the Fund the face value of such certificates to be held by the Fund exclusively for the redemption of such notes.

Schedule.

(2) The Financial Secretary may employ the funds paid to him in accordance with subsection (1), for the purchase of foreign exchange or gold or otherwise in accordance with the provisions of section 3(2).

(3) The Financial Secretary may apply the proceeds of the sale of foreign exchange or gold for Hong Kong currency in accordance with section 3(2) to the redemption of certificates issued under subsection (1).

Section 18 (2A) of Banking Ordinance applied to short term bank deposits of Fund.

4A. (1) Subsection (2A) of section 18 of the Banking Ordinance shall apply to funds held by a bank in Hong Kong for the account of the Fund—

  • (a) on demand; or

  • (b) as money at call; or

  • (c) as money at short notice,

as if they were respectively balances payable on demand, money at call and money at short notice due by that bank to another bank in Hong Kong, and subsection (3) of the said section 18 shall also have effect accordingly.

(2) Notwithstanding subsection (5) (a) of the said section 18, funds of a kind mentioned in subsection (1) which are held by a bank in Hong Kong for the account of the Fund shall not be treated as deposit liabilities of that bank for the purposes of subsection (2) of that section.

(3) In this section, “bank”, “money at call” and “money at short notice” have the respective meanings assigned to them by section 2 of the Banking Ordinance.

Preservation of limits on note issue.

5. Nothing in this Ordinance shall empower any note-issuing bank to issue notes in excess of any maximum limit laid down in any Ordinance or charter governing the issue of such notes, and in issuing certificates under this section the Financial Secretary shall take into account such maximum limits.

Charges on Fund.

6. There shall be charged to the Fund—

  • (a) expenses incidental to the remuneration, cost of passages and superannuation in respect of officers employed in connexion with the management of the fund including any appropriate share of such expenses in respect of the services of officers of the Government so employed as part of their duties:

    Provided that the number of the appointments and the rates of emoluments of such staff have been approved by the Governor and the Secretary of State; and

  • (b) any incidental expenditure which the Governor may approve as necessary for the due performance of the duties laid upon the Financial Secretary and the Advisory Committee in connexion with the operation of the fund.

Audit of Fund.

7. The accounts of all transactions of the Fund shall be audited at such times and in such manner as the Secretary of State may from time to time direct.

Transfer from the Fund.

8. The Financial Secretary may from time to time, after consultation with the Exchange Fund Advisory Committee and with the approval of the Secretary of State, transfer from the Fund to the general revenue of the Colony or to such other funds of the Colony as may be authorized by the Secretary of State any sum, or any part of any sum, in excess of the amount required to maintain the assets of the Fund at 105 per cent of the total of—

  • (a) the aggregate of the borrowings made under section 3 and for the time being outstanding; and

  • (b) the aggregate of the face value of the certificates of indebtedness issued under section 4 and for the time being outstanding,

and may for such purpose realize any of the assets of the Fund.

Schedule

[s. 4(1).]

exchange fund ordinance

Certificate of Indebtedness for $…………

This certificate issued under the Exchange Fund Ordinance (Chapter 66) represents indebtedness of the Hong Kong Government without interest to ………… Bank for the amount of ………… dollars and is redeemable at any time at the option of the Financial Secretary.

This certificate may be held up to the above-mentioned amount as cover for bank notes lawfully issued in the Colony.

Financial Secretary.

HONG KONG,

, 19

Dollar and Subsidiary Currency Notes Ordinance 1

To provide for the demonetization of five cent, ten cent and one dollar currency notes and for the consolidation of the law in respect of the issue of limited legal tender currency notes.

[1st September, 1969]

Short title.

1. This Ordinance may be cited as the Dollar and Subsidiary Currency Notes Ordinance.

Five cents, ten cents and one dollar currency notes cease to be legal tender.

2. (1) All five cents and ten cents currency notes issued by the Financial Secretary under section 2 of the repealed Subsidiary Currency Notes Ordinance 1941 shall cease to be legal tender in Hong Kong from the commencement of this Ordinance.

(2) All one dollar currency notes issued by the Financial Secretary under section 2 of the repealed Dollar Currency Notes Ordinance 1935 shall cease to be legal tender in Hong Kong from the commencement of this Ordinance.

Assets of the note security funds to be transferred to the general revenue.

3. (1) All assets of the Subsidiary Note Security Fund established by the Financial Secretary under section 3 of the repealed Subsidiary Currency Notes Ordinance 1941 shall be transferred to the general revenue of Hong Kong.

(2) All assets of the note security fund established by the Financial Secretary under section 4 of the repealed Dollar Currency Notes Ordinance 1935 shall be transferred to the general revenue of Hong Kong.

Financial Secretary may issue one cent, five cents and ten cents currency notes.

4. (1) The Financial Secretary may issue in Hong Kong one cent, five cents and ten cents currency notes, which shall be legal tender for the payment of any amount not exceeding—

  • (a) one dollar in the case of one cent notes; and

  • (b) two dollars in the case of the five cents notes and the ten cents notes:

Provided that the total amount of the currency notes issued under this section which are in circulation shall not exceed ten million dollars.

(2) All one cent currency notes issued under section 2 of the repealed Subsidiary Currency Notes Ordinance 1941 shall be deemed to have been issued under subsection (1) of this section.

Revenue from the issue of notes to be credited to general revenue and expenses in connexion with such issue to be met from general revenue.

5. (1) All moneys which are received as a result of the issue of any currency notes under section 4 shall be credited to the general revenue of Hong Kong.

(2) All expenses which are incurred in connexion with the issue of any currency notes under section 4 shall be paid from the general revenue of Hong Kong.

Five cents, ten cents and one dollar currency notes may be redeemed at face value from general revenue.

6. The holder of any five cents currency note, ten cents currency note or one dollar currency note which, under section 2, has ceased to be legal tender in Hong Kong shall, on surrendering the currency note to the Director of Accounting Services after the commencement of this Ordinance, be paid from the general revenue of Hong Kong an amount in legal tender equal to the face value of the surrendered currency note.

Demonetization of currency notes issued under section 4.

7. (1) The Financial Secretary may from time to time demonetize any currency note issued under section 4.

(2) Notice of the demonetization of any currency note by the Financial Secretary under subsection (1) shall be published in the Gazette and the currency note shall cease to be legal tender in Hong Kong from the date specified in the notice.

(3) The holder of any currency note demonetized by the Financial Secretary under subsection (1) shall, on surrendering the currency note to the Director of Accounting Services after the date specified in a notice published under subsection (2), be paid from the general revenue of Hong Kong an amount in legal tender equal to the face value of the demonetized currency note.

Annual publication of total face value of currency notes issued and in circulation.

8. The total face value of all one cent, five cents and ten cents currency notes which—

  • (a) are issued under this Ordinance; and

  • (b) are currency in circulation,

shall be published annually in the Gazette.

The Hongkong and Shanghai Banking Corporation Ordinance1

To amend the constitution of The Hongkong and Shanghai Banking Corporation.

[17th May, 1929]

1. This Ordinance may be cited as The Hongkong and Shanghai Short title. Banking Corporation Ordinance.

Interpretation.

2. In this Ordinance, unless the context otherwise requires—

“auditor” means auditor of the bank;

“bank” means “The Hongkong and Shanghai Banking Corporation” created by virtue of the provisions of the Hongkong and Shanghai Bank Ordinance 1866, and continued by this Ordinance;

“board” means board of directors and (if the context so requires) means the directors assembled at a meeting of the board;

“capital” means the share capital for the time being of the bank;

“chairman” means the chairman or his deputy presiding at any meeting of shareholders or of the board; “

chief accountant” means the person for the time being performing the duties of chief accountant of the bank at the head office;

“chief manager” means the person for the time being performing the duties of chief manager, and “acting chief manager” means the person for the time being performing the duties of acting chief manager of the bank;

“court” means the Supreme Court of the Colony and includes any judge or judges thereof, sitting either together or separately, in court or in chambers;

“directors” means the directors for the time being of the bank or (if the context so requires) directors present and voting at a meeting of the board;

“dividend” includes any interim dividend, bonus or profits on any share;

“dollar” means dollar in Hong Kong currency;

“general meeting” means a general meeting of shareholders;

“head office” means the principal place of business in the Colony for the time being of the bank;

“incapacitated shareholder” means a shareholder being an infant, or an idiot or lunatic, or non compos mentis, or a bankrupt or one whose estate has, by the operation of law, become vested in any other person or persons in trust for or for the benefit of his creditors;

“Ordinance” or “the Ordinance” means this Ordinance;

“ordinary resolution” means a resolution of a simple majority of shareholders at a general meeting;

“person” includes a firm, company or corporation;

“regulations” means the regulations of the bank for the time being in force;

“share” means share in the share capital of the bank;

“shareholder” or “holder of a share” or “holder of any share” means every person whose name is entered in any register of shareholders of the bank as a holder of any share or shares.

Incorporation.

3. Notwithstanding the repeal of the Hongkong and Shanghai Bank Ordinance 1866, the bank shall continue to be incorporated by the name of “The Hongkong and Shanghai Banking Corporation”, and by that name shall and may sue and be sued in all courts, and in that name shall continue to have perpetual succession, with a common seal which it may vary and change at its pleasure:

Provided that there shall be no limit whatever to the period of incorporation.

Regulations of the bank;

ordinance and regulations binding on all persons;

4. (1) The regulations are hereby substituted for and shall replace the deed of settlement dated the 20th July 1867, and all the articles contained therein and any amendments thereof, and shall be for all purposes the regulations of the bank, and this Ordinance and the regulations shall be binding in all respects upon the bank and upon all persons whatsoever, whether shareholders or not, and shall regulate the rights and liabilities of all the above persons inter se, their heirs, executors, administrators, assigns or successors.

power to amend regulations;

(2) At any time and from time to time it shall be lawful for the shareholders by special resolution to amend the provisions of the regulations or any of them:

Provided that no such amendment shall be valid or have any force or effect until it has been approved by the Governor and published in the Gazette. Any such power to amend as aforesaid includes the power to amend, vary, rescind, revoke or suspend any regulation or any part thereof and the power to make any new regulation.

proof of regulations.

(3) A copy of the regulations and of any such special resolution to amend, purporting to be certified by the Colonial Secretary to be a correct copy, shall be received in all courts of justice, and for all purposes, as valid and sufficient evidence of the contents of the regulations and of the fact that such regulations have been duly approved and published in the Gazette.

Objects of the bank and conduct of its business;

5. (1) The objects of the bank shall be the carrying on the business of banking and as ancillary thereto the other businesses and objects set forth and contained in regulation 3 of the regulations, and the bank shall be at liberty to continue, commence, carry on and effect all or any of its objects at any of its establishments, that is to say, at its head office and also at its present branches, agencies and sub-agencies and also at any additional branches, agencies and sub-agencies whether in the Colony or elsewhere which may hereafter be established:

Provided that the business of the bank’s branches, agencies and sub-agencies shall conform to the laws relating to banking whether passed before or after the date of this Ordinance in any of the territories in which the powers hereby conferred are exercised.

power to close establishments.

(2) The bank shall have power to close any of its establishments.

Power to sell and convert property taken as security.

6. It shall be lawful for the bank to sell, dispose of and convert into money any real or personal property of whatever description, mortgaged, charged, pledged or hypothecated to the bank or taken by it in satisfaction, liquidation or payment of any debt or liability.

Capital and increase thereof.

7. (1) The capital of the bank is seven hundred and fifty million dollars divided into three hundred million shares of two dollars and fifty cents each effective from 2nd July 1973.

(2) The capital of the bank may from time to time be increased by ordinary resolution.

Alteration of capital.

8. The shareholders in general meeting shall, in addition to the power hereinbefore conferred of increasing the capital of the bank, have power by ordinary resolution—

  • (a) to consolidate and divide all or any of the capital of the bank into shares of larger nominal amount than its existing shares;

  • (b) to subdivide its shares or any of them into shares of smaller amount than is fixed by this Ordinance or by the regulations, so however that in the subdivision the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived;

  • (c) to convert any paid-up shares into stock and re-convert that stock into paid-up shares of any amount; and

  • (d) to cancel shares which at the date of the passing of the resolution in that behalf have not been taken or agreed to be taken by any person, and to diminish the amount of its capital by the amount of the shares so cancelled, and a cancellation of shares in pursuance of this section shall not be deemed to be a reduction of capital.

Reorganization of capital.

9. (1) The shareholders may by special resolution reorganize the capital, whether by the consolidation of shares of different classes or by the division of the shares into shares of different classes:

Provided that no preference or special privilege attached to or belonging to any class of shares shall be interfered with except by a resolution passed by a majority in number of shareholders of that class holding three-fourths of the share capital of that class and confirmed at a meeting of shareholders of that class in the same manner as a special resolution of the bank is required to be confirmed, and every resolution so passed shall bind all shareholders of the class.

(2) A copy of any such resolution shall be filed with the Colonial Secretary within seven days after the passing of the same or within such further time as the Governor may allow, and the resolution shall not take effect until such copy has been so filed.

Power to issue bearer notes.

10. (1) Subject to the provisions of subsection (2) and of the Bank Notes Issue Ordinance, the bank may, in the Colony, but not elsewhere, issue, re-issue and circulate notes of the bank payable to bearer on demand.

(2) The bank shall not issue such notes of a denomination lower than five dollars in excess of such number as may, from time to time, be authorized by the Secretary of State.

Amount of and security for note issue.

11. (1) The total amount of the notes of the bank payable to bearer on demand actually in circulation shall subject to the provisions of subsection (3) not at any time exceed the equivalent of the sum of sixty million dollars.

(2) The bank shall at all times keep deposited with the Crown Agents or with trustees appointed by the Secretary of State or partly with the Crown Agents and partly with such trustees securities, approved by the Secretary of State, not less in value than the said sum of sixty million dollars.

(3) Notwithstanding the provisions of subsection (1), notes of the bank payable to bearer on demand may be issued and be in actual circulation to an amount in excess of the equivalent of the said sum of sixty million dollars, if there has been paid in accordance with section 4(1) of the Exchange Fund Ordinance to the Financial Secretary of the Hong Kong Government for the account of the Exchange Fund referred to in such Ordinance and against the issue to the bank of certificates of indebtedness as provided in such Ordinance an amount equal to the face value of such excess issue for the time being actually in circulation.

(4) The securities deposited in accordance with subsection (2), and, as provided in section 4 of the Exchange Fund Ordinance, the whole of the amount paid in accordance with subsection (3) for the account of the Exchange Fund, shall be held as special funds exclusively available for the redemption of the said notes and in the event of the bank being wound up shall be applied accordingly so far as may be necessary, but without prejudice to the rights of the holders of such notes to rank with other creditors of the bank against the assets of the bank.

Liability of shareholders.

12. In the event of the bank being wound up every shareholder shall be liable to contribute to the assets of the bank, in respect of any debts and liabilities of the bank, an amount not exceeding the amount, if any, unpaid on the shares held by him.

Form of contracts.

13. (1) Contracts on behalf of the bank may be made as follows—

  • (a) any contract, which if made between private persons would be by law required to be in writing under seal, may be made on behalf of the bank in writing under seal and may in the same manner be varied or discharged;

  • (b) any contract, which if made between private persons would be by law required to be in writing signed by the parties to be charged therewith, may be made on behalf of the bank in writing, signed by any person acting under its authority, express or implied, and may in the same manner be varied or discharged;

  • (c) any contract, which if made between private persons would by law be valid although made by parol only and not reduced into writing, may be made by parol on behalf of the bank by any person acting under its authority, express or implied, and may in the same manner be varied or discharged.

(2) All contracts made according to this section shall be effectual in law and shall bind the bank and its successors and all other parties thereto, their heirs, executors, administrators or assigns or successors, as the case may be.

Bills of exchange and promissory notes.

14. A bill of exchange or promissory note shall be deemed to have been made, accepted or indorsed on behalf of the bank if made, accepted or indorsed in the name of or by or on behalf or on account of the bank by any person acting under its authority.

Limit of accommodation to directors and officers.

15. The bank shall not discount, or in any manner advance money upon, bills of exchange, promissory notes or other negotiable paper in or upon which the name of any director or officer of the bank appears as drawer or acceptor, either on his individual or separate account, or jointly with any partner, or otherwise than as a director or officer of the bank to an amount exceeding one-tenth of the amount of the sum for the time being under discount or advanced by the bank, nor shall any director be allowed to obtain credit on his own personal guarantee.

Limit of debts and liabilities.

16. The total amount of the debts and liabilities of the bank of what nature or kind soever shall not at any time exceed the aggregate amount of the then existing bona fide assets and property of the bank.

Winding-up and application.

17. (1) Subject as hereinafter mentioned, the bank may be wound up by the Court, and all the provisions of the Companies Ordinance, with respect to the winding-up of companies registered thereunder shall apply to the bank as if expressly re-enacted in this Ordinance, save and except in such respects as the same may be altered or modified as hereafter mentioned or provided for.

(2) The circumstances under which the bank may be wound up are as follows—

  • (a) in the event of the bank being dissolved or ceasing to carry on business or carrying on business only for the purpose of winding-up its affairs; or

  • (b) whenever the bank is unable to pay its debts; or

  • (c) whenever the court is of opinion that it is just and equitable that the bank should be wound up.

Saving.

18. Nothing in this Ordinance shall affect or be deemed to affect the rights of Her Majesty the Queen, Her Heirs or Successors, or the rights of any body politic or corporate or of any other persons except such as are mentioned in this Ordinance and those claiming by, from or under them.

The Hong Kong Association of Banks Ordinance 1

To provide for the incorporation of The Hong Kong Association of Banks, for the corporation to assume the functions and to take over the assets and liabilities of The Exchange Banks’ Association, Hong Kong and for matters incidental thereto and connected therewith.

[12th January, 1981]

Part I. Preliminary

1. This Ordinance may be cited as The Hong Kong Association of Bank Ordinance

Short title.

2. In this Ordinance, unless the context otherwise requires—

interpretation.

“Association” means The Hong Kong Association of Banks incorporated by section 3;

“business of banking” means any of the activities or functions of a licensed bank;

“Committee” means the Committee established by section 8;

“Consultative Council” means the Consultative Council established by section 9;

“continuing members” means the continuing members under section 8(1) (a);

“deposit” means a loan of money at interest or repayable at a premium or repayable with any consideration in money or money’s worth;

“Disciplinary Committee” means the Disciplinary Committee appointed under section 16;

“Exchange Banks’ Association” means the unincorporated body known as The Exchange Banks’ Association, Hong Kong existing immediately before the commencement of this Ordinance;

“licensed bank” means a bank licensed under section 7 or section 42 of the Banking Ordinance;

“member” means a member of the Association;

“Secretary” means the secretary of the Association appointed pursuant to section 13.

Part II. Incorporation, Objects and Powers

Incorporation of Association.

3. (1) There is hereby established a body corporate to be known as The Hong Kong Association of Banks.

(2) The Association shall have perpetual succession and shall be capable of suing and being sued and of doing and suffering all such other acts or things as bodies corporate may lawfully do and suffer.

(3) The Association shall have a common seal which shall not be affixed except pursuant to a resolution of the Committee (or of a sealing subcommittee appointed by the Committee for that purpose) and in the presence of two members of the Committee and of the Secretary, or some other person appointed in his place by the Committee, each of whom shall sign his name.

(4) Any document purporting to be a document duly executed under the seal of the Association authenticated in accordance with subsection (3) shall be received in evidence and shall, until the contrary is proved, be deemed to be a document so executed.

Objects of the Association.

4. The objects of the Association shall be—

  • (a) to further the interests of licensed banks;

  • (b) to make rules from time to time for the conduct of the business of banking;

  • (c) to consider, investigate and inquire into all matters and questions connected with or relating to the business of banking;

  • (d) to promote, consider, support, oppose, make representations as to and generally deal with any law affecting or likely to affect the business of banking;

  • (e) to collect, circulate and disseminate information relating to the business of banking or otherwise likely to be of interest to members and others;

  • (f) to represent its members at and appear before any public body, committee or inquiry or before any court of tribunal;

  • (g) to act as an advisory body to its members and to cooperate and maintain relations with other bodies and organizations in all matters touching or concerning the business of banking;

  • (h) to provide a meeting place or places for its members and to adopt such means of publicizing or making known its activities and information and opinions on matters touching or concerning the business of banking as may be thought fit;

  • (i) to provide or procure, by means of a management agreement or otherwise, facilities for the clearing of cheques and other instruments, and for the processing of banking transactions presented by members;

  • (j) to establish, subsidize, support, co-operate with or otherwise assist any person engaged in any artistic, cultural, benevolent, charitable, welfare or similar activity and to contribute money for and to take part in any such activities as the Committee may think fit;

  • (k) to do or cause to be done all such other acts and things as may conduce to the progress, prosperity and advancement of the general body of members.

Powers of the Association.

5. The Association shall have power to do all such things as are necessary for, or incidental to or conducive to, the carrying out of the objects of the Association and may in particular, but without prejudice to the generality of the foregoing—

  • (a) acquire, take on lease, purchase, hold and enjoy any property, and sell, let or otherwise dispose of the same;

  • (b) enter into any contract;

  • (c) invest funds in securities, place funds on deposit and otherwise deal with its funds in such manner as it may think fit, and realize the same at such times as it may consider necessary;

  • (d) borrow or otherwise raise money on such security as may be necessary, and for that purpose charge all or any part of the property of the Association;

  • (e) act as trustee in relation to pension and retirement schemes for its employees and funds for scholarships and prizes;

  • (f) institute, conduct, defend, compound or abandon any legal proceedings by or against it or otherwise concerning its affairs;

  • (g) refer any claim or demand by or against it to arbitration;

  • (h) make and give receipts, releases and other discharges for money payable to and for claims and demands of the Association;

  • (i) publish periodicals, booklets or other written material and produce or sponsor the production of documentary films or audiovisual material, and distribute the same by sale, loan, hire or otherwise, with or without charge, as it shall think fit;

  • (j) accept gifts, donations or testamentary dispositions upon such conditions as it shall determine.

By-laws.

6. (1) The Association may, under its common seal, make such by-laws not inconsistent with this Ordinance as are necessary for, or incidental to or conducive to, the carrying out of the objects of the Association and may in particular, but without prejudice to the generality of the foregoing, make by-laws for—

  • (a) meetings of the Association and the procedure at and the conduct of such meetings;

  • (b) meetings of the Committee and its subcommittees and the procedure at and conduct of such meetings;

  • (c) the procedure for election of members of the Committee as provided in section 8(1) (b);

  • (d) the procedure for election of members of the Consultative Council as provided in section 9(1) (b);

  • (e) entrance fees and subscriptions for membership of the Association;

  • (f) control of funds of the Association;

  • (g) the keeping of proper accounts of the Association and records in relation thereto and the preparation of annual accounts;

  • (h) the appointment of auditors and the audit of the accounts of the Association;

  • (i) the enforcement of the provisions of section 21(4) or of any by-laws made hereunder.

  • (2) (a) A by-law under subsection (1) may be made only by an affirmative vote of not less than two-thirds of the members present and voting at a meeting of the Association convened for that purpose and notified in accordance with paragraph (b).

  • (b) Notice of such meeting and of the resolutions to be proposed thereat shall be delivered, or sent by registered post or recorded delivery, to every member at its registered office or principal place of business in Hong Kong not less than 21 days before the date fixed for the meeting, but the non-receipt of such a notice by any member shall not invalidate the proceedings thereat.

  • (3) By-laws made under subsection (1)—

  • (a) shall be subject to, and shall not derogate from, any other law;

  • (b) shall be subject to the approval of the Governor in Council.

Part III. Membership of the Association, Committee and Consultative Council

Membership of Association.

7. (1) Every licensed bank which is so required by a condition attached to its license shall become a member of the Association and shall, subject to this section, remain a member of the Association unless expelled under section 21(1) (d); and membership of the Association shall be restricted to licensed banks.

(2) A member which ceases to be a licensed bank shall ipso facto cease to be a member of the Association.

(3) A member shall not be expelled from membership of the Association without the prior approval of the Governor in Council.

Committee.

8. (1) There shall be a Committee of the Association which shall comprise—

  • (a) 3 continuing members which shall be—

    • (i) the Bank of China;

    • (ii) The Chartered Bank;

    • (iii) The Hongkong and Shanghai Banking Corporation;

  • (b) 9 elected members which shall be elected in accordance with the by-laws of the Association and which shall be, and be elected,—

    • (i) as to 4 members, by those members whose place if incorporation is Hong Kong or which are licensed under section 42 of the Banking Ordinance;

    • (ii) as to 5 members, by those members whose place of incorporation is outside Hong Kong.

(2) The 3 continuing members referred to in subsection (1)(a) shall, subject to subsection (3), hold office in perpetuity.

(3) Any member of the Committee which ceases for any reason to be a member of the Association shall ipso facto cease to be a member of the Committee.

(4) There shall be a Chairman and Vice-Chairman of the Committee and these offices shall be held alternately by The Chartered Bank and The Hongkong and Shanghai Banking Corporation.

(5) The periods of office for the Chairman and the Vice-Chairman shall in each case be two years:

Provided that The Chartered Bank shall hold office as Chairman and The Hongkong and Shanghai Banking Corporation shall hold office as Vice-Chairman until 31 December 1980 and with effect from 1 January 1981 The Hongkong and Shanghai Banking Corporation and The Chartered Bank shall hold office as Chairman and Vice-Chairman respectively.

Consultative Council.

9. (1) There shall be a Consultative Council of the Association which shall comprise—

Schedule.

  • (a) the 3 continuing members; and

  • (b) the number of elected members provided for in the Schedule which members shall be elected in accordance with the by-laws of the Association and which shall be, and be elected by, members incorporated or, in the case of unincorporated members, having their principal place of business, in various regions of the world as provided in the Schedule.

(2) The Chairman and the Vice-Chairman for the time being of the Committee pursuant to section 8(4) and (5) shall ex officio be the Chairman and the Vice-Chairman respectively of the Consultative Council.

Schedule.

(3) The Governor in Council may, by order published in the Gazette, amend the Schedule.

Schedule.

(4) Where the Schedule is amended pursuant to subsection (3) any variation in the number of elected members required, or the regions from which such members are to be elected, shall take effect from the date of the next following meeting to elect members of the Consultative Council.

Designated representatives of members.

10. (1) Every member of the Association shall designate in writing in a manner acceptable to the Committee a full time employee of that member holding a managerial post who shall as representative of that member—

  • (a) attend and vote at meetings;

  • (b) hold office;

  • (c) execute documents,

and otherwise act for and on behalf of the member for the purposes of this Ordinance and by-laws made hereunder.

(2) If the designated representative is for any reason unable to attend any meeting or otherwise act the member may designate in like manner an alternate representative who shall have the powers and functions of the designated representative.

(3) Every designation may be withdrawn and replaced by a new designation in writing at any time.

Part IV. General

11. (1) The management of the Association shall be vested in the Committee and all the powers of the Association shall be vested in and exercisable by the Committee except so far as this Ordinance or any by-laws made hereunder otherwise authorize.

Functions of the Committee.

(2) The Committee may appoint subcommittees for the better discharge of its functions under this Ordinance and may delegate to any subcommittee any of its powers and functions:

Provided that the Committee shall not delegate to any subcommittee the power to impose penalties for breach of any rule made by the Committee pursuant to section 12.

(3) The Committee may in its discretion co-opt any member of the Association to be a member of any subcommittee other than the Disciplinary Committee.

Rules as to conduct of business of banking.

12. (1) The Committee may, after such consultation with the Financial Secretary as he shall consider appropriate, from time to time make such rules relating to the conduct of the business of banking as do not derogate from any law and may in particular, but without prejudice to the generality of the foregoing, make rules—

  • (a) as to the maximum rates of interest, return, discount or other benefit which may be paid or granted by members, or by any specified category of members, in respect of—

    • (i) specified Hong Kong dollar deposits of their customers;

    • (ii) specified instruments;

  • (b) as to the conduct of foreign exchange business and the minimum commissions and charges to be applied therefor;

  • (c) as to the conduct of securities and safe custody business and the minimum commissions and charges to be applied therefor;

  • (d) as to the minimum charges to be applied by members for the issuance of guarantees or other documents;

  • (e) as to any other charges relating to the provision of any banking service, not being charges by way of interest or return payable on loans or advances granted by members;

  • (f) prohibiting members from transacting any specified type of business or using any particular type of instrument.

(2) Rules made by the Committee pursuant to subsection (1)—

  • (a) may be amended by the Committee at any time;

  • (b) shall be binding on each member upon being served on the member as provided in subsection (3);

  • (c) shall not be subsidiary legislation, rules, regulations or by-laws within the meaning of those words in the Interpretation and General Clauses Ordinance including sections 20 and 34 thereof.

(3) Rules made under subsection (1) or amended under subsection (2) shall be delivered, or sent by registered post or recorded delivery, to every member at its registered office or principal place of business in Hong Kong and service shall be deemed to have been effected upon delivery or 48 hours after the time of posting as the case may be.

Appointment of staff.

13. (1) The Committee shall appoint a Secretary and may appoint other officers, servants and agents at such remuneration and upon such terms and conditions of appointment as it thinks fit.

(2) The Committee may grant, or make provision for the grant of pensions, gratuities and retirement or other benefits to employees of the Association.

Function of the Consultative Council.

14. The function of the Consultative Council shall be to advise the Committee on any matter relating to the business of banking which—

  • (a) is referred to it by the Committee;

  • (b) it chooses to consider;

  • (c) it is requested, by a notice in writing signed by not less than 50 members, to consider with a view to advising the Committee.

Meetings of the Consultative Council.

15. (1) Meetings of the Consultative Council shall be held at such times and places as the Consultative Council or the Chairman thereof may from time to time appoint.

(2) The following procedural provisions shall apply to every meeting of the Consultative Council—

  • (a) 15 members shall form a quorum;

  • (b) the Chairman, or in his absence the Vice-Chairman, shall preside or if both are absent the members shall appoint one of their number to preside.

(3) Subject to subsection (2), the Consultative Council shall regulate its own procedure relating to its meeting and the conduct thereof.

(4) The Governor in Council may, by order published in the Gazette, amend the number provided for in subsection (2) (a).

Part V. Disciplinary Proceedings

Disciplinary Committee.

16. The Committee shall—

  • (a) appoint from amongst its members a Disciplinary Committee of 4 members comprising the following—

    • (i) two continuing members;

    • (ii) one member whose place of incorporation is Hong Kong or which is licensed under section 42 of the Banking Ordinance;

    • (iii) one member whose place of incorporation is outside Hong Kong; and

  • (b) designate one of the members of the Disciplinary Committee to be chairman thereof.

Disciplinary provisions.

17. (1) A complaint that a member has acted in breach of any rule relating to the conduct of the business of banking made under section 12(1) shall be made in writing to the Chairman of the Committee who shall submit the complaint to the Committee which may, in its discretion, refer the complaint to the Disciplinary Committee.

(2) The Committee may act on its own information in referring a complaint to the Disciplinary Committee.

(3) The Disciplinary Committee shall notify the member in respect of which a complaint is made of the nature of the complaint and of the date, time and place fixed for a hearing of the complaint.

(4) The member in respect of which a complaint is made shall be entitled to appear at the hearing and present its case.

Powers of Disciplinary Committee with regard to obtaining evidence.

18. (1) For the purposes of the hearing of a complaint the Disciplinary Committee shall have the following powers—

  • (a) to take evidence on oath;

  • (b) to summon any employee of any member to attend the hearing to give evidence or produce any document or other thing in his possession and to examine him as a witness;

  • (c) to award to a witness such expenses as, in the opinion of the Disciplinary Committee, he has incurred by reason of his attendance.

(2) A summons to a witness shall be signed by the Chairman of the Disciplinary Committee.

Legal representation.

19. At the hearing of a complaint—

  • (a) a member selected for the purpose by the Disciplinary Committee or a solicitor or counsel on its behalf shall present the case against the member in respect of which the complaint is made;

  • (b) the member in respect of which the complaint is made shall be entitled to be represented by a solicitor or counsel.

Powers of Disciplinary Committee.

20. If, after due inquiry, the Disciplinary Committee is satisfied that a complaint under section 17 is proved, the Disciplinary Committee may recommend to the Committee that it should impose or procure to be imposed on the member in respect of which a complaint is made any of the penalties referred to in section 21:

Provided that no such recommendation shall be made by the Disciplinary Committee unless the decision to make the recommendation is by an affirmative vote of not less than three quarters of the members of the Disciplinary Committee present and voting at the inquiry at which such recommendation is made.

Disciplinary powers of the Committee.

21. (1) The Committee may, following a recommendation by the Disciplinary Committee, in its discretion impose or procure to be imposed on a member any of the following penalties for breach of any rule made pursuant to section 12(1)—

  • (a) a reprimand;

  • (b) after consultation with the Financial Secretary, the suspension of membership for any period not exceeding 3 months;

  • (c) after consultation with the Financial Secretary, the suspension of facilities for the clearing of cheques and other instruments of a member for any period not exceeding 3 months;

  • (d) with the approval of the Governor in Council, the expulsion of a member from membership of the Association:

Provided that any decision to impose or procure the imposition of any penalty shall be made by an affirmative vote of not less than three quarters of the members of the Committee present and voting at the meeting at which such decision is taken.

(2) No appeal shall lie against the decision of the Committee to impose or procure to be imposed any penalty pursuant to subsection (1).

(3) Where a penalty is imposed pursuant to subsection (1), the Committee—

  • (a) may cause notice of the imposition of such penalty to be published in the Gazette;

  • (b) shall give written notice to the Financial Secretary of such action and the reasons therefor.

(4) Where the Committee, after consultation with the Financial Secretary, suspends or procures the suspension of clearing facilities pursuant to subsection (1)(c) then whilst such suspension is in force no member shall act as sub-clearer for the member whose clearing facilities have been so suspended.

Part VI. Transitional

Transfer of assets and liabilities.

22. (1) All property of whatever kind and whether movable or immovable vested in or belonging to the Exchange Banks’ Association immediately before the commencement of this Ordinance is as from such commencement transferred to and vested in the same interest in the Association without any further assurance and the Association shall have all powers necessary to take possession of, recover and obtain the benefit of such property.

(2) All rights, obligations and liabilities of the Exchange Banks’ Association immediately before the commencement of this Ordinance are as from such commencement the rights, obligations and liabilities of the Association and the Association shall have all necessary powers to exercise or discharge the same.

Other transitional provisions.

23. (1) Every licensed bank which immediately before the commencement of this Ordinance holds office as a member of the general committee of the Exchange Banks’ Association shall, as from the commencement of this Ordinance, be a member of the Committee of the Association for the purposes of this Ordinance until the conclusion of the first annual general meeting of members which shall be convened as soon as practicable after the coming into force of by-laws made under section 6(1) relating to the convening of meetings of the Association.

(2) Where anything has been commenced by or under the authority of the Exchange Banks’ Association before the commencement of this Ordinance such thing may be carried on and completed by, or under the authority of, the Association.

24. In any enactment containing reference to the Exchange Banks’ Association or the Hong Kong Exchange Banks’ Association or words to the like effect, there shall be substituted for such reference a reference to The Hong Kong Association of Banks.

Consequential amendment of other enactments.

SCHEDULE

[s. 9.]

Place of incorporation or principal

place of business of member
Number of members of the Consultative

Council to be elected by members incorporated

in or, in the case of unincorporated

members, having their principal

place of business in, that region
Belgium
1
Italy
Netherlands, the
Switzerland
Canada1
China, The People’s
Republic of
France1
Germany, The Federal
Republic of1
Hong Kong5
Indonesia
Malaysia1
Philippines, the
Thailand
Japan1
Singapore1
United Kingdom2
United States of America3
Other countries1
Total number of elected members20

Banking Ordinance 1

To make better provision for the licensing and control of banks and banking business, to regulate such business for monetary policy purposes, and to make provision for matters connected therewith.

[1st December, 1964]

Part I. Preliminary

Short title.

1. This Ordinance may be cited as the Banking Ordinance.

Interpretation.

2. (1) In this Ordinance, unless the context otherwise requires—

“accounts” means all methods of keeping accounts whether in writing, print or by any machine or device;

“auditor” means a professional accountant holding a practising certificate as provided in the Professional Accountants Ordinance;

“automated teller machine” means a terminal device, whether installed by a bank or by some other person, which is linked directly or indirectly to a computer system used by a bank and which provides facilities to customers of the bank;

“bank” means a company which carries on banking business and holds a valid license granted under section 7;

“bank incorporated in Hong Kong” means a bank incorporated in Hong Kong under the Companies Ordinance or by any other Ordinance;

“bank incorporated outside Hong Kong” means a bank incorporated by or under the law or other authority in any country, state or place outside Hong Kong, and in this respect “incorporated” includes established;

“Banking Advisory Committee” means the committee established by section 3;

“banking business” means the business of either—

  • (a) receiving from the general public money on current, deposit, savings or other similar account repayable on demand or within less than 3 months or at call or notice of less than 3 months; or

  • (b) paying or collecting cheques drawn by or paid in by customers,

or both;

“certificate of deposit” means a document relating to money, in any currency, which has been deposited with the issuer or some other person, being a document which recognizes an obligation to pay a stated amount to bearer or to order, with or without interest, and being a document by the delivery of which, with or without endorsement, the right to receive that stated amount, with or without interest, is transferable;

“Commissioner” means the Commissioner of Banking;

“company” means a company—

  • (a) incorporated under the Companies Ordinance; or

  • (b) incorporated by any other Ordinance; or

  • (c) which is incorporated outside Hong Kong and has complied with the provisions of section 333 of the Companies Ordinance;

“depositor” means a person who has an account at a bank, whether the account is a current account, a deposit account, a savings account or any other account;

“deposit-taking company” means a registered deposit-taking company and a licensed deposit-taking company;

“licence” means a licence granted under section 7 or 42;

“licensed deposit-taking company” means a deposit-taking company licensed under section 16B of the Deposit-Taking Companies Ordinance;

“local branch” means—

  • (a) in the case of a bank incorporated in Hong Kong, a place of business thereof in Hong Kong, other than its principal place of business in Hong Kong, at which it transacts banking business; and

  • (b) in the case of a bank incorporated outside Hong Kong, a place of business thereof in Hong Kong, other than its principal place of business in Hong Kong or a local representative office thereof, at which it transacts banking business,

but in either case does not mean an automated teller machine;

“local representative office” means an office in Hong Kong of a bank incorporated outside Hong Kong which is not—

  • (a) licensed under Section 7,

  • (b) a deposit-taking company, and

  • (c) recognised as the central bank of the country or place in which it is incorporated;

“money at call” means money payable within not more than 24 hours of a demand therefor, but does not include money payable on demand;

“money at short notice” means money, other than money at call, payable within not more than 7 days of a demand therefor;

“overseas branch” means a branch outside Hong Kong of a bank incorporated in Hong Kong, whether or not the business of the branch is limited by the laws or regulations of the country, state or place in which the branch is situated and whether or not the branch is referred to as an agency in such country, state or place, but does not mean an overseas representative office thereof;

“overseas representative office” means an office outside Hong Kong, other than an overseas branch, of a bank incorporated in Hong Kong;

“registered deposit-taking company” means a company registered as a deposit-taking company under the Deposit-Taking Companies Ordinance;

“share” means share in the share capital of a company, and includes stock except where a distinction between stock or shares is expressed or implied; and the expression “shareholder” includes a stockholder;

“specified liquid assets” means all or any of the assets specified in section 18(6);

“unincorporated bank” means an unincorporated person or body of persons to whom or to which a licence to transact banking business in Hong Kong has been granted under section 42.

(1A) Without prejudice to any other meaning which “insolvent” may have, a bank shall, for the purposes of this Ordinance, be deemed to be insolvent if either it has ceased to pay its debts in the ordinary course of business or it cannot pay its debts as they become due.

(2) Powers vested in the Financial Secretary by virtue of the provisions of this Ordinance shall not be exercised by any person other than the Financial Secretary or, in his absence or if he is unable to act, the person for the time being exercising his functions.

Part II. Appointments, General Duties of Commissioner and Power of Governor to Give Directions

Banking Advisory Committee.

3. (1) There is hereby established a Banking Advisory Committee for the purpose of advising the Governor upon any matter connected with this Ordinance or relating to banking and the carrying on of banking business and of advising the Governor in Council in any case where the advice of the Committee is sought under section 14(2).

(2) The Banking Advisory Committee shall consist of a chairman, who shall be the Financial Secretary, the Secretary for Monetary Affairs, the Commissioner, and such other persons, not being less than 4 nor more than 12, as the Governor may from time to time appoint.

(3) The members of the Banking Advisory Committee appointed by the Governor shall hold office for such period and upon such terms as the Governor may specify in their appointments.

(4) In the absence of the chairman at any meeting of the Banking Advisory Committee, the Secretary for Monetary Affairs shall act as the chairman.

Appointment of a Commissioner of Banking.

4. The Governor may appoint a Commissioner of Banking who shall be a public officer.

Commissioner may employ assistants.

4A. The Commissioner may authorize or employ any person to assist him in the exercise of his functions and duties under this Ordinance, either generally or in any particular case.

Power of Governor to give directions.

4B. (1) The Governor may give to the Financial Secretary and the Commissioner such directions as he thinks fit with respect to the exercise or performance of their respective powers, functions and duties under this Ordinance, either generally or in any particular case.

(2) The Financial Secretary and the Commissioner shall, in the exercise or performance of their respective powers, functions and duties under this Ordinance, comply with any directions given by the Governor under subsection (1).

Part III. Licensing of Banks

Banking business restricted to licensed banks.

5. Except as may be otherwise provided in this Ordinance, no banking business shall be transacted in Hong Kong except by a company which is in possession of a valid licence issued by the Governor in Council authorizing it to transact banking business in Hong Kong.

Receiving of deposits by deposit-taking companies.

5A. (1) Notwithstanding section 5 and subject to subsection (2) and to the Deposit-Taking Companies Ordinance—

  • (a) a licensed deposit-taking company may receive money on deposit account repayable within less than 3 months or at call or notice of less than 3 months;

  • (b) a registered deposit-taking company may continue to receive money on deposit account repayable within less than 3 months or at call or notice of less than 3 months as provided in section 6(IB) of the Deposit-Taking Companies Ordinance.

(2) No licensed deposit-taking company or registered deposit-taking company shall receive money on savings account.

Application for licence.

6. (1) A company which wishes to transact, or a body of persons proposing to form a company for the purpose of transacting, banking business in Hong Kong shall apply to the Governor in Council, through the Commissioner, for a licence or, in the case of a body of persons proposing to form a company, for an intimation that a licence will be granted to the company upon the incorporation thereof.

(2) An application for a licence or for an intimation that a licence will be granted shall be accompanied by—

  • (a) a copy of the charter, Ordinance (other than the Companies Ordinance), statutes, memorandum of association and articles of association, or other instrument, under which the company is or is to be incorporated, which shall—

    • (i) be verified in such manner as the Commissioner or the Governor in Council may require; and

    • (ii) if it is not written in the English language, be accompanied by a translation thereof certified to the satisfaction of the Commissioner as a true and correct translation; and

  • (b) such other documents and information as may be required by the Commissioner or the Governor in Council.

(3) After receiving an application for a licence, the Commissioner shall forward to the Governor in Council the application and his advice as to whether or not the applicant should be granted a licence or, in the case of a proposed company, whether or not the company upon incorporation should be granted a licence.

Grant or refusal of licence.

7. (1)2 After receiving the application and the advice of the Commissioner pursuant to the provisions of section 6, the Governor in Council may—

  • (a) grant a licence or, in the case of a proposed company, intimate his intention to grant a licence upon receipt of notice of the incorporation thereof;

  • (b) grant a licence subject to such conditions as he may think proper to attach thereto in any particular case or, in the case of a proposed company, intimate his intention, upon receipt of notice of the incorporation thereof, to grant a licence subject to the attachment of such conditions;

  • (c) without assigning any reason therefor, refuse to grant a licence or, in the case of a proposed company, intimate his intention to refuse to grant a licence upon receipt of notice of the incorporation thereof.

Amendment of conditions of licence.

7A. Without prejudice to section 7(1) (b), the Governor in Council may at any time, by notice in writing served upon a bank, attach to the licence held by that bank such conditions, or amend or cancel any conditions attached to the licence, as he may think proper.

Minimum paid up share capital for grant of licence.

8. No company which is incorporated in Hong Kong shall be granted a licence unless its share capital issued and paid up is not less than $100,000,000, deduction having been made in respect of a debit balance, if any, appearing in the profit and loss account of the company.

Revocation of licence.

9. The Governor in Council may revoke a licence—

  • (a) if he is satisfied that the holder of the licence—

    • (i) has ceased to transact banking business in Hong Kong; or

    • (ii) proposes to make, or has made, any composition or arrangement with its creditors or has gone into liquidation or has been wound up or otherwise dissolved; or

  • (b) if the Commissioner has made a report to him under section 13(1) (iv) and the Governor in Council considers that it is in the public interest to revoke the licence.

10. {Repealed, 26 of 1967, s. 11}

Effect of revocation of licence.

11. (1) Where a licence is revoked under section 9—

  • (a) notice of such revocation shall be published in the Gazette;

  • (b) the bank shall, as from the date of such notice, cease to transact any banking business in Hong Kong.

(2) The provisions of subsection (1 )(b) shall not prejudice the enforcement by any person of any right or claim against the bank or by the bank of any right or claim against any person.

Licence fee.

12. (1) Every bank shall pay an annual licence fee of $200,000 or such other amount as may from time to time be specified by the Governor in Council and notified in the Gazette.

(2) The fee payable under this section shall be paid upon the grant of the licence and thereafter upon the anniversary of the date of the grant thereof.

(3) The Director of Accounting Services shall cause to be published in the Gazette each year in the month of April the name of every bank which has within the preceding financial year paid the fees payable under this section.

Part IIIA. Local Branches, Local Representative Offices and Fees

Control of establishment of branches of bank.

12A. (1) A bank shall not establish or maintain any local branch thereof without the approval of the Commissioner.

(2) Subsection (1) applies to every bank whether the bank was licensed before, on or after 28 April 1967, and subsections (4) and (5) apply to an approval granted under subsection (1) whether the approval was granted on or after such date.

(3) Approval under subsection (1) shall be deemed to have been granted in respect of any local branch established prior to 28 April 1967.

(4) The Commissioner may at any time, by notice in writing served upon a bank, attach to an approval granted under subsection (1), or deemed to have been granted under subsection (3), in respect of any local branch thereof such conditions, or amend or cancel any conditions so attached, as he may think proper.

(5) The Commissioner may at any time revoke, in such case as he thinks fit, an approval granted under subsection (1), or deemed to have been granted under subsection (3), in respect of any local branch.

(6) Where the Commissioner refuses to grant approval under subsection (1) or revokes an approval under subsection (5), he shall notify the bank concerned in writing of the refusal or revocation.

(7) Any bank aggrieved by the refusal to grant approval under subsection (1) or by the revocation of an approval under subsection (5) may appeal to the Governor in Council against the refusal or revocation.

Fees in respect of branches of banks.

12B. (1) Whenever the Commissioner gives his approval of the establishment by a bank of a local branch, the bank shall pay to the Director of Accounting Services a fee of $10,000 in relation to that branch and thereafter, so long as the branch continues to be maintained by the bank, the bank shall pay to the Director of Accounting Services a fee of $10,000 on the anniversary in each year of the date of the grant of the bank’s licence.

(2) A bank that is maintaining a local branch at the commencement of the Banking (Amendment) Ordinance 1967 shall, so long as the branch continues to be maintained by the bank, pay to the Director of Accounting Services a fee of $10,000 on the anniversary in each year of the date of the grant of the bank’s licence.

(3) The Governor in Council may by order amend this section so as to vary the fees payable thereunder.

Control of establishment, etc. of local representative offices.

12C. (1) A bank incorporated outside Hong Kong which is not licensed under section 7 and is not recognized as the central bank of the country or place in which it is incorporated shall not establish or maintain any local representative office thereof without the approval of the Commissioner.

(2) Approval under subsection (1) shall be deemed to have been granted in respect of any local representative office established prior to the commencement of the Banking (Amendment) Ordinance 1982 and in respect of which the Commissioner has granted consent under section 67(1) for the use of the word “bank” or any derivative thereof in the description or title of the local representative office.

(3) Approval under subsection (1) shall not be granted unless the Commissioner is satisfied that the bank is adequately supervised by a recognized banking supervisory authority of the country, state or place in which the bank is incorporated.

(4) The Commissioner may at any time, by notice in writing served upon a bank, attach to an approval granted under subsection (1), or deemed to have been granted under subsection (2), in respect of any local representative office thereof such conditions, or amend or cancel any conditions so attached, as he may think proper.

(5) The Commissioner may at any time revoke, in such case as he thinks fit, an approval granted under subsection (1), or deemed to have been granted under subsection (2), in respect of any local representative office.

(6) Where the Commissioner refuses to grant approval under subsection (1) or revokes an approval under subsection (5), he shall notify the bank concerned in writing of the refusal or revocation.

(7) Any bank aggrieved by the refusal to grant approval under subsection (1) or by the revocation of an approval under subsection (5) may appeal to the Governor in Council against the refusal or revocation.

Supply of information and examination of local representative offices.

12D. A bank incorporated outside Hong Kong which maintains a local representative office thereof pursuant to section 12C shall—

  • (a) submit to the Commissioner such information as he may require regarding the functions and activities of the representative office;

  • (b) if the Commissioner wishes to examine the functions and activities of the representative office, for that purpose afford to the person carrying out the examination access to the documents maintained by the representative office and to such information and facilities as may be required to conduct the examination, and shall produce to the person carrying out the examination such documents or other information as he may require.

Fees in respect of local representative offices.

12E. (1) Whenever the establishment by a bank incorporated outside Hong Kong of a local representative office is approved under section 12C(1), the bank shall pay to the Director of Accounting Services the fee specified in subsection (3)(a) in relation to that representative office and thereafter, so long as the representative office continues to be maintained by the bank, the bank shall pay to the Director of Accounting Services the fee specified in subsection (3)(b) on the anniversary in each year of the date of the grant of the approval under section 12C(1).

(2) A bank incorporated outside Hong Kong that is maintaining, at the commencement of the Banking (Amendment) Ordinance 1982, a local representative office to which section 12C(2) applies, shall pay to the Director of Accounting Services the fee specified in subsection (3)(b) in relation to that representative office within 14 days after such commencement and thereafter, so long as the representative office continues to be maintained by the bank, the bank shall pay to the Director of Accounting Services the fee specified in subsection (3)(b) on the anniversary in each year of such commencement.

(3) (a) The fee for the establishment of a local representative office shall be $10,000.

  • (b) The annual fee for maintaining a local representative office shall be $10,000.

(4) The Governor in Council may by order amend subsection (3) so as to vary the fees specified therein.

Part IIIB. Overseas Branches, Overseas Representative Offices and Fees

Control of establishment, etc. of overseas branches and overseas reprsentative offices.

12F. (1) Without prejudice to section 12A, there shall be deemed to be attached to the licence held by a bank incorporated in Hong Kong a condition that the bank shall not establish or maintain any overseas branch or overseas representative office thereof without the approval of the Commissioner.

(2) Subsection (1) applies to every licence whether the licence was granted before, on or after 28 April 1967, and subsections (4) and (5) apply to an approval granted under subsection (1) whether the approval was granted before on or after such date.

(3) Approval under subsection (1) shall be deemed to have been granted in respect of—

  • (a) any overseas branch established prior to 28 April 1967; and

  • (b) any overseas representative office established prior to the commencement of the Banking (Amendment) Ordinance 1982.

(4) The Commissioner may at any time, by notice in writing served upon a bank, attach to an approval granted under subsection (1), or deemed to have been granted under subsection (3), in respect of any overseas branch or overseas representative office thereof such conditions, or amend or cancel any conditions so attached, as he may think proper.

(5) The Commissioner may at any time revoke, in such case as he thinks fit, an approval granted under subsection (1), or deemed to have been granted under subsection (3), in respect of any overseas branch or overseas representative office.

(6) Where the Commissioner refuses to grant approval under subsection (1) or revokes an approval under subsection (5), he shall notify the bank concerned in writing of the refusal or revocation.

(7) Any bank aggrieved by the refusal to grant approval under subsection (1) or by the revocation of an approval under subsection (5) may appeal to the Governor in Council against the refusal or revocation.

Conditions regarding overseas branches and overseas representative offices.

12G. (1) There shall be deemed to be attached to the licence held by a bank incorporated in Hong Kong which maintains an overseas branch thereof a condition that—

  • (a) the bank shall submit to the Commissioner a return in such form, and at such intervals, as he may specify showing the assets and liabilities of the overseas branch;

  • (b) the bank shall submit to the Commissioner such further information as he may consider necessary for the proper understanding of the functions and activities of the overseas branch, and that such information shall be submitted within such period and in such manner as the Commissioner may require;

  • (c) if the Commissioner requires any return submitted to him pursuant to paragraph (a), or any information submitted to him pursuant to a requirement under paragraph (b), to be accompanied by a certificate of an auditor, the bank shall submit a certificate of the auditor appointed under section 36(1) or of the auditors appointed under section 36(1) and (2), as the case may be, as to whether or not, in the opinion of the auditor or auditors, the return or information is correctly compiled from the books and records of the overseas branch;

  • (d) if the Commissioner wishes to examine the books, accounts and transactions of the overseas branch, the bank shall for that purpose afford the person carrying out the examination at the place where the branch is maintained access to the books and accounts of the branch, to documents of title to the assets and other documents and to all securities held by the branch in respect of its customers’ transactions and its cash and to such information and facilities as may be required to conduct the examination, and that the bank shall produce to the person carrying out the examination such books, accounts, documents, securities, cash or other information as he may require:

    Provided that, so far as is consistent with the conduct of the examination, such books, accounts, documents, securities and cash shall not be required to be produced at such times and such places as shall interfere with the proper conduct of the normal daily business of the branch.

(2) There shall be deemed to be attached to the licence held by a bank incorporated in Hong Kong which maintains an overseas representative office thereof a condition that—

  • (a) the bank shall submit to the Commissioner such information as he may require regarding the functions and activities of the overseas representative office;

  • (b) if the Commissioner wishes to examine the functions and activities of the overseas representative office, the bank shall for that purpose afford the person carrying out the examination at the place where the representative office is maintained access to the documents maintained by the representative office and to such information and facilities as may be required to conduct the examination, and that the bank shall produce to the person carrying out the examination such documents or other information as he may require.

(3) This section applies to every licence whether the licence was granted before, on or after the commencement of the Banking (Amendment) Ordinance 1982.

Fees in respect of overseas branches and overseas representative offices.

12H. (1) Whenever the establishment by a bank incorporated in Hong Kong of an overseas branch or overseas representative office is approved under section 12F(1), the bank shall pay to the Director of Accounting Services the fee specified in subsection (3)(a) or (b), as the case may be, in relation to that branch or representative office and thereafter, so long as the branch or representative office continues to be maintained by the bank, the bank shall pay to the Director of Accounting Services the fee specified in subsection (3 )(c) or (d), as the case may be, on the anniversary in each year of the date of the grant of the bank’s licence.

(2) A bank incorporated in Hong Kong that is maintaining, at the commencement of the Banking (Amendment) Ordinance 1982, an overseas branch or overseas representative office to which section 12F(3) applies, shall, so long as the branch or representative office continues to be maintained by the bank, pay to the Director of Accounting Services the fee specified in subsection (3)(c) or (d), as the case may be, on the anniversary in each year of the date of the grant of the bank’s licence.

(3) (a) The fee for the establishment of an overseas branch shall be $20,000.

  • (b) The fee for the establishment of an overseas representative office shall be $5,000.

  • (c) The annual fee for maintaining an overseas branch shall be $20,000.

  • (d) The annual fee for maintaining an overseas representative office shall be $5,000.

(4) The Governor in Council may by order amend subsection (3) so as to vary the fees specified therein.

Part IV. Powers of Control over Banks

Powers of Commissioner.

13. (1) Where—

  • (a) a bank informs the Commissioner—

    • (i) that it is likely to become unable to meet its obligations; or

    • (ii) that it is insolvent or about to suspend payment;

  • (b) a bank becomes unable to meet its obligations or suspends payment;

  • (c) after an inspection or investigation is made under section 15, the Commissioner is of the opinion that a bank—

    • (i) is carrying on its business in a manner detrimental to the interests of its depositors or of its creditors;

    • (ii) is insolvent or is likely to become unable to meet its obligations or is about to suspend payment;

    • (iii) has contravened or failed to comply with any of the provisions of this Ordinance; or

    • (iv) has contravened or failed to comply with any condition attached or deemed to be attached to its licence; or

  • (d) the Financial Secretary advises the Commissioner that he considers it in the public interest to do so,

the Commissioner, after consultation with the Financial Secretary, may exercise such one or more of the following powers as may from time to time appear to him to be necessary—

  • (i) to require the bank forthwith to take any action or to do any act or thing whatsoever in relation to its business as he may consider necessary;

  • (ii) to appoint a person to advise the bank in the proper conduct of its business;

  • (iii) to assume control of and carry on the business of the bank, or direct some other person to assume control of and carry on the business of the bank;

  • (iv) to report the circumstances to the Governor in Council.

(2) Save in the circumstances specified in subsection (1) (a), the Commissioner shall not exercise the power conferred by subsection (1) (iv) unless he has given to the bank not less than 7 days’ notice in writing of his intention to exercise such power and a statement in writing of his reasons for the exercise thereof, and has afforded the bank an opportunity to submit to him representations in writing thereon.

(3) Any person aggrieved by the exercise by the Commissioner of any of the powers conferred on him by paragraphs (i), (ii) and (iii) of subsection (1) may appeal to the Governor in Council.

(4) The making of an appeal under subsection (3) shall not stay the exercise of the power pending the determination of the appeal.

Powers of Governor in Council.

14. (1) Where—

  • (a) the Commissioner makes a report to the Governor in Council under section 13(1) (iv); or

  • (b) any person appeals to the Governor in Council under section 13(3),

the Governor in Council may, without prejudice to the powers conferred by section 9(b), exercise one or more of the following powers—

  • (i) to confirm, vary or reverse any requirement, appointment or direction made by the Commissioner;

  • (ii) to make such order as he may think fit in relation to the affairs of the bank and exercise any power which the Commissioner may exercise under section 13(1);

  • (iii) to direct the Financial Secretary to present a petition to the High Court for the winding up of the bank by the High Court.

(2) The Governor in Council may, before considering any report or appeal under subsection (1), seek the advice of the Banking Advisory Committee, but shall not be bound to follow any such advice.

Remuneration and expenses of Commissioner and others in certain cases.

14A. (1) The Commissioner, after consultation with the Financial Secretary, may at any time, whether or not the appointment of such person has terminated, fix the remuneration and expenses to be paid by a bank to any person appointed by the Commissioner under section 13(1) or by the Governor in Council under section 14(1) to advise the bank in the proper conduct of its business.

(2) Where the Commissioner has assumed control of the business of a bank under section 13(1) (iii) or pursuant to an order of the Governor in Council under section 14(1) (ii) or some other person has assumed control of the business of a bank pursuant to a direction under section 13(1) (iii) or an order of the Governor in Council under section 14(1) (ii), the Commissioner, after consultation with the Financial Secretary, may at any time, whether or not he or such other person has ceased to be in control of the business of the bank, fix the remuneration and expenses to be paid by the bank to him, and to any person employed or authorized by him under section 4A to assist him in the control of and the carrying on of the business of the bank, or to such other person, as the case may be.

(3) Any bank aggrieved by a decision of the Commissioner under subsection (1) or (2) may appeal to the Governor in Council.

Examination and investigation of banks.

15. (1) Without prejudice to the provisions of section 13, the Commissioner may at any time, with or without prior notice to the bank, examine the books, accounts and transactions of any bank.

(2) Without prejudice to the provisions of section 13, the Commissioner shall investigate the books, accounts and transactions of a bank—

  • (a) if shareholders of the bank holding not less than one-third of the total number of issued shares in the bank, or depositors holding not less than one-tenth of the gross amount of the total deposit liabilities in Hong Kong of the bank or a sum equal to the aggregate of the paid up share capital of the bank and its published reserve, whichever is the greater, apply to him to make such an investigation and submit to him such evidence as he considers necessary to justify the investigation and furnish such security for the payment of the costs of the investigation as he may require; or

  • (b) if the bank suspends payment or informs him of its intention to suspend payment.

(3) Where an investigation is made by the Commissioner pursuant to subsection (2), the Financial Secretary may order that all expenses incurred in such investigation shall be defrayed—

  • (a) by the bank; or

  • (b) if the investigation was made pursuant to subsection (2 )(a), either wholly by the persons who applied for the making of the investigation or partly by such persons and partly by the bank in such proportions as he considers to be just.

16. {Repealed, 26 of 1967, s. 19}

Control of licensed bank by the Commissioner.

17. (1) Where the Commissioner has assumed control of the business of a bank under section 13(1) (iii) or pursuant to an order of the Governor in Council under section I4(1)(ii) or some other person has assumed control of the business of a bank pursuant to a direction under section 13(1) (iii) or an order of the Governor in Council under section 14(1) (ii), then, subject to subsection (2), the Commissioner or such other person, as the case may be, shall remain in control and continue to carry on the business of that bank in the name and on behalf of the bank until it is no longer necessary, in the opinion of the Financial Secretary, for the Commissioner or such other person to remain in control of the bank.

(2) Where the Commissioner has assumed control of the business of a bank under section 13(1) (iii) or pursuant to an order of the Governor in Council under section 14(1) (ii) or some other person has assumed control of the business of a bank pursuant to a direction under section 13(1) (iii) or an order of the Governor in Council under section 14(1) (ii), the Governor in Council, upon the application of the bank, may, if he is satisfied that it is no longer necessary for the protection of the depositors of the bank that the Commissioner or such other person should remain in control of the business of the bank, order that the Commissioner or such other person shall cease to control the business of the bank as from a date specified in the order.

(3) Where the Commissioner has assumed control of the business of a bank under section 13(1) (iii) or pursuant to an order of the Governor in Council under section 14(1)(ii) or some other person has assumed control of the business of a bank pursuant to a direction under section 13(1) (iii) or an order of the Governor in Council under section 14(1)(ii) or any such control has been relinquished pursuant to any of the provisions of this section, the Financial Secretary shall cause to be published in the Gazette a notification of the fact of the assumption or cessation of such control, as the case may be.

Part V. Duties of Banks

Minimum holding of specified liquid assets.

18. (1) A bank shall maintain at all times a minimum holding of specified liquid assets, free from encumbrances, in accordance with the provisions of this section.

(2) The minimum holding of specified liquid assets to be maintained by a bank in any calendar month shall be not less than 25 per cent of the deposit liabilities of the bank during that month.

(2A) For the purpose of subsection (2), the specified liquid assets of a bank shall be the specified liquid assets of that bank within the meaning of subsection (6) reduced by an amount equivalent to such bank’s total liabilities in respect of—

  • (a) balances payable on demand;

  • (b) money at call; and

  • (c) money at short notice,

owing to other banks or any deposit-taking company in Hong Kong.

(2B) Where the liabilities of a bank during any month do not include any deposit liabilities, the minimum holding of specified liquid assets to be maintained in that month by the bank shall be not less than an amount equivalent to the bank’s liabilities during that month in respect of—

  • (a) balances payable on demand;

  • (b) money at call; and

  • (c) money at short notice,

owing to other banks or any deposit-taking company in Hong Kong; and in respect of amounts referred to in paragraphs (a) and (b), such specified liquid assets shall be held in any form set out in paragraphs (a), (aa), (b), (c), (d), (da), (db) and (e) of subsection (6).

(3) The minimum holding of specified liquid assets required by subsection (2) shall include not less than the equivalent of 15 per cent of the deposit liabilities of the bank in the form of such specified liquid assets as are set out in paragraphs (a), (aa), (b), (c), (d), (da), (db) and (e) of subsection (6), and in determining whether the minimum holding includes not less than the equivalent of 15 per cent of the deposit liabilities of the bank in the form aforesaid any reduction made pursuant to subsection (2A) in respect of balances payable on demand and money at call shall be deemed to have been made in such specified liquid assets of the bank as are set out in paragraphs (a), (aa), (b), (c), (d), (da), (db) and (e) of subsection (6).

(4) For the purposes of subsections (2), (2A), (2B) and (3), the assets and liabilities of a bank shall be the arithmetical means of, respectively, the amounts of the assets held by, and the liabilities of, the bank according to the bank’s books at the close of business on every such weekday during the month as the Commissioner may specify:

Provided that if any such specified weekday is a public holiday the assets and liabilities as at the close of business on the last working day preceding that specified weekday shall be taken for the purposes of such calculation.

(5) For the purposes of computing the minimum holding of specified liquid assets to be held by a bank—

  • (a) the deposit liabilities of a bank shall be deemed to be its gross demand, time, and savings account liabilities, excluding amounts owing to other banks or any deposit-taking company;

  • (b) in the case of a bank operating in Hong Kong and also elsewhere, the principal place of business in Hong Kong and local branches of the bank shall be deemed collectively to be a separate bank carrying on business in Hong Kong;

  • (c) all the deposit liabilities of a bank owed through the principal place of business in Hong Kong or any local branch of a bank operating in Hong Kong and also elsewhere shall be regarded as if they constituted liabilities of that separate bank, and all the assets held by or to the credit of the principal place of business in Hong Kong or any local branch shall be regarded as if they were assets of that separate bank.

  • (6) For the purposes of this section, “specified liquid assets” means all or any of the following—

  • (a) notes and coins which are legal tender in Hong Kong;

  • (aa) notes and coins in any currency which is freely remittable to the bank in Hong Kong;

  • (b) refined gold in the form of coin or bars situated in Hong Kong, and refined gold in the form of coin or bars situated outside Hong Kong if the gold, or money into which it can be converted, is freely remittable to the bank in Hong Kong from the place where such gold is situated;

  • (c) the total balance of money payable on demand at, and money at call with, other banks or any deposit-taking company in Hong Kong;

  • (d) balances of money payable on demand at any bank outside Hong Kong and money at call with any bank outside Hong Kong, which are or is freely remittable to the bank in Hong Kong and held in a form approved by the Commissioner;

  • (da) certificates of deposit which are—

    • (i) issued outside Hong Kong by any bank approved by the Commissioner for the purposes of this section in any foreign currency freely remittable to the bank in Hong Kong; and

    • (ii) marketable in a manner satisfactory to the Commissioner;

  • (db) such money market instruments, either totally or to such limited extent, as the Financial Secretary may specify by notice in the Gazette;

  • (e) treasury bills, maturing within 93 days, issued by the Government or by the Government of the United Kingdom or by the Government of any other country if such treasury bills issued by the Government of any other country are specified by the Financial Secretary and published in the Gazette;

  • (ea) money at short notice at other banks or any deposit-taking company in Hong Kong;

  • (eb) money at short notice at any bank outside Hong Kong, which is freely remittable to the bank in Hong Kong and held in a form approved by the Commissioner;

  • (ec) such money market instruments, either totally or to such limited extent, other than an instrument specified under paragraph (db), as the Financial Secretary may specify by notice in the Gazette;

  • (f) bills of exchange payable at usance outside Hong Kong and discountable in a currency which is freely remittable to the bank in Hong Kong;

  • (g) bills of exchange payable after sight outside Hong Kong in a currency freely remittable to the bank in Hong Kong;

  • (h) such securities (other than securities specified in paragraph (i)) issued or guaranteed by the Government, or the Government of any other country, as may be specified by the Financial Secretary and published in the Gazette;

  • (i) securities with less than 5 years to maturity issued or guaranteed by the Government or the Government of the United Kingdom, if—

    • (i) they are quoted on a Stock Exchange in London, Hong Kong or New York;

    • (ii) they have been dealt in during the preceding 6 months; and

    • (iii) payment of interest thereon is not in arrear.

(7) The Financial Secretary may, from time to time, in exceptional circumstances, by notice raise or reduce for such period as he may think necessary and to such percentages as he may think fit the minimum percentages specified in subsection (2) or subsection (3) of specified liquid assets in the case of any particular bank or all banks.

(8) {Deleted, 26 of 1967, s. 21}

(9) Liabilities in respect of notes issued and assets held as cover for notes issued shall, in the case of a bank which is a note-issuing bank under the Bank Notes Issue Ordinance, be disregarded for the purposes of this section.

(10) For the purposes of this section, the value of any specified liquid asset shall be not more than the market value of such asset.

Variation of minimum holding of specified liquid assets for monetary policy purposes.

18A. The Financial Secretary may from time to time, in pursuance of the monetary policy of the Government, by order, which shall be published in the Gazette, raise or reduce the minimum percentage of deposit liabilities by reference to which every bank is required to maintain a holding—

  • (a) in specified liquid assets pursuant to section 18(2); or

  • (b) in specified liquid assets in the form mentioned in section 18(3).

Maintenance of reserve.

19. Every bank incorporated in Hong Kong shall, before any dividend is declared, appropriate to its published reserve out of the published profit of each year, after due provision has been made for taxation—

  • (a) a sum equal to not less than one-third of such published profits; or

  • (b) such lesser sum, if any, as may be necessary so that the aggregate of the bank’s paid up share capital and its published reserve is not less than $200,000,000.

Maintenance of adequate provision for bad and doubtful debts.

19A. Every bank shall—

  • (a) maintain a provision for its bad and doubtful debts, if any; and

  • (b) before any profit or loss is declared, ensure that such provision is adequate.

Minimum paid up share capital of licensed banks.

20. (1) Subject to subsection (2), a bank incorporated in Hong Kong shall not transact banking business in Hong Kong unless its share capital issued and paid up is not less than $100,000,000, deduction having been made in respect of a debit balance, if any, appearing in the profit and loss account of the bank.

(2) A bank which is carrying on banking business at the commencement of the Banking (Amendment) (No. 2) Ordinance 1981 may continue to transact banking business for a period of 24 months after such commencement, or for such further period as the Governor in Council may allow in any particular case, if its share capital issued and paid up is less than $100,000,000 but not less than $10,000,000, deduction having been made in respect of a debit balance, if any, appearing in the profit and loss account of the bank.

Restriction on payment of dividends.

21. A bank incorporated in Hong Kong shall not pay any dividend on its shares or distribute any extraordinary profits unless—

  • (a) all items of expenditure not represented by tangible assets have been completely written off; and

  • (b) in the case of a distribution of extraordinary profits, the aggregate of its paid up share capital and published reserve after such distribution will not be less than $200,000,000.

Advance against security of own shares.

22. A bank shall not grant any advance, loan or credit facility against the security of its own shares.

Limitation on total of advances to one person, firm, etc.

23. (1) A bank shall not grant or permit to be outstanding to any one person, firm, corporation or company, or to any group of companies or persons which such person, firm, corporation or company is able to control or influence, any advances, loans or credit facilities, including irrevocable documentary letters of credit to the extent to which they are not covered by marginal cash deposits, or give any financial guarantees or incur any other liabilities on their behalf to an aggregate amount of such advances, loans, facilities, guarantees or liabilities in excess of 25 per cent of the paid up capital and reserves of the bank:

Provided that the provisions of this section shall not apply to—

  • (a) transactions between banks or between the branches of a bank;

  • (aa) transactions to the extent to which they are covered by a form of guarantee acceptable to the Commissioner;

  • (ab) transactions between a bank and a deposit-taking company;

  • (b) the purchase of telegraphic transfers;

  • (c) the purchase of bills of exchange or documents of title to goods where the holder of such bills or documents is entitled to payment outside Hong Kong for exports from Hong Kong; or

  • (d) advances or loans made against telegraphic transfers or against such bills or documents.

  • (2) For the purposes of subsection (1)—

  • (a) any advances, loans or credit facilities granted or permitted to be outstanding to, and any financial guarantees given and any other liabilities incurred on behalf of, a business or undertaking of which any one person is the sole proprietor shall be deemed to be granted or permitted to be outstanding to or given or incurred on behalf of, as the case may be, that one person;

  • (b) a person shall not be deemed to be able to control or influence a group of companies by reason only that he is a director of any other company in the group.

Limitation on advances to directors, etc.

24. (1) A bank shall not grant any facility specified in subsection (3) to or on behalf of any person or body specified in subsection (4) if the aggregate amount of such facilities for the time being granted by that bank to or on behalf of any one or more such persons or bodies would thereby exceed 10 per cent of the paid up capital and reserves of the bank.

(2) Subject to and notwithstanding the provisions of subsection (1), a bank shall not grant any facility specified in subsection (3) to or on behalf of any person specified in paragraph (a), (b) or (ba) of subsection (4) if the aggregate amount of such facilities for the time being granted by that bank to or on behalf of that person or any of his relatives would thereby exceed $250,000.

(3) For the purposes of subsections (1) and (2), the following facilities are specified—

  • (a) the granting, or permitting to be outstanding, of unsecured advances, unsecured loans or unsecured credit facilities including unsecured irrevocable documentary letters of credit;

  • (b) the giving of unsecured financial guarantees; and

  • (c) the incurring of any other unsecured liability.

(4) For the purposes of subsections (1) and (2), the following persons and bodies are specified—

  • (a) any director of the bank;

  • (b) any relative of any such director;

  • (ba) any employee of the bank who is responsible, either individually or as a member of a committee, for determining loan applications;

  • (c) any firm, partnership or private company in which the bank or any of its directors or any relative of any of its directors is interested as director, partner, manager or agent; and

  • (d) any individual, firm, partnership or private company of which any director of the bank or any relative of any such director is a guarantor.

(5) The provisions of this section shall apply to a facility granted to or on behalf of a person or body jointly with another person or body as they apply to a facility granted to or on behalf of a person or body severally.

(6) The provisions of this section shall not apply to the purchase of telegraphic transfers.

(7) For the purposes of subsections (2) and (4), a facility granted to or on behalf of any firm, partnership or private company which a director of a bank or a relative of a director of a bank is able to control, or to or on behalf of a business or undertaking of which a director of a bank or a relative of a director of a bank is the sole proprietor, shall be deemed to be granted to or on behalf of such director or relative of a director.

Limitation on advances to employees.

25. A bank shall not grant or permit to be outstanding to any one of its employees unsecured advances, unsecured loans or unsecured credit facilities to an aggregate amount of such advances, loans or facilities in excess of one year’s salary for any such employee.

Bank not to engage in trade or have interest in commercial or industrial concern.

26. (1) A bank shall not—

  • (a) engage, whether on its own account or as agent for another person, in any wholesale, retail, import or export trade; or

  • (b) save as permitted by section 27 or 28 and save to the extent of such interest as a bank may acquire in the course of the satisfaction of debts due to it, have a direct interest in any commercial, agricultural, industrial or other undertaking.

(2) Any interest in any commercial, agricultural, industrial or other undertaking acquired by a bank in the course of the satisfaction of a debt due to it shall be disposed of at the earliest suitable opportunity and in any event not later than 18 months after it was acquired or within such longer period as the Commissioner may allow in any particular case.

Limitation on shareholding by bank.

27. (1) Subject to the provisions of subsection (2), a bank shall not acquire or hold any part of the share capital of any other company or companies to an aggregate value in excess of 25 per cent of the paid up capital and reserves of the bank, except such shareholdings as a bank may acquire in the course of the satisfaction of debts due to it:

Provided that all shareholdings acquired in the course of the satisfaction of debts due to it shall be disposed of at the earliest suitable opportunity, and in any event not later than 18 months after the acquisition thereof or within such longer period as the Commissioner may allow in any particular case.

(2) This section shall not apply in respect of any shareholding approved in writing by the Commissioner in another bank or in a subsidiary company formed by the bank concerned for the carrying out of nominee, executor or trustee functions or other functions incidental to banking business.

Limitations on holding of interest in land.

28. (1) A bank shall not purchase or hold any interest or interests in land of a value or to an aggregate value, as the case may be, in excess of 25 per cent of the paid up capital and reserves of the bank.

(2) Subject to the provisions of section 29(1) (b), in addition to the value of any land permitted to be purchased or held under subsection (1), a bank may purchase or hold interests in land to any value, where the occupation of such land is, in the opinion of the Commissioner, necessary for conducting the business of the bank or for providing housing or amenities for the staff of the bank.

(3) For the purposes of subsection (2), but without prejudice to the generality thereof, the Commissioner may in his discretion regard as necessary for conducting the business of a bank the whole of any premises in which an office of a bank is situated.

(4) There shall not be taken into account in the assessment of the value of interests in land for the purposes of this section the value of any interest in land mortgaged to the bank to secure a debt due to the bank nor the value of any interest in land acquired pursuant to entry into possession of land so mortgaged, provided that the interest acquired is disposed of at the earliest suitable opportunity, and in any event not later than 18 months after its acquisition or within such longer period as the Commissioner may allow in any particular case.

Limitations on aggregate holdings under sections 24, 27 and 28.

29. (1) Notwithstanding anything contained in sections 24, 27 and 28—

  • (a) the aggregate total of—

    • (i) the amount outstanding of all facilities specified in section 24(3) granted to or on behalf of persons or bodies specified in subsection (4) of that section;

    • (ii) the value of all holdings of share capital specified in section 27; and

    • (iii) the value of all holdings of interests in land specified in section 28(1),

    shall not at any time exceed per cent of the paid up capital and reserves of the bank; and

  • (b) the aggregate total of—

    • (i) the amount outstanding of all facilities specified in section 24(3) granted to or on behalf of persons or bodies specified in subsection (4) of that section;

    • (ii) the value of all holdings of share capital specified in section 27; and

    • (iii) the value of all holdings of interests in land specified in section 28(1) and (2),

    shall not at any time exceed 80 per cent of the paid up capital and reserves of the bank.

(2) In assessing the aggregate total which is permissible under subsection (1) there shall not be taken into account any matter which is excluded from the operation of section 24, 27 or 28 by virtue of any of the provisions thereof or of section 30.

Deductions for purposes of sections 23,24, 27,28 and 29.

30. For the purposes of sections 23, 24, 27, 28 and 29 there shall be deducted from the paid up capital and reserves of the bank any debit balance appearing in the profit and loss account of the bank.

Proof of reserves.

31. Any bank, if at any time called upon in writing by the Commissioner so to do, shall satisfy him by the production of such evidence or information as he may require, that the bank is not in contravention of any of the provisions of section 23, 24, 27, 28 or 29.

Definitions.

32. (1) For the purposes of sections 24 and 25, the expression “unsecured” means granted without security, or, in respect of any advance, loan or credit facility granted or financial guarantee or other liability incurred with security, any part thereof which at any time exceeds the market value of assets constituting that security and the expression “security” shall mean such security as would, in the opinion of the Commissioner, be acceptable to a prudent banker.

(2) For the purposes of sections 27, 28 and 29, “value” means—

  • (a) in the case of shares in a company other than a trust company registered under Part VIII of the Trustee Ordinance, the total of the current book value and the amount for the time being remaining unpaid on the shares; and

  • (b) in any other case, the current book value.

(3) For the purposes of sections 23, 24, 27, 28, 29, 30 and 31, the expression “reserves” means reserves which appear in the accounts of the bank, and does not include any reserves which are represented by the writing down of the value of assets or by provision for the depreciation of fixed assets.

Alteration in constitution and amalgamation.

33. (1) A bank, within 3 months after the making of any alteration to the memorandum of association, articles of association or other instrument under which it is incorporated, shall furnish to the Commissioner particulars of such alteration in writing, verified by a director of the bank.

(2) A bank incorporated in Hong Kong shall not, without the prior approval of the Financial Secretary,—

  • (a) make any arrangement or enter into any agreement for the sale or disposal of its business by amalgamation or otherwise;

  • (b) make any reconstruction of its capital; or

  • (c) make any arrangement or enter into any agreement for the purchase or acquisition of the business of any other bank.

(3) A bank aggrieved by a decision of the Financial Secretary refusing his approval for the purposes of subsection (2) may appeal to the Governor in Council.

Duty to report inability to meet obligations.

34. If any bank is likely to become unable to meet its obligations or if it is about to suspend payment it shall forthwith report all relevant facts, circumstances and information to the Commissioner.

Use of English language.

35. (1) All entries in books and accounts kept by banks shall be recorded in the English language and the Arabic system of numerals shall be employed.

(2) All forms and information required to be sent and all returns required to be made to the Commissioner pursuant to any of the provisions of this Ordinance shall be compiled in the English language and the Arabic system of numerals.

Audit.

36. (1) Every bank which is a company, and its auditors, shall comply with the provisions of the Companies Ordinance with respect to the audit of a company’s accounts, whether or not the bank is incorporated under that Ordinance.

(2) The Commissioner may appoint another auditor to act with the auditor appointed by a bank in accordance with the Companies Ordinance or, in the case of an unincorporated bank, section 44A.

Publication and exhibition of audited balance sheet.

37. (1) Every bank shall, not later than 6 months after the close of each financial year, publish in one English daily newspaper and one Chinese daily newspaper, each of which shall be a newspaper circulating in Hong Kong, and exhibit thereafter throughout the year in a conspicuous position in the principal place of business thereof in Hong Kong and in each local branch thereof—

  • (a) a copy of its latest audited annual balance sheet, and any notes thereon, a copy of the profit and loss account and a copy of the report of the auditor made pursuant to section 141 of the Companies Ordinance or section 44A of this Ordinance;

  • (b) the full and correct names of all persons who are directors or managers for the time being of the bank; and

  • (c) the names of all subsidiary companies, for the time being, of the bank.

(2) A copy of each of the documents referred to in subsection (1) shall be sent to the Commissioner by a bank, prior to first publication thereof under subsection (1) with a list of the names of all companies of which, for the time being, its directors are also directors.

(3) The documents sent to the Commissioner pursuant to subsection (2) shall be accompanied, in the case of a bank which is a company limited by shares or limited by guarantee and having a share capital, by a copy of the report of the directors laid before the company in general meeting in accordance with section 129D(1) of the Companies Ordinance.

(4) If, in the case of a bank incorporated outside Hong Kong, the Commissioner is satisfied that a report has been duly made by an auditor, or any person exercising a similar function in accordance with the law of the country, state or place in which such bank is incorporated, upon the annual balance sheet and accounts of the bank and a copy of such report and the report of the directors of such bank is sent to the Commissioner, he may by notice in writing exempt any such bank from the provisions of this section and of section 36.

(5) The Commissioner may require any bank to submit such further information as he may deem necessary for the proper understanding of the balance sheet and profit and loss accounts sent by that bank under subsection (2); and such information shall be submitted within such period and in such manner as the Commissioner may require.

(6) The annual balance sheet of a bank, copies of which are required by subsection (1) to be published and exhibited, shall be in such form as the Commissioner may approve.

Returns and information to be submitted to the Commissioner.

38. (1) Every bank shall submit to the Commissioner—

  • (a) not later than 14 days after the last day of each calendar month a return, in such form as the Commissioner may specify, showing the assets and liabilities of its principal place of business in Hong Kong and all local branches thereof at the close of business on the last business day of that month; and

  • (b) not later than 14 days after the last day of each quarter ending on 31 March, 30 June, 30 September and 31 December respectively, or upon any other day which may be approved by the Commissioner, a return, in such form as he may specify, relating to its principal place of business in Hong Kong and all local branches thereof as at the close of business on the last business day of the preceding quarter:

Provided that the Commissioner may by permission in writing allow the returns referred to in paragraphs (a) and (b) to be submitted at less frequent intervals.

(2) The Commissioner may require a bank to submit such further information as he may consider necessary for the proper understanding of the financial position of the bank and such information shall be submitted within such period and in such manner as the Commissioner may require.

(2A) The Commissioner may require any return submitted to him pursuant to subsection (1), or any information submitted to him pursuant to a requirement under subsection (2), to be accompanied by a certificate—

  • (a) of the auditor appointed under section 36(1) or of the auditors appointed under section 36(1) and (2), as the case may be;

  • (b) in the case of a bank which has been exempted under section 37(4) from the provisions of section 36, of an auditor approved by the Commissioner for the purposes of this paragraph,

as to whether or not, in the opinion of the auditor or auditors, the return or information is correctly compiled from the books and records of the bank.

(3) Notwithstanding anything in sections 53 and 60, the Commissioner may prepare and publish consolidated returns aggregating the figures in the returns furnished under subsection (1).

Information on shareholding.

38A. (1) Every bank incorporated in Hong Kong shall, if so required by the Commissioner, inform him of the name and address of, and the nature of the business carried on by, every company (whether incorporated in or outside Hong Kong and whether or not the company is carrying on business in Hong Kong or has complied with the provisions of section 333 of the Companies Ordinance) in which the bank holds the beneficial ownership, directly or indirectly, of an aggregate of 20 per cent or more of the share capital.

(2) The Commissioner may require any bank which has submitted to him information pursuant to subsection (1) to submit to him such further information as he may consider necessary to obtain, in the interests of the depositors of the bank, about the assets, liabilities and transactions of any such company.

(3) Information that is required to be submitted under this section shall be submitted within such period and in such manner as the Commissioner may require.

Production of bank’s books, etc.

39. For the purpose of an examination or investigation under section 15, a bank shall afford the person carrying out thet examination or investigation access to its books and accounts, to documents of title to its assets and other documents, to all securities held by it in respect of its customers’ transactions and its cash and to such information and facilities as may be required to conduct the examination or investigation, and shall produce to the person carrying out the examination or investigation such books, accounts, documents, securities, cash or other information as he may require:

Provided that, so far as is consistent with the conduct of the examination or investigation, such books, accounts, documents, securities and cash shall not be required to be produced at such times and such places as shall interfere with the proper conduct of the normal daily business of the bank.

Examination by authorities from outside Hong Kong.

39A. The appropriate recognized banking supervisory authority of a country, state or place outside Hong Kong may, with the approval of the Commissioner, examine the books, accounts and transactions of the principal place of business in Hong Kong or any local branch, or the documents of any local representative office,—

  • (a) of a bank which is incorporated in that country, state or place; or

  • (b) of a bank which is incorporated in or outside Hong Kong and is a subsidiary of a bank which is incorporated in that country, state or place.

Licensed bank under control of Commissioner to co-operate with Commissioner.

40. (1) Where the Commissioner has assumed control of the business of a bank under section 13(1) (iii) or pursuant to an order of the Governor in Council under section 14(1) (ii), or some other person has assumed control of the business of a bank pursuant to a direction under section 13(1) (iii) or an order of the Governor in Council under section 14(1) (ii), the bank shall submit its business to the control of the Commissioner or such other person and shall provide him with the services of such members of its staff and such other facilities as he may consider necessary for carrying on the business of the bank and in connexion therewith the directors and managers shall comply with and carry out any directions which the Commissioner or such other person may give to them.

(2) Without prejudice to the provisions of subsection (1), where by reason of the absence of directors or for any reason whatsoever the seal of a bank whose business is—

  • (a) in the control of the Commissioner under section 13(1) (iii) or pursuant to an order of the Governor in Council under section 14(1) (ii), or

  • (b) in the control of some other person pursuant to a direction under section 13(1) (iii) or an order of the Governor in Council under section 14(1) (ii),

cannot be affixed to an instrument in accordance with the bank’s articles of association or regulations, the seal may be affixed in the presence of, and its affixing may be attested by, the Commissioner or such other person or a person authorized for the purpose by the Commissioner or such other person.

(3) Where the seal of a bank has been affixed to an instrument, and the affixing thereof has been attested, in accordance with subsection (2), no person shall be concerned to see that the seal could not be affixed in accordance with the bank’s articles of association or regulations.

Disqualification of directors and employees of banks.

41. Notwithstanding the provisions of any other enactment, no person—

  • (a) who is or who becomes bankrupt, suspends payment or compounds with his creditors; or

  • (b) who is or who has been convicted in any country of an offence involving dishonesty or fraud and has not received a full pardon for the offence of which he was convicted; or

  • (c) who has been a director of, or directly concerned in the management of, a bank licensed under this Ordinance or which was licensed under the Banking Ordinance 1948, now repealed, which is being or has been wound up by a court or the licence of which has been revoked,

shall, without the consent in writing of the Commissioner, act or continue to act as a director, manager, secretary or other employee of any bank.

Execution of instruments under seal.

41A. Notwithstanding anything contained in the articles of association or regulations of any bank incorporated in Hong Kong with respect to the execution of instruments under its seal, but without prejudice to anything in such articles or regulations not inconsistent herewith, the seal of the bank shall not be affixed to any instrument except in the presence of a director of the bank and of one other person being either a director or an officer of the bank duly authorized in that behalf, and that director and such other person shall sign every instrument to which the seal of the company is so affixed in their presence.

Part VI. Unincorporated Banks

Grant of licences to unincorporated banks.

42. (1) Notwithstanding the provisions of section 5, the Governor in Council may issue a licence to carry on banking business in Hong Kong to any unincorporated person or body of persons who or which, at the commencement of this Ordinance, held a valid licence issued under the Banking Ordinance 1948, now repealed.

(2) A licence may be granted under subsection (1), notwithstanding that the unincorporated person or body of persons does not comply and does not propose to comply with the provision of section 8, 18, 19 or 20.

Application for licence under section 42.

43. (1) An application for a licence under section 42 shall be made to the Governor in Council through the Commissioner.

(2) An application for a licence under section 42 shall be accompanied by such documents and information as the Commissioner or the Governor in Council may require.

Licence fee for unincorporated bank.

44. (1) An unincorporated bank shall pay an annual licence fee of $5,000 or such other sum as may be specified by the Governor in Council and notified in the Gazette.

(2) The fees payable under this section shall be paid upon the grant of a licence and thereafter upon the anniversary of the date of the grant of such licence.

(3) The Director of Accounting Services shall cause to be published in the Gazette each year in the month of April the name of every unincorporated bank which has within the preceding financial year paid the fees payable under this section.

Auditor.

44A. (1) Every unincorporated bank shall appoint annually an auditor.

(2) The duties of the auditor so appointed shall be—

  • (a) to carry out for the year in respect of which he is appointed an audit of the accounts of the bank;

  • (b) to make a report to the directors of the bank on the audited accounts, the balance sheet and the profit and loss account of the bank; and

  • (c) in every such report to state—

    • (i) whether or not all the information and explanations which were in the opinion of the auditor necessary for the purposes of the audit have been obtained;

    • (ii) whether or not, according to the best of the information and explanations given to him, the balance sheet and profit and loss account referred to in the report give in his opinion a true and fair view of the state of the affairs of the bank at the date of the balance sheet, and of the profit or loss for its financial year, regard being had, inter alia, to the provisions of this Ordinance;

    • (iii) whether or not in his opinion proper books of account have been kept by the bank so far as appears from the audit of the accounts; and

    • (iv) whether or not in his opinion proper returns, adequate for the purposes of the audit, have been received by him from branches of the bank not visited.

General application of Ordinance to unincorporated banks and members.

45. (1) An unincorporated bank shall, subject to the provisions of this Part, be deemed to be a bank for the purposes of this Ordinance.

(2) Any person to whom, and any member or partner of any unincorporated body of persons to which, a licence is granted under section 42 shall be deemed for the purposes of this Ordinance to be a director of a bank.

Application of sections of Ordinance to unincorporated banks.

46. An unincorporated bank shall, subject to the provisions of this Part, be subject to all the provisions of this Ordinance, mutatis mutandis, except—

  • (a) section 15(2)(a);

  • (b) sections 18, 19, 19A, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31 and 32;

  • (c) section 33(1);

  • (d) section 37 (1 )(c); and

  • (e) any other provision of this Ordinance which is inconsistent with the provisions of this Part or which is inapplicable in the case of an unincorporated bank.

Prohibition on use of word “bank”.

47. An unincorporated bank shall not use the word “bank” or any of its derivatives in English, a translation thereof in any language or the Chinese expression “ngan hong” (

) in the description or title under which it carries on business in Hong Kong.

Prohibition on total of deposits.

48. An unincorporated bank shall not accept or hold deposits in excess, at any one time, of $2,000,000 or such other sum as the Governor in Council may from time to time specify either generally or in any particular case.

Death of member of unincorporated bank.

49. (1) Upon the death of a member or partner of an unincorporated bank, the licence issued to the unincorporated bank shall become void and of no effect upon a date 6 calendar months after the date of the death except for the purpose of winding up the banking business of the unincorporated bank.

(2) Notwithstanding the provisions of subsection (1), the Governor in Council may issue a new licence under section 42 to the remaining members or partners of that body of persons or to a body of persons consisting of the remaining members of that body of persons and other members or partners who have acquired their interest in the business and assets of the unincorporated bank of which the deceased was a member under the will or upon the intestacy of the deceased.

(3) The remaining members or partners of an unincorporated bank shall notify the Commissioner of the death of a member or partner of the unincorporated bank within 1 month after the death.

Part VII. Miscellaneous

Governor in Council to decide whether or not banking business is being conducted.

50. (1) In the event of any dispute as to whether a person is carrying on a banking business, the matter, except in the case of a prosecution for any offence against this Ordinance, shall be submitted to the Governor in Council for his determination; and the decision of the Governor in Council shall be final and conclusive for all purposes of this Ordinance.

(2) A submission under subsection (1) may be made by the Financial Secretary or by any bank or person which or who is interested in the determination of the matter.

Power of entry, search, detention and arrest.

51. Whenever it appears to a magistrate, upon the oath of any person, that there is reasonable cause to suspect that a contravention of this Ordinance has been or is being committed in any building or place, such magistrate may by warrant directed to any police officer of or above the rank of inspector empower him with such assistance as may be necessary by day or night—

  • (a) to enter, and, if necessary, to break into such building or place;

  • (b) to search for, detain and take away or remove any machinery, type, appliance, paper, books, documents, accounts, or any thing whatsoever which appears to afford evidence of the commission of such contravention.

Indemnity.

52. No liability shall be incurred by—

  • (a) any public officer;

  • (b) any person authorized or employed by the Commissioner under section 4A;

  • (c) any person appointed under section 13(1) (ii), or by order of the Governor in Council under section 14(1) (ii), to advise a bank in the proper conduct of its business; or

  • (d) any person who has assumed control of the business of a bank pursuant to a direction under section 13(1) (iii) or an order of the Governor in Council under section 14(1) (ii),

as a result of anything done by him bona fide in the exercise of any power, or the performance of any function or duty, conferred or imposed by or under this Ordinance.

Secrecy.

53. (1) Every person to whom this subsection applies—

  • (a) shall preserve and aid in preserving secrecy with regard to all matters relating to the affairs of any person that may come to his knowledge in the exercise or performance of any function or duty under this Ordinance;

  • (b) shall not communicate any such matter to any person other than the person to whom such matter relates; and

  • (c) shall not suffer or permit any person to have access to any records in the possession, custody or control of any person to whom this subsection applies,

except as may be necessary for the exercise or performance of such function or duty or for carrying into effect the provisions of this Ordinance.

(1A) Subsection (1) shall apply to—

  • (a) any public officer;

  • (b) any person authorized or employed by the Commissioner under section 4A;

  • (c) any person appointed under section 13(1) (ii), or by order of the Governor in Council under section 14(1) (ii), to advise a bank in the proper conduct of its business;

  • (d) any person who has assumed control of the business of a bank pursuant to a direction under section 13(1) (iii) or an order of the Governor in Council under section 14(1) (ii); and

  • (e) any person employed by or assisting a person to whom this subsection applies by virtue of paragraph (b),(c) or (d),

who exercises or performs any function or duty under this Ordinance.

(1B) Where under section 13(1) (iii) or under section 14(1) (ii) the Commissoner assumes control of and carries on the business of a bank or any other person is directed so to do, subsection (1) shall not apply if the Commissioner or such other person is required to comply with a notice to furnish returns and information under section 51 of the Inland Revenue Ordinance.

(2) No person who exercises any function or performs any duty in the course of an examination or investigation under section 12D, 12G or 15 or who receives reports, returns or information submitted under section 12D, 12G, 15, 38, 38A or 39 shall be required to produce in any court any book, account or other document whatsoever or to divulge or communicate to any court any matter or thing coming under his notice in the performance of his functions or duties under this Ordinance, except as may be necessary in the course of a prosecution for any offence or of a winding-up by the High Court under section 55.

Disclosure of information relating to banks.

53A. (1) Subject to subsection (3) and notwithstanding anything in sections 53 and 60, the Commissioner may, if he considers that it is in the interests of the depositors of the bank, provide to the appropriate recognized banking supervisory authority of a country, state or place outside Hong Kong which is, in his opinion, subject to adequate secrecy provisions in that country, state or place information on matters relating to the affairs of a bank—

  • (a) which is incorporated in that country, state or place;

  • (b) which is incorporated in or outside Hong Kong and is a subsidiary or associate of a bank incorporated in that country, state or place; or

  • (c) which is incorporated in Hong Kong and which has, or is proposing to establish, in that country, state or place an overseas branch, overseas representative office, subsidiary or associate of that bank, and where, in the case of a subsidiary or associate, such subsidiary or associate is or would be subject to supervision by that recognized banking supervisory authority.

(2) Subject to subsection (3) and notwithstanding anything in sections 53 and 60, the Commissioner may, if he considers that it is in the interests of customers of the representative office, provide to the appropriate recognized banking supervisory authority of a country, state or place outside Hong Kong which is, in his opinion, subject to adequate secrecy provisions in that country, state or place information on matters relating to the affairs of a local representative office which is maintained by a bank incorporated in that country, state or place.

(3) Under no circumstances shall the Commissioner provide any information under this section relating to the affairs of any individual customer of a bank or local representative office.

Recovery of fees, expenses, etc.

54. (1) There shall be recoverable at the suit of the Attorney General as a civil debt due to the Crown from the bank concerned, or in the case of an unincorporated bank, from the directors jointly and severally thereof—

  • (a) the amount of any fees payable under section 12, 12B, 12E, 12H or 44;

  • (b) any remuneration and expenses payable by the bank to any person appointed under section 13(1) (ii), or by order of the Governor in Council under section 14(1) (ii), to advise the bank in the proper conduct of its business;

  • (c) any remuneration and expenses payable by the bank to the Commissioner or to any person employed or authorized by the Commissioner under section 4A to assist him in the control and carrying on of the business of the bank or to any other person who has assumed control of the business of the bank pursuant to a direction under section 13(1) (iii) or an order of the Governnor in Council under section 14(1) (ii);

  • (d) any expenses ordered by the Financial Secretary to be defrayed by the bank under section 15(3); and

  • (e) any remuneration payable by the bank to an auditor appointed under section 36(2).

(2) There shall be recoverable, at the suit of the Attorney General, as a civil debt due from the applicants, jointly and severally, to the Crown, any expenses ordered by the Financial Secretary to be defrayed by the applicants under section 15(3).

(3) Any sum recoverable under this section at the suit of the Attorney General shall be a debt due to the Crown within the meaning of section 265(1) (a) of the Companies Ordinance and section 38(1) (a) of the Bankruptcy Ordinance.

Winding-up of banks.

55. (1) The provisions of the Companies Ordinance with regard to a creditors’ voluntary winding-up shall not apply to banking companies.

(2) On a petition by the Financial Secretary, acting in accordance with a direction of the Governor in Council under section 14(1) (iii), the High Court may—

  • (a) on any ground specified in section 177 of the Companies Ordinance; or

  • (b) if it is satisfied that it is in the public interest that the bank should be wound up,

order the winding up of a bank in accordance with the provisions of the Companies Ordinance relating to the winding up of companies.

(3) Where before the presentation of a petition for the winding up of a bank by the court, whether or not the petition is presented by the Financial Secretary, the Commissioner has assumed control of the business of the bank under section 13(1) (iii) or pursuant to an order of the Governor in Council under section 14(1) (ii) or some other person has assumed control of the business of the bank pursuant to a direction of the Commissioner under section 13(1) (iii) or an order of the Governor in Council under section 14(1) (ii) and such control has continued at all times until the presentation of the petition, and a winding-up order is made thereon, then, notwithstanding the provisions of section 184(2) of the Companies Ordinance, the winding up of the bank by the court shall, for the purposes of sections 170, 179, 182, 183, 266, 267, 269 and 274, and paragraphs (d), (e), (h), (i), (j), (k), (I), (m), (n) and (o) of section 271(1), of the Companies Ordinance, be deemed to have commenced at the time the Commissioner or such other person assumed control of the business of the bank.

(4) Where the Commissioner has assumed control of the business of a bank under section 13(1) (iii) or pursuant to an order of the Governor in Council under section 14(1)(ii) or some other person has assumed control of the business of a bank pursuant to a direction of the Commissioner under section 13(1) (iii) or an order of the Governor in Council under section 14(1) (ii), nothing in section 182 of the Companies Ordinance shall invalidate any disposition of the property of the bank made by it under the direction of the Commissioner or such person acting bona fide in the course of the carrying on of the business of the bank.

Bankruptcy of unincorporated banks.

55A. Where—

  • (a) the Commissioner has assumed control of the business of an unincorporated bank under section 13(1) (iii) or pursuant to an order of the Governor in Council under section 14(1) (ii) or some other person has assumed control of the business of such a bank pursuant to a direction of the Commissioner under sec-tion 13(1) (iii) or an order of the Governor in Council under section 14(1) (ii); and

  • (b) within 3 months thereafter, whilst the Commissioner or such other person continues to be in control of the business of such bank, a bankruptcy petition is presented against the bank under the Bankruptcy Ordinance, and on that petition a receiving order is at any time made under the said Ordinance against the bank,

then—

  • (i) if the date on which the Commissioner or such other person as is referred to in paragraph (a) assumed control of the business of such bank preceded the time of the first of the acts of bankruptcy (within the meaning of the Bankruptcy Ordinance) proved to have been committed by such bank within the 3 months next preceding the date of the presentation of the bankruptcy petition, the bankruptcy of the bank shall, for the purposes of sections 40, 43, 47(2) and (3), and 48, of the Bankruptcy Ordinance, be deemed, notwithstanding the provisions of section 42 of the Bankruptcy Ordinance, to have relation back to and to commence at the time the Commissioner or such other person assumed control of the business of such bank;

  • (ii) section 45(1) of the Bankruptcy Ordinance shall apply as if it included, as an alternative to the reference to notice of the presentation of any bankruptcy petition by or against the debtor or notice of the commission of any available act of bankruptcy by the debtor, a reference, in the case of a debtor which is an unincorporated bank, to notice that the Commissioner or such other person as is referred to in paragraph (a) has so assumed control of the business of the debtor;

  • (iii) section 49(1) of the Bankruptcy Ordinance shall apply as if it included, as an alternative to the reference to the person first referred to therein being adjudged bankrupt on a bankruptcy petition presented within 3 months after the date specified therein, a reference, in a case where such person is an unincorporated bank, to the assumption as aforesaid by the Commissioner or such other person as is referred to in paragraph (a) of control of the business of such person within 3 months after such date;

  • (iv) section 50(1) of the Bankruptcy Ordinance shall apply as if it included, as an alternative to the reference in paragraph (b) of the proviso thereto to notice of any available act of bankruptcy committed by the bankrupt before the time referred to therein, a reference, in the case of a bankrupt which is an unincorporated bank, to notice that, before the said time, the Commissioner or such other person as is referred to in paragraph (a) has so assumed control of the business of the bankrupt;

  • (v) section 51 of the Bankruptcy Ordinance shall apply as if it included, as an alternative to the reference to notice of the presentation of a bankruptcy petition, a reference, in a case where the person referred to therein is an unincorporated bank, to notice that the Commissioner or such other person as is referred to in paragraph (a) has so assumed control of the business of such person; and

  • (vi) sections 129, 133, 134, 135 and 136 of the Bankruptcy Ordinance shall apply as if, in a case where the person referred to therein is an unincorporated bank, the reference or references therein to the presentation of a bankruptcy petition included in each case a reference to the assumption as aforesaid by the Commissioner or such other person as is referred to in paragraph (a) of control of the business of such person.

Power of Commissioner to specify forms.

56. The Commissioner may specify the form of any notice or other document required for the purposes of this Ordinance.

Application of other Ordinances.

57. (1) Notwithstanding anything in the Hongkong and Shanghai Banking Corporation Ordinance, all the provisions of this Ordinance shall apply to The Hongkong and Shanghai Banking Corporation.

(2) Where there is any conflict or inconsistency between the provisions of this Ordinance and the provisions of the Hongkong and Shanghai Banking Corporation Ordinance the provisions of this Ordinance shall prevail.

(3) A bank which is incorporated or registered under the Companies Ordinance shall be subject to the provisions of that Ordinance as well as to the provisions of this Ordinance, save that where there is any conflict or inconsistency between the provisions of this Ordinance and the provisions of the Companies Ordinance the provisions of this Ordinance shall prevail.

Part VIII. Offences

Defence where director or manager prosecuted.

58. Any person who is prosecuted in respect of any offence under section 61, 63, 65 or 66 shall have a good defence if he proves that the offence was committed without his consent or connivance and that he exercised all such diligence to prevent the commission of the offence as he ought to have exercised having regard to his position in the bank in respect of which the offence was committed.

Offences by directors, employees and agents.

59. Any director, manager, trustee, employee or agent of any bank who, with intent to deceive—

  • (a) wilfully makes, or causes to be made, a false entry in any book of record or in any report, slip, document or statement of the business, affairs, transactions, condition, assets or accounts of such bank; or

  • (b) wilfully omits to make an entry in any book of record or in any report, slip, document or statement of the business, affairs, transactions, condition, assets or accounts of such bank, or wilfully causes any such entry to be omitted; or

  • (c) wilfully alters, abstracts, conceals or destroys an entry in any book of record, or in any report, slip, document or statement of the business, affairs, transactions, condition, assets or accounts of such bank, or wilfully causes any such entry to be altered, abstracted, concealed or destroyed,

shall be liable—

  • (i) on conviction on indictment to a fine of $500,000 and to imprisonment for 5 years; or

  • (ii) on summary conviction to a fine of $50,000 and to imprisonment for 2 years.

Breach of secrecy.

60. Any person who—

  • (a) contravenes section 53(1); or

  • (b) aids, abets, counsels or procures any person to contravene section 53(1),

shall be guilty of an offence and shall be liable—

  • (i) on conviction on indictment to a fine of $100,000 and to imprisonment for 2 years; or

  • (ii) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

Penalty in event of contravention of section 5 or 47.

61. (1) Any person who and every director and every manager of a company which contravenes section 5 shall be guilty of an offence and shall be liable—

  • (a) on conviction on indictment to a fine of $500,000 and to imprisonment for 5 years; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

(2) Every director and every manager of an unincorporated bank which contravenes section 47 shall be guilty of an offence and shall be liable—

  • (a) on conviction on indictment to a fine of $100,000 and to imprisonment for 2 years; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

Prohibition on receipt of commission by staff.

62. Any director or employee (other than a compradore) of a bank, who asks for or receives, consents or agrees to receive any gift, commission, emolument, service, gratuity, money, property or thing of value for his own personal benefit or advantage or for that of any of his relatives, for procuring or endeavouring to procure for any person any advance, loan, financial guarantee or credit facility from that bank or the purchase or discount of any draft, note, cheque, bill of exchange or other obligation by that bank, or for permitting any person to overdraw any account with that bank, shall be guilty of an offence and shall be liable-

  • (a) on conviction on indictment to a fine of $100,000 and to imprisonment for 5 years; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 2 years.

Criminal liability of directors and managers.

63. (1) Every director and every manager of a bank which contravenes section 18 shall be guilty of an offence and shall be liable on conviction on indictment to a fine of $500,000 and to imprisonment for 5 years and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

(2) Every director and every manager of a bank which contravenes section 20 shall be guilty of an offence and shall be liable on conviction on indictment to a fine of $500,000 and to imprisonment for 5 years and, in the case of a continuing offence, to a further fine of $25,000 for every day during which the offence continues.

(3) Every director and every manager of a bank which contravenes section 23, 24(1) or (2), 27(1), 28, 29 or 34 shall be guilty of an offence and shall be liable—

  • (a) on conviction on indictment to a fine of $200,000 and to imprisonment for 2 years and, in the case of a continuing offence, to a further fine of $10,000 for every day during which the offence continues; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

(4) Every director and every manager of a bank which contravenes section 19, 19A, 21, 33(2), 36(1) or 44A(1) shall be guilty of an offence and shall be liable—

  • (a) on conviction on indictment to a fine of $200,000 and to imprisonment for 2 years; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

(5) Every director and every manager of a bank which contravenes any condition attached under section 7(1 )(b) or 7A, or deemed to be attached under section 12F(1) or 12(G), to the licence held by the bank or any condition attached under section 12A(4) or 12F(4), or which contravenes section 12A(1) or 37(1), (2), (3) or (6) shall be guilty of an offence and shall be liable—

  • (a) on conviction on indictment to a fine of $200,000; or

  • (b) on summary conviction to a fine of $50,000,

and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

(6) Every director and every manager of a bank which contravenes section 25, 26, 39 or 48 shall be guilty of an offence and shall be liable—

  • (a) on conviction on indictment to a fine of $100,000 and to imprisonment for 12 months; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months,

and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

(7) Every director and every manager of a bank which contravenes section 22 shall be guilty of an offence and shall be liable—

  • (a) on conviction on indictment to a fine of $100,000 and to imprisonment for 12 months; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

(8) Every director and every manager of a bank which contravenes section 33(1), 35, 38(1) or 49(3) shall be guilty of an offence and shall be liable on conviction on indictment or on summary conviction to a fine of $50,000 and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

64. {Repealed, 27 of 1981, s. 23}

Offence and penalty for failure to comply with orders, requirements, etc.

65. (1) Every director and every manager of a bank which fails to comply with an order of the Governor in Council under section 14(1)(ii) shall be guilty of an offence and shall be liable—

  • (a) on conviction on indictment to a fine of $1,000,000 and to imprisonment for 5 years and, in the case of a continuing offence, to a further fine of $50,000 for every day during which the offence continues; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 2 years and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

(2) Every director and every manager—

  • (a) of a bank which fails to comply with any requirement of the Commissioner under section 13(1) (i);

  • (b) of a bank which contravenes section 40(1); or

  • (c) who fails to comply with or to carry out any direction given by the Commissioner or some other person under section 40(1),

shall be guilty of an offence and shall be liable—

  • (i) on conviction on indictment to a fine of $1,000,000 and to imprisonment for 5 years and, in the case of a continuing offence, to a further fine of $50,000 for every day during which the offence continues; or

  • (ii) on summary conviction to a fine of $50,000 and to imprisonment for 2 years and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

(3) Every director and every manager of a bank which fails to comply with any requirement of the Commissioner under section 31, 38(2) or 38A shall be guilty of an offence and shall be liable—

  • (a) on conviction on indictment to a fine of $200,000 and to imprisonment for 2 years and, in the case of a continuing offence, to a further fine of $10,000 for every day during which the offence continues; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

(4) Every director and every manager of a bank which fails to comply with any requirement of the Commissioner under section 37(5) or 38 (2A) shall be guility of an offence and shall be liable on conviction on indictment or on summary conviction to a fine of $50,000 and to imprisonment for 6 months and, in the case of a continuing offence, to a further fine of $2,500 for every day during which the offence continues.

Offence and penalty for production of false books, etc.

66. If a bank produces any book, account, document, security or information whatsoever under section 12D, 12G, 38A or 39 which is false in a material particular, every director and every manager of such bank shall be guilty of an offence and shall be liable—

  • (a) on conviction on indictment to a fine of $500,000 and to imprisonment for 2 years; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

Offence and penalty for false certificates.

66A. Any person who signs any document for the purposes of section 12D, 12G or 38A which he knows or reasonably ought to know to be false in a material particular shall be guilty of an offence and shall be liable—

  • (a) on conviction on indictment to a fine of $500,000 and to imprisonment for 2 years; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

Offences against sections 12C and 12D.

66B. Any person in charge, or who appears to be in charge, of a local representative office established or maintained in contravention of section 12C(1) or in respect of which any condition attached under section 12C(4) is contravened, or any person who fails to comply with any requirement of the Commissioner under section 12D, shall be guilty of an offence and shall be liable—

  • (a) on conviction on indictment to a fine of $200,000; or

  • (b) on summary conviction to a fine of $50,000,

and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

67. (1) Any person, other than a bank licensed under this Ordinance, a bank incorporated outside Hong Kong which is recognized as the central bank of the country or place in which it is incorporated, or a local representative office maintained in accordance with this Ordinance, who, without the written consent of the Commissioner,—

Restriction on use of title “bank”.

  • (a) uses the word “bank” or any of its derivatives in English, or any translation thereof in any language or uses the Chinese expression “ngan hong” (

    ), or uses the letters “b”, “a”, “n”, “k” in that order, in the description or title under which such person is carrying on business in Hong Kong; or

  • (b) makes any representation in any bill head, letter paper, notice, advertisement or in any other manner whatsoever that such person is a bank or is carrying on banking business in Hong Kong,

shall be liable—

  • (i) on conviction on indictment to a fine of $200,000 and to imprisonment for 12 months; or

  • (ii) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

(2) Nothing in this section shall apply to any association of banks formed for the protection or promotion of their mutual interests or to any association of employees of banks formed for the protection or promotion of the mutual interests of such employees.

Offence against section 41.

68. Any person who contravenes any of the provisions of section 41 shall be guilty of an offence and shall be liable—

  • (a) on conviction on indictment to a fine of $100,000 and to imprisonment for 12 months; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

Consent of Attorney General.

69. No prosecution in respect of any offence under this Ordinance shall be instituted without the consent in writing of the Attorney General.

Part IX. Transitional

70–73. {Repealed, 26 of 1967, s. 62}

Keeping of books.

74. Notwithstanding the provisions of section 35, any bank which, at the commencement of this Ordinance, held a valid licence issued under the Banking Ordinance 1948, now repealed, and kept its books and accounts in some other language or in some other system of numerals than what is required by that section may continue to do so but shall provide on demand to its auditor or to the Commissioner such translations into the English language and the Arabic system of numerals as either may require, and the cost of so doing shall be borne by the bank concerned.

75–76. {Repealed, 27 of 1981, s. 28}

Transitional provisions consequent upon Banking (Amendment) Ordinance 1967.

76A. (1) Any licence granted by the Financial Secretary under section 7 which is in force at the commencement of the Banking (Amendment) Ordinance 1967, whether the same was granted thereunder pursuant to the repealed section 73 or otherwise, shall be deemed to have been granted under section 7 by the Governor in Council.

(2) Any licence granted by the Financial Secretary under section 42 which is in force at the commencement of the Banking (Amendment) Ordinance 1967 shall be deemed to have been granted under section 42 by the Governor in Council.

(3) {Deleted, 27 of 1981, s. 29}

(4) Any approval given by the Financial Secretary under section 27(2) and any consent given by the Financial Secretary under section 41 or 67(1) which is in force at the commencement of the Banking (Amendment) Ordinance 1967 shall be deemed to have been given under the same provision by the Commissioner.

Deposit-Taking Companies Ordinance 1

To regulate the taking of money on deposit and to make provision for the protection of persons who deposit money and for the regulation of deposit-taking business for monetary policy purposes.

[1st April, 1976]

Part I. Preliminary

1. This Ordinance may be cited as the Deposit-Taking Companies Short title. Ordinance.

2. (1) In this Ordinance, unless the context otherwise requires—

Interpretation.

“accounts” means all methods of keeping accounts whether in writing, print or by any machine or device;

“advertisement” includes every form of advertising, whether notified or published—

  • (a) in a newspaper, magazine, journal or other periodical publication;

  • (b) by the display of posters or notices;

  • (c) by means of circulars, brochures, pamphlets or handbills;

  • (d) by an exhibition of photographs or cinematograph films; or

  • (e) by way of sound broadcasting or television,

and references to the issue of an advertisement shall be construed accordingly;

“auditor” means a professional accountant holding a practising certificate as provided in the Professional Accountants Ordinance;

“certificate of deposit” means a document relating to money, in any currency, which has been deposited with the issuer or some other person, being a document which recognizes an obligation to pay a stated amount to bearer or to order, with or without interest, and being a document by the delivery of which, with or without endorsement, the right to receive that stated amount, with or without interest, is transferable;

“Commissioner” means the Commissioner of Deposit-Taking Companies appointed by section 3A;

“Committee” means the Deposit-Taking Companies Advisory Committee established under section 4;

“company” means a company which is—

  • (a) registered under Part I of the Companies Ordinance;

  • (b) registered under Part IX of the Companies Ordinance; or

  • (c) incorporated outside Hong Kong and which has complied with Part XI of the Companies Ordinance;

“deposit” means a loan of money at interest or repayable at a premium or repayable with any consideration in money or money’s worth, but does not include a loan of money upon terms involving the issue of debentures or other securities in respect of which a prospectus has been registered under the Companies Ordinance; and references to the taking of a deposit shall be construed accordingly;

“depositor” means a person entitled, or prospectively entitled, to repayment of a deposit, whether made by him or not;

“deposit-taking company” means a registered deposit-taking company and a licensed deposit-taking company; “

document” includes a circular, brochure, pamphlet, poster, handbill, prospectus and any other document which is directed at or likely to be read by members of the public; and also includes any newspaper, magazine, journal or other periodical publication;

“issue”, in relation to an advertisement or document, includes publish, circulate, distribute or disseminate the advertisement or document; and also includes causing the advertisement or document to be issued;

“licence” means a licence granted under section 16B;

“licensed bank” means a bank licensed under section 7 or section 42 of the Banking Ordinance;

“licensed deposit-taking company” means a deposit-taking company licensed under section 16B;

“local branch” means a place of business in Hong Kong of a deposit-taking company, other than its principal place of business in Hong Kong, at which it carries on the business of taking deposits;

“money at call” means money payable within not more than 24 hours of a demand therefor, but does not include money payable on demand;

“money at short notice” means money, other than money at call, payable within not more than 7 days of a demand therefor;

“overseas branch” means a branch outside Hong Kong of a deposit-taking company incorporated in Hong Kong, whether or not the business of the branch is limited by the laws or regulations of the country, state or place in which the branch is situated and whether or not the branch is referred to as an agency in such country, state or place, but does not mean an overseas representative office thereof;

“overseas representative office” means an office outside Hong Kong, other than an overseas branch, of a deposit-taking company incorporated in Hong Kong;

“register” means the register maintained under section 12;

“registered deposit-taking company” means a deposit-taking company registered under section 10 other than a licensed deposit-taking company; and “registered”, in relation to a deposit-taking company, means registered under section 10;

“share” means share in the share capital of a company, and includes stock except where a distinction between stock or shares is expressed or implied; and the expression “shareholder” includes a stockholder;

“short-term deposit” means a deposit with an original term to maturity of less than 3 months or with a period of call or notice of less than 3 months;

“specified liquid assets” means all or any of the assets specified in section 24A.

“specified sum”—

  • (a) in relation to a registered deposit-taking company, means the sum referred to in section 8(1) (a); and

  • (b) in relation to a licensed deposit-taking company, means the sum referred to in section 8(1)(b).

(2) For the purposes of this Ordinance—

  • (a) the taking of deposits includes holding out as being prepared to take deposits;

  • (b) an advertisement issued by any person by way of display or exhibition in a public place shall be treated as being issued by him on every day on which he causes or authorizes it to be displayed or exhibited;

  • (c) an advertisement or document which consists of or contains information likely to lead, directly or indirectly, members of the public to—

    • (i) deposit money; or

    • (ii) enter into, or offer to enter into, any agreement to deposit money,

    shall be treated as being an advertisement or document which is or contains an advertisement to members of the public to do that act;

  • (d) an advertisement or document issued by one person on behalf of or to the order of another shall be treated as an advertisement or document, as the case may be, by that other person;

  • (e) a reference to a bank incorporated in a country, state or place, or a deposit-taking company incorporated outside Hong Kong, means a bank or company, as the case may be, incorporated by or under the law or other authority in any country, state or place outside Hong Kong, and in this respect “incorporated” includes established.

Application.

3. (1) This Ordinance shall not apply to the taking of any deposit by—

  • (a) a licensed bank;

  • (b) a trust company registered under Part VIII of the Trustee Ordinance;

  • (c) a credit union registered under the Credit Unions Ordinance;

  • (d) a company, where such deposit is secured by a charge registered or to be registered under the Companies Ordinance;

  • (e) a person bona fide carrying on insurance business where such deposit is taken in the ordinary course of such business;

  • (f) a person bona fide operating a superannuation or provident fund where such deposit is taken for the purposes of such fund;

  • (g) a public utility company specified in the Third Schedule to the Inland Revenue Ordinance where such deposit is taken from a consumer;

  • (h) an employer where such deposit is taken from a bona fide employee;

  • (i) a solicitor or professional accountant (within the meaning of the Professional Accountants Ordinance), where such deposit is taken from a client in the ordinary course of his practice;

  • (j) the Urban Council;

  • (k) a person who is a dealer within the meaning of the Securities Ordinance where section 84 of that Ordinance applies to such deposit;

  • (l) a person or class of persons exempted by the Financial Secretary under section 35.

(2) This Ordinance shall not apply to the taking of any deposit from—

  • (a) a licensed bank;

  • (b) a registered deposit-taking company:

    Provided that section 8(1)(a) shall apply where a deposit is taken by a registered deposit-taking company from another registered deposit-taking company or from a licensed deposit-taking company;

  • (ba) a licensed deposit-taking company:

    Provided that section 8(1)(b) shall apply where a deposit is taken by a licensed deposit-taking company from another licensed deposit-taking company or from a registered deposit-taking company;

  • (c) a money lender licensed under the Money Lenders Ordinance;

  • (d) a pawnbroker licensed under the Pawnbrokers Ordinance.

3A. The Commissioner of Banking appointed under section 4 of the Banking Ordinance shall also be the Commissioner of Deposit-Taking Companies.

Appointment of Commissioner.

3B. (1) The Governor may give to the Financial Secretary and the Commissioner such directions as he thinks fit with respect to the exercise or performance of their respective powers, functions and duties under this Ordinance, either generally or in any particular case.

Power of Governor to give directions.

(2) Notwithstanding section 10 and without prejudice to the generality of subsection (1), the Governor may give a direction to the Commissioner—

  • (a) to suspend the further registration of companies as deposit-taking companies; or

  • (b) to refuse to register as a deposit-taking company, either generally or in any particular case, any company by reference to any class or description or otherwise howsoever.

(3) The Financial Secretary and the Commissioner shall, in the exercise or performance of their respective powers, functions and duties under this Ordinance, comply with any directions given by the Governor under this section.

Part II. Deposit-Taking Companies Advisory Committee

Establishment and functions of Deposit-Taking Companies Advisory Committee.

4. (1) There is hereby established a committee to be known as the Deposit-Taking Companies Advisory Committee.

(2) The functions of the Committee shall be to advise the Governor on matters relating to this Ordinance.

Constitution of the Committee.

5. (1) The Committee shall consist of—

  • (a) the Financial Secretary, who shall be the chairman;

  • (aa) the Secretary for Monetary Affairs;

  • (b) the Commissioner; and

  • (c) such other persons, being not less than 4 or more than 10, as the Governor may appoint.

(2) The members of the Committee appointed under subsection (1) (c) shall hold office for such period, and subject to such terms, as the Governor may specify in their appointment.

(3) In the absence of the chairman at any meeting of the Committee, the Secretary for Monetary Affairs shall act as the chairman.

Part III. Takingof Deposits

Restriction on taking of deposits.

6. (1) No business of taking deposits shall be carried on except by a company which is—

  • (a) a registered deposit-taking company; or

  • (b) a licensed deposit-taking company.

(1A) Subject to subsection (IB), a registered deposit-taking company shall not take any short-term deposit from any person other than a bank or deposit-taking company.

(1B) Subject to subsection (1C) and section 8, a registered deposit-taking company which is registered prior to the commencement of the Deposit-Taking Companies (Amendment) (No. 2) Ordinance 1981 may—

  • (a) during the period of 12 months after such commencement, continue to hold and to take short-term deposits; and

  • (b) during the period beginning from the expiry of 12 months after such commencement and ending on the expiry of 24 months after such commencement, continue to hold and to take short-term deposits amounting at any time in total to not more than 50 per cent of the total value of such deposits held by the registered deposit-taking company at such commencement.

(1C) A registered deposit-taking company referred to in subsection (1B) shall not hold or take any short-term deposits on or after the expiry of 24 months after the commencement of the Deposit-Taking Companies (Amendment) (No. 2) Ordinance 1981.

(1D) A registered deposit-taking company shall not, without the written permission of the Commissioner, repay any deposit within a period of less than 3 months from the date on which the deposit was taken by the company:

Provided that this subsection shall not apply to—

  • (a) deposits taken from banks and deposit-taking companies;

  • (b) deposits taken prior to the commencement of the Deposit-Taking Companies (Amendment) (No. 2) Ordinance 1981; and

  • (c) deposits taken under subsection (IB).

(IE) Subject to section 8, a licensed deposit-taking company may take or hold short-term deposits.

(2) Any person who contravenes subsection (1), or any registered deposit-taking company that contravenes subsection (1A), (IB)(b), (1C) or (ID), shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $500,000 and to imprisonment for 5 years; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

(3) For the purposes of any proceedings for an offence under this section if it is proved that a person took deposits on at least 5 occasions within any period of 30 days, that person shall, until the contrary is proved, be deemed to have been carrying on a business of taking deposits.

7. {Repealed, 26 of 1981, s. 5}

8. (1) Subject to subsection (2)—

Deposit-taking company not to take deposits less than the specified sum.

  • (a) a registered deposit-taking company shall not take any deposit from a depositor of a sum less than the sum specified in item 1 of the First Schedule;

  • (b) a licensed deposit-taking company shall not take any deposit from a depositor of a sum less than the sum specified in item 2 of the First Schedule.

(2) A deposit-taking company may take a deposit from a depositor of a sum less than the specified sum if—

First Schedule.

  • (a) the depositor is a bank;

  • (b) the depositor is a bona fide employee of the company; or

  • (c) the amount standing to the credit of the depositor with the company at the time any such deposit is taken is not less than the specified sum.

(3) Except where a depositor withdraws the whole amount standing to his credit with a deposit-taking company, the company shall not at the time of the withdrawal of any sum permit the amount of the balance standing to the credit of the depositor, other than a depositor who is a bank or bona fide employee of the company, to be less than the specified sum.

(4) Any deposit-taking company that contravenes subsection (1) or (3) shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $500,000 and to imprisonment for 2 years; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

(5) Any person who holds himself out, whether as a broker or agent of a deposit-taking company or otherwise, as being prepared to take from any person, other than a person who is a bank or bona fide employee of the company, any sum less than the specified sum for the purpose of depositing that sum, or that sum and other sums, with the company shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $500,000 and to imprisonment for 2 years; or

  • (b) on summary conviction to a fine $50,000 and to imprisonment for 6 months.

Part IV. Registration of Deposit-Taking Companies

Application for registration.

9. (1) Every company shall, before it commences a business of taking deposits, apply for registration in accordance with this section.

(2) An application for registration shall be in such form as the Commissioner may specify and, subject to subsection (3), shall be accompanied by—

  • (a) a copy of the memorandum and articles of association or other document constituting the company; and

  • (b) such other documents and information as may be required by the Commissioner for the purposes of registration.

(3) Where an application for registration is made by a company that has been carrying on business for more than 18 months immediately preceding the date of the application and that has completed a financial year ending earlier than 6 months before the date of the application, the application shall also be accompanied by duly signed copies of—

  • (a) in the case of a company (other than a private company) registered under Part I of the Companies Ordinance—

    • (i) the profit and loss account of the company for that financial year;

    • (ii) the balance sheet as at the date to which such profit and loss account is made up;

    • (iii) the auditors’ report attached to such balance sheet; and

    • (iv) the report by the directors (with respect to the state of the company’s affairs) attached to such balance sheet,

    which are required to be laid before the company in general meeting in accordance with the Companies Ordinance;

  • (b) in the case of a private company registered under Part I of the Companies Ordinance, or a company registered under Part IX of the Companies Ordinance, the documents specified in paragraph (a) as if the company were a company to which paragraph (a) applies; and

  • (c) in the case of a company incorporated outside Hong Kong and which has complied with Part XI of the Companies Ordinance, the documents specified in paragraph (a) which are required to be delivered to the Registrar of Companies in accordance with section 336 of the Companies Ordinance.

(4) For the purposes of paragraph (c) of subsection (3), a company to which that paragraph applies shall be treated as if it were required to comply with section 336 of the Companies Ordinance notwithstanding that that section would not, by virtue of subsection (6) of that section, otherwise apply to it.

(5) If any document referred to in subsection (2) or (3) is not written in the English language, there shall be annexed to the document a translation of it in English, certified by a director or the secretary of the company as a true and correct translation of that document.

10. (1) Subject to subsection (2), the Commissioner shall, on receipt of an application in accordance with section 9, register a company as a registered deposit-taking company.

Registration of deposit-taking companies.

(2) Subject to any direction given under section 3B(2), the Commissioner shall refuse to register a company under subsection (1) if—

  • (a){Deleted, 28 of 1981, s. 5}

  • (b) the paid-up share capital of the company, as determined under subsection (3), is less than $10,000,000, or an equivalent amount in any other currency;

  • (c) the objects of the company as stated in its memorandum or constitution do not include a business of taking deposits;

  • (d) the name of the company, or the name under which the company is carrying on or intends to carry on business in Hong Kong, contains—

    • (i) any word which by virtue of any Ordinance may not be contained in the name of any company; or

    • (ii) any word which by virtue of any Ordinance may not without consent be contained in the name of any company, unless such consent has been given;

  • (e) it appears to the Commissioner that, by reason of any circumstances whatsoever, the company is not a fit and proper body to be registered.

(3) For the purposes of determining the paid-up share capital of a company there shall be deducted from it—

  • (a) in the case of an application for registration, any loss disclosed in the balance sheet lodged by the company with the application; and

  • (b) in any other case, any loss disclosed in the most recent balance sheet lodged by the company under section 17.

(4) {Deleted 9 of 1982, s. 3(b)}

(5) {Deleted 9 of 1982, s. 3(b)}

(6) The registration of a company under subsection (1) as a registered deposit-taking company shall be effected by entering in the register the particulars specified in section 12 and the Commissioner shall notify the company in writing of the registration and date of registration.

(7) Where the Commissioner refuses to register a company under subsection (2), he shall notify the company in writing of the refusal.

(8) {Deleted, 28 of 1981, s. 5}

Payment of fees.

11. (1) A registered deposit-taking company shall, within 14 days after the receipt of a notice of registration under section 10(6), pay to the Director of Accounting Services the registration fee specified in the Second Schedule.2

Second Schedule.

(2) Every registered deposit-taking company shall pay to the Director of Accounting Services annually the renewal or registration fee specified in the Second Schedule—

  • (a) in the case of a company which was carrying on a business of taking deposits at 1 April 1976, within 14 days after the anniversary of the date; and

  • (b) in the case of any other company, within 14 days after the anniversary of the date of registration of such company.

(3) Any fee not paid in accordance with subsection (1) or (2) may, without prejudice to the power to revoke the registration of the company contained in section 14(1) (f), be recovered as a civil debt.

12. (1) The Commissioner shall maintain a register of deposit-taking companies, in such form as he thinks fit, which shall contain—

Register of deposit-taking companies.

  • (a) the name and business address of every such company which he decides to register; and

  • (b) such other particulars of such companies as the Commissioner thinks fit.

(2) The register shall be kept at the office of the Commissioner or at such other place as may be notified by the Commissioner in the Gazette.

(3) Any member of the public may, with effect from such date and during such hours as shall be notified by the Commissioner in the Gazette, on payment of the fee specified in the Second Schedule—

Second Schedule.

  • (a) inspect; or

  • (b) obtain a copy or extract of,

the register and any document lodged with the Commissioner under section 9 (other than any document or information referred to in paragraph (b) of subsection (2) of that section) and section 17.

(4) A document purporting to be a copy of any extract from or entry in the register, or of any document lodged with the Commissioner by a company under this Ordinance, and purporting to be certified by the Commissioner shall be admitted in evidence in criminal or civil proceedings before any court on its production without further proof, and—

  • (a) until the contrary is proved, the court before which such document is produced shall presume—

    • (i) that the document is certified by the Commissioner; and

    • (ii) that the document is a true copy of the extract from or entry in the register, or of the document lodged with the Commissioner, to which it refers; and

  • (b) such document shall be prima facie evidence of all matters contained therein.

Publication of names of deposit-taking companies.

13. (1) Subject to subsection (2), the Commissioner shall cause to be published in the Gazette, at such times and in such manner as he thinks fit, the names of all registered deposit-taking companies.

(2) The publication required by subsection (1) shall be made at least once each year.

(3) Where the name of a registered deposit-taking company is entered in the register, the Commissioner shall publish in the Gazette a notice of such entry.

Revocation of registration.

14. (1) Subject to subsection (3) and section 15, the Commissioner may revoke the registration of a registered deposit-taking company if—

  • (a) the company—

    • (i) has ceased to carry on a business of taking deposits; or

    • (ii) proposes to make, or has made, a composition or an arrangement with its creditors or is being wound up;

  • (b) the paid-up share capital of the company is, subject to sections 10(3) and 14A, less than that specified in section 10(2) (b);

  • (c) the objects of the company as stated in its memorandum of association or constitution no longer include the carrying on of a business of taking deposits;

  • (d) it appears to him that—

    • (i) the company is not a fit and proper body to remain registered; or

    • (ii) the company has not provided him, whether before or after being registered, with such information relating to it, and to any circumstances likely to affect its method of business, as is required by or under this Ordinance;

  • (e) the company has been convicted of an offence under section 8(4);

  • (f) the company has failed to pay the registration fee or renewal of registration fee in accordance with section 11;

  • (g) the company has failed to comply with section 17, 17A(1) or 24A.

(2) Without prejudice to subsection (1), the Commissioner may revoke the registration of a registered deposit-taking company on being requested in writing by the company to do so, if he is satisfied that the interests of depositors of that company are adequately safeguarded.

(3) The Commissioner shall not revoke the registration of a registered deposit-taking company for any reason specified in subsection (1) without giving it an opportunity of being heard within such time limit as the Commissioner may specify in writing.

(4) Where the registration of a registered deposit-taking company is revoked under subsection (1) or (2), the Commissioner shall—

  • (a) notify the company in writing of such revocation;

  • (b) publish in the Gazette notice of such revocation; and

  • (c) remove from the register the name of the company.

14A. (1) A registered deposit-taking company which is registered prior to the commencement of the Deposit-Taking Companies (Amendment) (No. 3) Ordinance 1981 may continue to carry on the business of taking deposits—

Transitional provision regarding paid-up share capital.

  • (a) during the period of 12 months after such commencement, if the paid-up share capital of the company as determined under section 10(3) is less than $5,000,000 but not less than $2,500,000, or an equivalent amount in any other currency; and

  • (b) during the period beginning from the expiry of 12 months after such commencement and ending on the expiry of 24 months after such commencement, if the paid-up share capital of the company as determined under section 10(3) is less than $10,000,000 but not less than $5,000,000, or an equivalent amount in any other currency.

(2) The Governor in Council may, in any particular case, extend any period specified in subsection (1).

Suspension of registration.

15. (1) Without prejudice to subsection (1) of section 14, where paragraph (b), (d) (ii), (f) or (g) of that subsection applies, the Commissioner may by notice in writing served on the registered deposit-taking company suspend the registration of the company for a period not exceeding 6 months.

(2) Where the registration of a company is suspended under subsection (1), section 11 and Part V shall apply to the company during the period of the suspension.

Effect of revocation or suspension of registration.

16. (1) Without prejudice to any other provision of this Ordinance, where the registration of a company is revoked under section 14 or suspended under section 15, the company shall cease to take deposits with effect from the date of receipt of the notice under section 14(4) (a) or 15, as the case may be.

(2) Without prejudice to any other provision of this Ordinance, a company whose registration is revoked or suspended may continue to hold any deposit taken prior to the date referred to in subsection (1).

Part IVA. Licensingof Registered Deposit-Taking Companies

Application for licence.

16A. (1) Every company shall, before it commences a business of taking deposits as a licensed deposit-taking company, apply for a licence in accordance with this section.

(2) An application for a licence shall be made to the Financial Secretary in such form as he may specify and shall be accompanied by such documents and information as may be required by him for the purposes of licensing.

(3) An application for a licence may be made only by a registered deposit-taking company which has—

  • (a) an issued share capital of not less than $100,000,000 or an equivalent amount in any other currency; and

  • (b) a paid-up share capital of not less than $75,000,000 or an equivalent amount in any other currency.

(4) For the purposes of determining the issued share capital or paid-up share capital of a deposit-taking company there shall be deducted from it—

  • (a) in the case of an application for a licence, any loss disclosed in the balance sheet lodged by the company under this Ordinance immediately preceding the application; and

  • (b) in any other case, any loss disclosed in the most recent balance sheet lodged by the company under section 17.

(5) The Governor in Council may, by notice in the Gazette, amend the amount of issued share capital or paid-up share capital specified in subsection (3).

Issue of licence.

16B. (1) After receiving an application for a licence under section 16A, the Financial Secretary may—

  • (a) grant a licence to a registered deposit-taking company subject to such conditions as he may think proper to attach thereto in any particular case; or

  • (b) without assigning any reason therefor, refuse to grant a licence.

(2) On the grant of a licence to a registered deposit-taking company, the company shall cease to be a registered deposit-taking company.

(3) Without prejudice to the power to attach conditions under subsection (1)(a) and to section 16J, the Financial Secretary may at any time, by notice in writing served upon a licensed deposit-taking company, attach to the licence held by that company such conditions, or amend or cancel any conditions attached to the licence, as he may think proper.

(4) Where the Financial Secretary refuses to grant a licence under subsection (1), he shall notify the registered deposit-taking company in writing of the refusal.

(5) Any licensed deposit-taking company that contravenes any condition attached under subsection (1) (a) or (3) shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $200,000; or

  • (b) on summary conviction to a fine of $50,000,

and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

Payment of fees.

16C. (1) A licensed deposit-taking company shall, within 14 days after the grant of a licence, pay to the Director of Accounting Services the licence fee specified in the Second Schedule.

Second Schedule.

(2) Every licensed deposit-taking company shall pay to the Director of Accounting Services annually the renewal of licence fee specified in the Second Schedule within 14 days after the anniversary of the date of grant of the licence.

(3) Any fee not paid in accordance with subsection (1) or (2) may, without prejudice to the power to revoke a licence under section 16F(1)(7), be recovered as a civil debt.

16D. The Commissioner shall enter in a separate part of the register—

Register of licensed deposit-taking companies.

  • (a) the name and business address of every licensed deposit-taking company; and

  • (b) such other particulars of such companies as the Commissioner thinks fit.

16E. (1) Subject to subsection (2), the Commissioner shall cause to be published in the Gazette, at such times and in such manner as he thinks fit, the names of all licensed deposit-taking companies.

Publication of names of licensed deposit-taking companies.

(2) The publication required by subsection (1) shall be made at least once a year.

(3) Where the name of a licensed deposit-taking company is entered in the register, the Commissioner shall publish in the Gazette a notice of such entry.

Revocation of licence.

16F. (1) Subject to subsection (3), the Financial Secretary may revoke the licence of a licensed deposit-taking company if—

  • (a) the company—

    • (i) has ceased to carry on a business of taking deposits; or

    • (ii) proposes to make, or has made, a composition or an arrangement with its creditors or is being wound up;

  • (b) the issued share capital or paid-up share capital of the company is, subject to section 16A(4), less than that specified in section 16A(3);

  • (c) the objects of the company as stated in its memorandum of association or constitution no longer include the carrying on of a business of taking deposits;

  • (d) it appears to him that—

    • (i) the company is not a fit and proper body to remain licensed; or

    • (ii) the company has not provided him, whether before or after being licensed, with such information relating to it, and to any circumstances likely to affect its method of business, as is required by or under this Ordinance;

  • (e) the company has been convicted of an offence under section 8(4);

  • (f) the company has failed to pay the licence fee or renewal of licence fee in accordance with section 16C;

  • (g) the company has failed to comply with section 17, 17A(1) or 24A.

(2) Without prejudice to subsection (1), the Financial Secretary may revoke the licence of a licenced deposit-taking company on being requested in writing by the company to do so, if he is satisfied that the interests of depositors of that company are adequately safeguarded.

(3) The Financial Secretary shall not revoke the licence of a licensed deposit-taking company for any reason specified in subsection (1) without giving it an opportunity of being heard within such time limit as the Financial Secretary may specify in writing.

(4) Where the licence of a licensed deposit-taking company is revoked under subsection (1) or (2), the Financial Secretary shall—

  • (a) notify the company in writing of such revocation; and

  • (b) direct the Commissioner—

    • (i) to publish in the Gazette notice of such revocation; and

    • (ii) to remove from the register the name of the company.

16G. (1) Without prejudice to any other provision of this Ordinance, where the licence of a licensed deposit-taking company is revoked under section 16F, the company shall cease to take deposits with effect from the date of receipt of the notice under section 16F(4) (a).

Effect of revocation of licence.

(2) Without prejudice to any other provision of this Ordinance, a licensed deposit-taking company whose licence is revoked may continue to hold any deposit taken prior to the date referred to in subsection (1).

Part IVB. Local Branchesand Fees

16H. (1) A deposit-taking company shall not establish or maintain any local branch thereof without the approval of the Commissioner.

Control of establishment, etc. of local branches.

(2) Subsection (1) applies to every deposit-taking company whether the company was registered or licensed before, on or after the commencement of the Deposit-Taking Companies (Amendment) Ordinance 1982, and subsections (4) and (5) apply to an approval granted under subsection (1) whether the approval was granted before, on or after such commencement.

(3) Approval under subsection (1) shall be deemed to have been granted in respect of any local branch established prior to 1 July 1981.

(4) The Commissioner may at any time, by notice in writing served upon a deposit-taking company, attach to an approval granted under subsection (1), or deemed to have been granted under subsection (3), in respect of any local branch thereof such conditions, or amend or cancel any conditions so attached, as he may think proper.

(5) The Commissioner may at any time revoke, in such case as he thinks fit, an approval granted under subsection (1), or deemed to have been granted under subsection (3), in respect of any local branch.

(6) Where the Commissioner refuses to grant approval under subsection (1) or revokes an approval under subsection (5), he shall notify the deposit-taking company concerned in writing of the refusal or revocation.

(7) Any deposit-taking company that contravenes subsection (1) or any condition attached under subsection (4) shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $200,000; or

  • (b) on summary conviction to a fine of $50,000,

and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

Fees in respect of branches.

Second Schedule.

161. (1) Whenever the establishment by a deposit-taking company of a local branch is approved under section 16H, the deposit-taking company shall pay to the Director of Accounting Services the fee specified in the Second Schedule 3 in relation to that branch and thereafter, so long as the branch continues to be maintained by the deposit-taking company, it shall pay to the Director of Accounting Services the fee specified in the Second Schedule on the anniversary in each year of the date on which the deposit-taking company was registered or licensed, as the case may be.

(2) A deposit-taking company that is maintaining a local branch at the commencement of the Deposit-Taking Companies (Amendment) (No. 3) Ordinance 1981 shall, so long as the branch continues to be maintained by the deposit-taking company, pay to the Director of Accounting Services the fee specified in the Second Schedule on the anniversary in each year of the date on which the deposit-taking company was registered or licensed, as the case may be.

(3) Any fee not paid in accordance with subsection (1) or (2) may be recovered as a civil debt.

Part IV C. Overseas Branches, Overseas Representative Officesand Fees

Control of establishment, etc. of overseas branches and overseas representative offices.

16J. (1) Without prejudice to section 16H, a deposit-taking company which is incorporated in Hong Kong shall be subject to a condition that the company shall not establish or maintain any overseas branch or overseas representative office thereof without the approval of the Commissioner.

(2) Subsection (1) applies to every deposit-taking company incorporated in Hong Kong whether the company was registered or licensed before, on or after the commencement of the Deposit-Taking Companies (Amendment) Ordinance 1982, and subsections (4) and (5) apply to an approval granted under subsection (1) whether the approval was granted before, on or after such commencement.

(3) Approval under subsection (1) shall be deemed to have been granted in respect of—

  • (a) any overseas branch established prior to 1 July 1981; and

  • (b) any overseas representative office established prior to the commencement of the Deposit-Taking Companies (Amendment) Ordinance 1982.

(4) The Commissioner may at any time, by notice in writing served upon a deposit-taking company, attach to an approval granted under subsection (1), or deemed to have been granted under subsection (3), in respect of any overseas branch or overseas representative office thereof such conditions, or amend or cancel any conditions so attached, as he may think proper.

(5) The Commissioner may at any time revoke, in such case as he thinks fit, an approval granted under subsection (1), or deemed to have been granted under subsection (3), in respect of any overseas branch or overseas representative office.

(6) Where the Commissioner refuses to grant approval under subsection (1) or revokes an approval under subsection (5), he shall notify the company concerned in writing of the refusal or revocation.

(7) Any deposit-taking company that contravenes the condition in subsection (1) or any condition attached under subsection (4) shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $200,000; or

  • (b) on summary conviction to a fine of $50,000,

and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

Conditions regarding overseas branches and overseas representative offices.

16K. (1) Every deposit-taking company incorporated in Hong Kong which maintains an overseas branch thereof shall be subject to a condition that—

  • (a) the deposit-taking company shall submit to the Commissioner a return in such form, and at such intervals, as he may specify showing the assets and liabilities of the overseas branch;

  • (b) the deposit-taking company shall submit to the Commissioner such further information as he may consider necessary for the proper understanding of the functions and activities of the over-seas branch, and that such information shall be submitted within such period and in such manner as the Commissioner may require;

  • (c) if the Commissioner requires any return submitted to him pursuant to paragraph (a), or any information submitted to him pursuant to a requirement under paragraph (b), to be accompanied by a certificate of an auditor, the deposit-taking company shall submit a certificate of its auditors as to whether or not, in the opinion of the auditors, the return or information is correctly compiled from the books and records of the overseas branch;

  • (d) if the Commissioner wishes to examine the books, accounts and transactions of the overseas branch, the deposit-taking company shall for that purpose afford the person carrying out the examination at the place where the branch is maintained access to the books and accounts of the branch, to documents of title to the assets and other documents and to all securities held by the branch in respect of its customers’ transactions and its cash and to such information and facilities as may be required to conduct the examination, and that the company shall produce to the person carrying out the examination such books, accounts, documents, securities, cash or other information as he may require:

    Provided that, so far as is consistent with the conduct of the examination, such books, accounts, documents, securities and cash shall not be required to be produced at such times and such places as shall interfere with the proper conduct of the normal daily business of the overseas branch.

(2) Every deposit-taking company incorporated in Hong Kong which maintains an overseas representative office thereof shall be subject to a condition that—

  • (a) the deposit-taking company shall submit to the Commissioner such information as he may require regarding the functions and activities of the overseas representative office;

  • (b) if the Commissioner wishes to examine the functions and activities of the overseas representative office, the deposit-taking company shall for that purpose afford the person carrying out the examination at the place where the representative office is maintained access to the documents maintained by the representative office and to such information and facilities as may be required to conduct the examination, and that the company shall produce to the person carrying out the examination such documents or other information as he may require.

(3) This section applies to every deposit-taking company incorporated in Hong Kong whether the company was registered or licensed before, on or after the commencement of the Deposit-Taking Companies (Amendment) Ordinance 1982.

(4) Any deposit-taking company that contravenes any condition in subsection (1) or (2), or fails to comply with any requirement under those subsections, shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $200,000 and to imprisonment for 12 months; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months,

and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

(5) Any deposit-taking company that produces any book, account, document, security or information whatsoever under this section, which is false in a material particular shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $500,000 and to imprisonment for 2 years; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

(6) Any person who signs any document for the purposes of this section which he knows or reasonably ought to know to be false in a material particular shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $500,000 and to imprisonment for 2 years; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

Fees in respect of overseas branches and overseas representative offices. Second Schedule.

16L. (1) Whenever the establishment by a deposit-taking company incorporated in Hong Kong of an overseas branch or overseas representative office is approved under section 16J(1), the deposit-taking company shall pay to the Director of Accounting Services the fee specified in the Second Schedule 4 in relation to that branch or representative office and thereafter, so long as the branch or representative office continues to be maintained by the deposit-taking company, it shall pay to the Director of Accounting Services the fee specified in the Second Schedule on the anniversary in each year of the date on which the deposit-taking company was registered or licensed, as the case may be.

(2) A deposit-taking company that is maintaining, at the commencement of the Deposit-Taking Companies (Amendment) Ordinance 1982, an overseas branch or overseas representative office to which section 16J(3) applies, shall, so long as the branch or representative office continues to be maintained by the deposit-taking company, pay to the Director of Accounting Services the fee specified in the Second Schedule on the anniversary in each year of the date on which the deposit-taking company was registered or licensed, as the case may be.

(3) Any fee not paid in accordance with subsection (1) or (2) may be recovered as a civil debt.

Part V. Obligationsof Deposit-Taking Companies

Accounts, etc., to be lodged with the Commissioner annually.

17. (1) Without prejudice to the provisions of Parts IV, IX and XI of the Companies Ordinance relating to company accounts, every deposit-taking company shall, in accordance with this section, in each year lodge with the Commissioner duly signed copies of—

  • (a) in the case of a company (other than a private company) registered under Part I of the Companies Ordinance—

    • (i) the profit and loss account of the company;

    • (ii) the balance sheet as at the date to which such profit and loss account is made up;

    • (iii) the auditor’s report attached to such profit and loss account and balance sheet; and

    • (iv) the report by the directors (with respect to the state of the company’s affairs) attached to such balance sheet,

    which are required to be laid before the company in general meeting in accordance with the Companies Ordinance;

  • (b) in the case of a private company registered under Part I of the Companies Ordinance, or a company registered under Part IX of the Companies Ordinance, the documents specified in paragraph (a) as if the company were a company to which paragraph (a) applies; and

  • (c) in the case of a company incorporated outside Hong Kong and which has complied with Part XI of the Companies Ordinance, the documents specified in paragraph (a) which are required to be delivered to the Registrar of Companies in accordance with section 336 of the Companies Ordinance.

  • (2) The documents specified in subsection (1) (a) shall—

  • (a) on the first occasion, be the documents in respect of the first financial year which ends on a date not earlier than 6 months immediately preceding the date of application for registration or licence, as the case may be; and

  • (b) on subsequent occasions, be the documents in respect of each subsequent financial year of the company.

(3) The documents specified in subsection (1) shall be lodged within 6 months after the end of the financial year to which such documents relate.

(4) For the purposes of paragraph (c) of subsection (1), a company to which that paragraph applies shall be treated as if it were required to comply with section 336 of the Companies Ordinance notwithstanding that that section would not, by virtue of subsection (6) of that section, otherwise apply to it.

(5) If any document referred to in subsection (1) is not written in the English language, there shall be annexed to the document a translation of it in English, certified by a director or the secretary of the company as a true and correct translation of that document.

(6) Any deposit-taking company that fails to comply with this section shall be guilty of an offence and shall be liable on conviction to a fine of $20,000 and to imprisonment for 6 months and, in the case of a continuing offence, to a further fine of $2,500 for every day during which the offence continues.

(7) Any person who signs any document for the purposes of this section which he knows or reasonably ought to know to be false in a material particular shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $500,000 and to imprisonment for 2 years; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

Place of business in Hong Kong.

I7A. (1) Subject to subsection (2), every deposit-taking company which is registered or licensed on or after the commencement of the Deposit-Taking Companies (Amendment) (No. 3) Ordinance 1981 shall, within the period of 3 months after it is registered or licensed, as the case may be, establish and thereafter maintain at all times a place of business in Hong Kong.

(2) Every deposit-taking company which is registered or licensed at the commencement of the Deposit-Taking Companies (Amendment) (No. 3) Ordinance 1981 and which does not have a place of business in Hong Kong shall, within 3 months after such commencement, establish and thereafter maintain at all times a place of business in Hong Kong.

(3) Any deposit-taking company that contravenes this section shall be guilty of an offence and shall be liable on conviction to a fine of $50,000 and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

Appointment of chief executive.

17B. (1) Every deposit-taking company shall appoint a chief executive of the deposit-taking company who shall be—

  • (a) an individual; and

  • (b) normally resident in Hong Kong.

(2) Any deposit-taking company that contravenes this section shall be guilty of an offence and shall be liable on conviction to a fine of $50,000 and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

Deposit-taking companies to exhibit accounts, etc. at places of business.

18. (1) Every deposit-taking company shall cause to be exhibited in accordance with subsection (2) at each place where it carries on a business of taking deposits copies of the documents which it is required to lodge with the Commissioner under section 9 (other than any document of information referred to in paragraph (b) of subsection (2) of that section) and section 17.

(2) The copies of such documents shall be exhibited in a place in which they may be easily inspected by members of the public and shall remain so exhibited—

  • (a) in the case of documents lodged under section 9, from the date on which the company receives a notification of registration under section 10(6) until the date on which documents are lodged under section 17 with the Commissioner for the first time; and

  • (b) in the case of documents lodged under section 17, from the date on which they are lodged with the Commissioner under that section until such documents for the next following financial year are lodged with the Commissioner under that section.

(3) Any deposit-taking company that fails to comply with this section shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $200,000; or

  • (b) on summary conviction to a fine of $50,000,

and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

Deposit-taking companies to notify certain changes to the Commissioner.

19. (1) Where any change occurs in any of the particulars of a deposit-taking company which are specified by the Commissioner under section 36(2), the company shall forthwith notify the Commissioner in writing of such change.

(2) A deposit-taking company which ceases to carry on a business of taking deposits shall forthwith notify the Commissioner in writing of such cessation.

(3) Any deposit-taking company that fails without reasonable excuse to comply with this section shall be guilty of an offence and shall be liable on conviction to a fine of $10,000.

Duty to report inability to meet obligations.

19A. (1) If any deposit-taking company is likely to become unable to meet its obligations or if it is about to suspend payment it shall forthwith report all relevant facts, circumstances and information to the Commissioner.

(2) Any deposit-taking company that fails without reasonable excuse to comply with this section shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $200,000 and to imprisonment for 2 years and, in the case of a continuing offence, to a further fine of $10,000 for every day during which the offence continues; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

Returns and information to be submitted to the Commissioner.

20. (1) Without prejudice to sections 17 and 19, every deposit-taking company shall submit to the Commissioner—

  • (a) not later than 14 days after the last day of each calendar month a return, in such form as the Commissioner may specify, showing the assets and liabilities of its principal place of business in Hong Kong and all local branches thereof at the close of business on the last business day of that month; and

  • (b) not later that 14 days after the last day of each quarter ending on 31 March, 30 June, 30 September and 31 December respectively, or upon any other day which may be approved by the Commissioner, a return, in such form as he may specify, relating to its principal place of business in Hong Kong and all local branches thereof as at the close of business on the last business day of the preceding quarter:

Provided that the Commissioner may by permission in writing allow the returns referred to in paragraphs (a) and (b) to be submitted at less frequent intervals.

(2) The Commissioner may require a deposit-taking company to submit such further information as he may consider necessary for the proper understanding of the financial position of the company and such information shall be submitted within such period and in such manner as the Commissioner may require.

(3) The Commissioner may require any return submitted to him pursuant to subsection (1), or any information submitted to him pursuant to a requirement under subsection (2), to be accompanied by a certificate of the auditors of the company as to whether or not, in the opinion of the auditors, the return or information is correctly compiled from the books and records of the company.

(4) Notwithstanding anything in section 25, the Commissioner may prepare and publish consolidated statements aggregating the figures in the returns furnished under subsection (1).

(5) Any deposit-taking company that fails to comply with subsection (1), or with any requirement under subsection (3), shall be guilty of an offence and shall be liable on conviction upon indictment or on summary conviction to a fine of $50,000 and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

(5A) Any deposit-taking company that fails to comply with any requirement under subsection (2) shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $200,000 and to imprisonment for 2 years and, in the case of a continuing offence, to a further fine of $10,000 for every day during which the offence continues; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

(6) Any person who signs any document for the purposes of this section which he knows or reasonably ought to know to be false in a material particular shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $500,000 and to imprisonment for 2 years; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

Information on shareholding.

20A. (1) Every deposit-taking company incorporated in Hong Kong shall, if so required by the Commissioner, inform him of the name and address of, and the nature of the business carried on by, every company (whether incorporated in or outside Hong Kong and whether or not the company is carrying on business in Hong Kong or has complied with Part XI of the Companies Ordinance) in which the deposit-taking company holds the beneficial ownership, directly or indirectly, of an aggregate of 20 per cent or more of the share capital.

(2) The Commissioner may require any deposit-taking company which has submitted to him information pursuant to subsection (1) to submit to him such further information as he may consider necessary to obtain, in the interests of depositors of the deposit-taking company, about the assets, liabilities and transactions of any such company.

(3) Information that is required to be submitted under this section shall be submitted within such period and in such manner as the Commissioner may require.

(4) Any deposit-taking company that fails to comply with any requirement under this section shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $200,000 and to imprisonment for 2 years and, in the case of a continuing offence, to a further fine of $10,000 for every day during which the offence continues; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

(5) Any person who signs any document for the purposes of this section which he knows or reasonably ought to know to be false in a material particular shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $500,000 and to imprisonment for 2 years; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

Certain representations prohibited.

21. (1) A deposit-taking company shall not in any communication, whether written or oral, represent or imply, or permit to be represented or implied, in any manner to any person that the company has in any respect been approved by the Government, the Financial Secretary or the Commissioner.

(2) Subsection (1) is not contravened by reason only that a statement is made to the effect that a company is registered or licensed under this Ordinance.

(3) Any deposit-taking company that contravenes subsection (1) without reasonable excuse shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $500,000 and to imprisonment for 2 years; or

  • (b) on summary conviction to a fine of $100,000 and to imprisonment for 12 months.

Maintenance of reserve.

21 A. (1) Every deposit-taking company which is incorporated in Hong Kong shall, before any dividend is declared, appropriate to reserve out of the profit of each year, after due provision has been made for taxation—

  • (a) a sum equal to not less than one-third of such profit; or

  • (b) such lesser sum, if any, as may be necessary so that—

    • (i) in the case of a registered deposit-taking company, the aggregate of the company’s paid-up share capital and its reserve is not less than $20,000,000; and

    • (ii) in the case of a licensed deposit-taking company, the aggregate of the company’s paid-up share capital and its reserve is not less than $150,000,000.

(2) Any deposit-taking company that contravenes this section shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $200,000 and to imprisonment for 2 years; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

Restriction on payment of dividends.

21B. (1) A deposit-taking company which is incorporated in Hong Kong shall not pay any dividend on its shares or distribute any extraordinary profits unless—

  • (a) all items of expenditure not represented by tangible assets have been completely written off; and

  • (b) in the case of a distribution of extraordinary profits, the aggregate of its paid-up share capital and reserve after such distribution will not be less than—

    • (i) $20,000,000, in the case of a registered deposit-taking company; and

    • (ii) $150,000,000, in the case of a licensed deposit-taking company.

(2) Any deposit-taking company that contravenes this section shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $200,000 and to imprisonment for 2 years; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

Advance against security of own shares.

21C. (1) A deposit-taking company shall not grant any advance, loan or credit facility against the security of its own shares.

(2) Any deposit-taking company that contravenes this section shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $100,000 and to imprisonment for 12 months; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

Limitation on advances by deposit-taking companies.

22. (1) A deposit-taking company shall not grant or permit to be outstanding to any one person, firm, corporation or company, or to any group of companies or persons which such person, firm, corporation or company is able to control or influence, any advances, loans or credit facilities, including irrevocable documentary letters of credit to the extent to which they are not covered by marginal cash deposits, or give any financial guarantees or incur any other liabilities on their behalf to an aggregate amount of such advances, loans, facilities, guarantees or liabilities in excess of 25 per cent of the paid-up capital and reserves of the deposit-taking company:

Provided that this subsection shall not apply to—

  • (a) transactions with a bank or another deposit-taking company;

  • (b) transactions to the extent to which they are covered by a form of guarantee acceptable to the Commissioner;

  • (c) the purchase of telegraphic transfers;

  • (d) the purchase of bills of exchange or documents of title to goods where the holder of such bills or documents is entitled to payment outside Hong Kong for goods exported from Hong Kong;

  • (e) any advances or loans made against telegraphic transfers or against any bills or documents referred to in paragraph (d); or

  • (f) transactions entered into before the commencement of this Ordinance.

  • (2) For the purposes of subsection (1)—

  • (a) any advances, loans or credit facilities granted or permitted to be outstanding to, and any financial guarantees given and any other liabilities incurred on behalf of, a business or undertaking of which any one person is the sole proprietor shall be deemed to be granted or permitted to be outstanding to or given or incurred on behalf of, as the case may be, that one person;

  • (b) a person shall not be deemed to be able to control or influence a group of companies by reason only that he is a director of any other company in the group.

(3) Any deposit-taking company that contravenes subsection (1) shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $200,000 and to imprisonment for 2 years and, in the case of a continuing offence, to a further fine of $10,000 for every day during which the offence continues; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

Limitation on advances to directors, etc.

23. (1) A deposit-taking company shall not grant any facility specified in subsection (3) to or on behalf of any person or body specified in subsection (4) (c) or (d) if the aggregate amount of such facilities for the time being granted by the deposit-taking company to or on behalf of any one or more such persons or bodies would thereby exceed 10 per cent of the paid-up capital and reserves of the deposit-taking company.

(2) A deposit-taking company shall not grant any facility specified in subsection (3) to or on behalf of any person specified in subsection (4) (a), (b) or (ba).

(3) For the purposes of subsections (1) and (2), the following facilities are specified—

  • (a) the granting, or permitting to be outstanding, of unsecured advances, unsecured loans or unsecured credit facilities including unsecured irrevocable documentary letters of credit;

  • (b) the giving of unsecured financial guarantees; and

  • (c) the incurring of any other unsecured liability.

(4) For the purposes of subsections (1) and (2), the following persons and bodies are specified—

  • (a) any director of the deposit-taking company;

  • (b) any relative of any such director;

  • (ba) any employee of the deposit-taking company who is responsible, either individually or as a member of a committee, for determining loan applications;

  • (c) any firm, partnership or private company in which the deposit-taking company or any of its directors or any relative of any of its directors is interested as director, partner, manager, or agent; and

  • (d) any individual, firm, partnership or private company of which any director of the deposit-taking company or any relative of any such director is a guarantor.

(5) The provisions of this section shall apply to a facility granted to or on behalf of a person or body jointly with another person or body as they apply to a facility granted to or on behalf of a person or body severally.

(6) This section shall not apply to—

  • (a) the purchase of telegraphic transfers;

  • (aa) transactions with a licensed bank or with a bank outside Hong Kong or another deposit-taking company; or

  • (b) transactions entered into before the commencement of this Ordinance.

(7) For the purposes of subsections (2) and (4), a facility granted to or on behalf of any firm, partnership or private company which a director of a deposit-taking company or a relative of such director is able to control, or to or on behalf of a business or undertaking of which a director of a deposit-taking company or a relative of such director is the sole proprietor, shall be deemed to be granted to or on behalf of such director or relative of such director.

(8) Any deposit-taking company that contravenes subsection (1) or (2) shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $200,000 and to imprisonment for 2 years and, in the case of a continuing offence, to a further fine of $10,000 for every day during which the offence continues; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

Limitation on advances to employees.

23A. (1) A deposit-taking company shall not grant or permit to be outstanding to any one of its employees unsecured advances, unsecured loans or unsecured credit facilities to an aggregate amount of such advances, loans or facilities in excess of one year’s salary for any such employee.

(2) Any deposit-taking company that contravenes this section shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $100,000 and to imprisonment for 12 months; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months,

and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

Limitation on shareholding.

23B. (1) Subject to subsections (2), (3) and (4), a deposit-taking company shall not acquire or hold any part of the share capital of any other company or companies to an aggregate value in excess of 25 per cent of the paid-up capital and reserves of the deposit-taking company, except such shareholdings as the deposit-taking company may acquire in the course of the satisfaction of debts due to it.

(2) Subsection (1) shall not apply where a deposit-taking company acquires or holds any part of the share capital of any other company or companies under an underwriting or sub-underwriting contract for a period not exceeding 3 months or such further period or periods as the Commissioner may allow in any particular case.

(3) All shareholdings acquired in the course of the satisfaction of debts referred to in subsection (1) shall be disposed of at the earliest suitable opportunity, and in any event not later than 18 months after the acquisition thereof or within such longer period as the Commissioner may allow in any particular case.

(4) Where the value of the shares held or contracted for by a deposit-taking company at the commencement of the Deposit-Taking Companies (Amendment) (No. 3) Ordinance 1981 is in excess of the limit specified in subsection (1), then, during the period of 24 months after such commencement or such longer period as the Governor in Council may allow in any particular case, an amount equal to such excess shall not be taken into account for the purposes of that subsection.

(5) Any deposit-taking company that contravenes this section shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $200,000 and to imprisonment for 2 years and, in the case of a continuing offence, to a further fine of $10,000 for every day during which the offence continues; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

Limitation on holding of interest in land.

23C. (1) A deposit-taking company shall not purchase or hold any interest or interests in land situated in or outside Hong Kong of a value or to an aggregate value, as the case may be, in excess of 25 per cent of the paid-up capital and reserves of the deposit-taking company.

(2) In addition to the value of any land purchased or held under subsection (1), a deposit-taking company may purchase or hold interests in land situated in or outside Hong Kong to any value, where the occupation of such land is, in the opinion of the Commissioner, necessary for conducting the business of the deposit-taking company or for providing housing or amenities for the staff of the deposit-taking company.

(2A) The aggregate value of interests in land purchased or held under subsections (1) and (2) shall not exceed the aggregate amount of the paid-up capital and reserves of the deposit-taking company.

(3) For the purposes of subsection (2), but without prejudice to the generality thereof, the Commissioner may in his discretion regard as necessary for conducting the business of a deposit-taking company the whole of any premises in which an office of a deposit-taking company is situated.

(4) There shall not be taken into account in the assessment of the value of interests in land for the purposes of this section the value of any interest in land mortgaged to the deposit-taking company to secure a debt due to the deposit-taking company nor the value of any interest in land acquired pursuant to entry into possession of land so mortgaged, provided that the interest acquired is disposed of at the earliest possible opportunity, and in any event not later than 18 months after its acquisition or within such longer period as the Commissioner may allow in any particular case.

(5) Where any interest in land held by a deposit-taking company at the commencement of the Deposit-Taking Companies (Amendment) (No. 3) Ordinance 1981 is in excess of the limit specified in subsection (1), then, during the period of 24 months after such commencement or such longer period as the Governor in Council may allow in any particular case, an amount equal to such excess shall not be taken into account for the purposes of that subsection.

(5A) Where the aggregate value of interests in land held by a deposit-taking company at the commencement of the Deposit-Taking Companies (Amendment) Ordinance 1982 is in excess of the limit specified in subsection (2A), then, during the period of 24 months after such date or such longer period as the Governor in Council may allow in any particular case, an amount equal to such excess shall not be taken into account for the purposes of that subsection.

(6) Any deposit-taking company that contravenes this section shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $200,000 and to imprisonment for 2 years and, in the case of a continuing offence, to a further fine of $10,000 for every day during which the offence continues; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

Definitions.

23D. (1) For the purposes of sections 23 and 23A, “unsecured” means granted without security, or, in respect of any advance, loan or credit facility granted or financial guarantee or other liability incurred with security, any part thereof which at any time exceeds the market value of assets constituting that security; and “security” means such security as would, in the opinion of the Commissioner, be acceptable to a prudent deposit-taking company.

(2) For the purposes of section 23B and 23C, “value” means—

  • (a) in the case of shares in a company other than a trust company registered under Part VIII of the Trustee Ordinance, the total of the current book value and the amount for the time being remaining unpaid on the shares; and

  • (b) in any other case, the current book value.

Deductions for the purposes of sections 22, 23, 23B and 23C.

24. For the purposes of sections 22, 23, 23B and 23C there shall be deducted from the paid-up capital and reserves of the deposit-taking company any loss disclosed in the balance sheet of the deposit-taking company lodged with the Commissioner under this Ordinance.

Minimum holding of specified liquid assets.

24A. (1) A deposit-taking company shall maintain at all times a minimum holding of specified liquid assets, free from encumbrances, in accordance with the provisions of this section.

(2) The minimum holding of specified liquid assets to be maintained by a deposit-taking company in any calendar month shall be not less than an amount equivalent to the aggregate of the following—

  • (a) such percentage as the Financial Secretary may specify by notice in the Gazette of the deposit liabilities of the company during that month in respect of deposits repayable within 7 days or at 7 days’ notice or less, and time deposits in respect of which the depositor may, whether by virtue of any written or oral agreement or by custom, obtain repayment before maturity; and

  • (b) such percentage as the Financial Secretary may so specify of its deposit liabilities during that month in respect of time deposits other than those referred to in paragraph (a).

(3) For the purpose of subsection (2), the specified liquid assets of a deposit-taking company shall be the specified liquid assets of that company within the meaning of subsection (7) reduced by an amount equivalent to such company’s total liabilities in respect of—

  • (a) balances of money payable on demand;

  • (b) money at call; and

  • (c) money at short notice,

owing to any licensed bank or other deposit-taking company in Hong Kong.

(3A) Where the liabilities of a deposit-taking company during any month do not include any deposit liabilities, the minimum holding of specified liquid assets to be maintained in that month by the company shall be not less than an amount equivalent to the company’s liabilities during that month in respect of—

  • (a) balances payable on demand;

  • (b) money at call; and

  • (c) money at short notice,

owing to any licensed bank or other deposit-taking company in Hong Kong; and in respect of amounts referred to in paragraphs (a) and (b), such specified liquid assets shall be held in any form set out in paragraphs (a), (b), (c), (d), (e), (ea), (eb) and (f) of subsection (7).

(4) The minimum holding of specified liquid assets required in pursuance of subsection (2) shall include not less than the equivalent of such percentage of such holding as shall be specified by the Financial Secretary and notified in the Gazette in the form of such specified liquid assets as are set out in paragraphs (a), (b), (c), (d), (e), (ea), (eb) and (f) of subsection (7), and in determining whether the minimum holding includes not less than the equivalent of the specified percentage figure of such holding in the form aforesaid any reduction made pursuant to subsection (3) in respect of balances of money payable on demand and money at call shall be deemed to have been made in such specified liquid assets of the company as are set out in paragraphs (a), (b), (c), (d), (e), (ea), (eb) and (f) of subsection (7).

(5) For the purposes of subsections (2), (3), (3A) and (4), the assets and liabilities of a deposit-taking company shall be the arithmetical means of, respectively, the amounts of the assets held by, and the liabilities of, the company according to the company’s books at the close of business on every such weekday during the month as the Commissioner may specify:

Provided that if any such specified weekday is a public holiday the assets and liabilities as at the close of business on the last working day preceding that specified weekday shall be taken for the purposes of such calculation.

(6) For the purposes of computing the minimum holding of specified liquid assets to be held by a deposit-taking company—

  • (a) the deposit liabilities of a deposit-taking company shall be deemed to be its gross demand and time liabilities, excluding amounts owing to any bank or other deposit-taking company;

  • (b) in the case of a deposit-taking company operating in Hong Kong and also elsewhere, the principal place of business in Hong Kong and local branches of the company shall be deemed collectively to be a separate deposit-taking company carrying on business in Hong Kong;

  • (c) all the deposit liabilities of a deposit-taking company owed through the principal place of business in Hong Kong or any local branch of the company operating in Hong Kong and also elsewhere shall be regarded as if they constituted liabilities of that separate deposit-taking company, and all the assets held by or to the credit of the principal place of business or any local branch shall be regarded as if they were assets of that separate deposit-taking company.

(7) For the purposes of this section, “specified liquid assets” means all or any of the following—

  • (a) notes and coins which are legal tender in Hong Kong;

  • (b) notes and coins in any currency which is freely remittable to the deposit-taking company in Hong Kong;

  • (c) refined gold in the form of coin or bars situated in Hong Kong, and refined gold in the form of coin or bars situated outside Hong Kong if the gold, or money into which it can be converted, is freely remittable to the deposit-taking company in Hong Kong from the place where such gold is situated;

  • (d) the total balance of money payable on demand at any licensed bank or other deposit-taking company in Hong Kong and money at call with any licensed bank or other deposit-taking company in Hong Kong;

  • (e) balances of money payable on demand at any bank outside Hong Kong and money at call with any bank outside Hong Kong, which are or is freely remittable to the deposit-taking company in Hong Kong and held in a form approved by the Commissioner;

  • (ea) certificates of deposit which are—

    • (i) issued outside Hong Kong by any bank approved by the Commissioner for the purposes of this section in any foreign currency freely remittable to the deposit-taking company in Hong Kong; and

    • (ii) marketable in a manner satisfactory to the Commissioner;

  • (eb) such money market instruments, either totally or to such limited extent, as the Financial Secretary may specify under section 18(6) (db) of the Banking Ordinance;

  • (f) treasury bills, maturing within 93 days, issued by the Government or by the Government of the United Kingdom or by the Government of any other country if such treasury bills issued by the Government of any other country are specified by the Financial Secretary under section 18(6) (e) of the Banking Ordinance;

  • (g) money at short notice at any licensed bank or other deposit-taking company in Hong Kong;

  • (h) money at short notice at any bank outside Hong Kong, which is freely remittable to the deposit-taking company in Hong Kong and held in a form approved by the Commissioner;

  • (ha) such money market instruments, either totally or to such limited extent, as the Financial Secretary may specify under section 18(6) (ec) of the Banking Ordinance;

  • (i) bills of exchange payable at usance outside Hong Kong and discountable in a currency which is freely remittable to the deposit-taking company in Hong Kong;

  • (j) bills of exchange payable after sight outside Hong Kong in a currency freely remittable to the deposit-taking company in Hong Kong;

  • (k) such securities (other than securities specified in paragraph (l)) issued or guaranteed by the Government, or the Government of any other country, as may be specified by the Financial Secretary under section 18(6) (h) of the Banking Ordinance;

  • (l) securities with less than 5 years to maturity issued or guaranteed by the Government or the Government of the United Kingdom if—

    • (i) they are quoted on a Stock Exchange in London Hong Kong or New York;

    • (ii) they have been dealt in during the preceding 6 months; and

    • (iii) payment of interest thereon is not in arrear.

(8) The Financial Secretary may, from time to time, in exceptional circumstances, by notice raise or reduce for such period as he may think necessary and to such percentages as he may think fit the minimum percentages specified in pursuance of subsection (2) or subsection (4) of specified liquid assets in the case of any particular deposit-taking company.

(9) For the purposes of this section, the value of any specified liquid asset shall be not more than the market value of such asset.

(10) Any deposit-taking company that fails to comply with this section shall be guilty of an offence and shall be liable on conviction upon indictment to a fine of $500,000 and to imprisonment for 5 years and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

Variation of minimum holding of specified liquid assets for monetary policy purposes.

24B. The Financial Secretary may from time to time, in pursuance of the monetary policy of the Government, by order, which shall be published in the Gazette, raise or reduce the minimum percentage of deposit liabilities by reference to which every deposit-taking company is required to maintain a holding—

  • (a) in specified liquid assets pursuant to section 24A (2); or

  • (b) in specified liquid assets in the form mentioned in section 24A(4).

Part VI. Miscellaneous

Official secrecy.

25. (1) Except as may be necessary for the exercise or performance of any function or duty under this Ordinance or for carrying into effect the provisions of this Ordinance, every person who has been appointed under or who is or has been employed in carrying out or in assisting any person to carry out the provisions of this Ordinance—

  • (a) shall preserve and aid in preserving secrecy with regard to all matters relating to the affairs of any company that may come to his knowledge in the exercise or performance of any function or duty under this Ordinance;

  • (b) shall not communicate any such matter to any person other than the person to whom such matter relates; and

  • (c) shall not suffer or permit any person to have access to any records in the possession, custody or control of any person to whom this subsection applies.

  • (2) Subsection (1) does not apply—

  • (a) to the disclosure of information in the form of a summary of similar information provided by a number of deposit-taking companies if the summary is so framed as to prevent particulars relating to the business of any particular deposit-taking company being ascertained from it; or

  • (b) to the disclosure of information for the purpose of any legal proceedings brought under this Ordinance, or for the purpose of any report of any such proceedings.

  • (3) Any person who—

  • (a) contravenes subsection (1); or

  • (b) aids, abets, counsels or procures any person to contravene subsection (1),

  • shall be liable—

  • (i) on conviction upon indictment to a fine of $100,000 and to imprisonment for 2 years; or

  • (ii) on summary conviction to a fine of $50,00 and to imprisonment for 6 months.

Disclosure of information relating to deposit-taking companies.

25A. (1) Subject to subsection (2) and notwithstanding anything in section 25, the Commissioner may, if he considers that it is in the interests of the depositors of the deposit-taking company, provide to the appropriate recognized banking supervisory authority of a country, state or place outside Hong Kong which is, in his opinion, subject to adequate secrecy provisions in that country, state or place information on matters relating to the affairs of a deposit-taking company—

  • (a) which is incorporated in that country, state or place;

  • (b) which is incorporated in or outside Hong Kong and is a subsidiary or associate of a bank incorporated in that country, state or place; or

  • (c) which is incorporated in Hong Kong and which has, or is proposing to establish, in that country, state or place an overseas branch, overseas representative office, subsidiary or associate of that deposit-taking company, and where, in the case of a subsidiary or associate, such subsidiary or associate is or would be subject to supervision by that recognized banking supervisory authority.

(2) Under no circumstances shall the Commissioner provide any information under this section relating to the affairs of any individual customer or a deposit-taking company.

Offence to avoid the provisions of section 6 or 8.

26. Any person who enters into a contract or arrangement, or uses any device or scheme, which has the effect of, or is designed to have the effect of, avoiding the provisions of section 6(1), (1A), (1B) (b), (1C) or (1D) or section 8(1) or (3) shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $500,000 and to imprisonment for 5 years; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

Offence to issue advertisements and documents relating to deposits.

27. (1) Subject to subsection (5), no person shall—

  • (a) issue, or have in his possession for the purposes of issue, any advertisement which to his knowledge is or contains an invitation to members of the public—

    • (i) to deposit money; or

    • (ii) to enter into, or offer to enter into, any agreement to deposit money;

  • (b) issue, or have in his possession for the purposes of issue, any document which to his knowledge contains such an advertisement; or

  • (c) in any other manner issue or make an invitation to members of the public to do any of the acts referred to in paragraph (a).

(2) Any person who contravenes subsection (1) shall be guilty of an offence and shall be liable on conviction upon indictment to a fine of $10,000.

(3) For the purposes of any proceedings under this section, an advertisement or document in which a person named in the advertisement or document holds himself out as being prepared to take in Hong Kong any deposit shall, subject to subsection (4), be presumed, unless such named person proves to the contrary, to have been issued by him.

(4) A person shall not be taken to contravene this section by reason only that he issues, or has in his possession for the purposes of issue, to purchasers copies of any newspaper, magazine, journal or other periodical publication of general and regular circulation, which contain an advertisement to which this section applies.

(5) This section shall not apply to any advertisement to deposit money or to enter into, or offer to enter into, any agreement to deposit money with a deposit-taking company or a licensed bank.

Fraudulent inducement to deposit money.

28. (1) Any person who, by any fraudulent or reckless misrepresentation, induces another person—

  • (a) to deposit money with him or any other person; or

  • (b) to enter into or to offer to enter into any agreement to deposit money with him or any other person,

shall be guilty of an offence and shall be liable on conviction upon indictment to a fine of $1,000,000 and to imprisonment for 7 years.

(2) For the purposes of subsection (1) “fraudulent or reckless misrepresentation” means—

  • (a) any statement—

    • (i) which, to the knowledge of the maker of the statement, was false, misleading or deceptive; or

    • (ii) which was false, misleading or deceptive and was made recklessly;

  • (b) any promise—

    • (i) which the maker of the promise had no intention of fulfilling;

    • (ii) which, to the knowledge of the maker of the promise, was not capable of being fulfilled; or

    • (iii) which was made recklessly;

  • (c) any forecast—

    • (i) which, to the knowledge of the maker of the forecast, was not justified on the basis of facts known to him at the time when he made it; or

    • (ii) which was not justified on the facts known to the maker of the forecast at the time when he made it and was made recklessly; or

  • (d) any statement or forecast from which the maker intentionally or recklessly omitted a material fact with the result that the statement or forecast was thereby rendered false, misleading or deceptive.

Liability in tort for inducing persons to deposit money in certain cases.

29. (1) Any person who, by any fraudulent, reckless or negligent misrepresentation, induces another person to deposit money with him or any other person shall be liable to pay compensation to the person so induced for any pecuniary loss that such person has sustained by reason of his reliance on that misrepresentation.

(2) For the purposes of subsection (1) “fraudulent, reckless or negligent misrepresentation” means—

  • (a) any statement—

    • (i) which, to the knowledge of the maker of the statement, was false, misleading or deceptive;

    • (ii) which was false, misleading or deceptive and was made recklessly; or

    • (iii) which was false, misleading or deceptive and was made without reasonable care having been taken to ensure its accuracy;

  • (b) any promise—

    • (i) which the maker of the promise had no intention of fulfilling;

    • (ii) which, to the knowledge of the maker of the promise, was not capable of being fulfilled; or

    • (iii) which was made recklessly or without reasonable care having been taken to ensure that it could be fulfilled;

  • (c) any forecast—

    • (i) which, to the knowledge of the maker of the forecast, was not justified on the basis of facts known to him at the time when he made it; or

    • (ii) which was not justified on the facts known to the maker of the forecast at the time when he made it and was made recklessly or without reasonable care having been taken to ascertain the accuracy of those facts; or

  • (d) any statement or forecast from which the maker intentionally, recklessly or negligently omitted a material fact with the result that the statement or forecast was thereby rendered false, misleading or deceptive.

  • (3) For the purposes of this section—

  • (a) where any statement, promise or forecast to which this section relates was made by a company, every person who was a director of the company at the time when the statement, promise or forecast was made shall, until the contrary is proved, be deemed to have caused or permitted it to be made; and

  • (b) a person is deemed to be a director of a company if he occupies the position of a director, whatever the title of his office, or he is a person in accordance with whose directions or instructions the directors of the company or any of them act; but a person shall not, by reason only that the directors of a company act on advice given by him in a professional capacity, be taken to be a person in accordance with whose directions or instructions those directors act.

(4) This section does not affect any liability of any person at common law.

(5) An action may be brought under this section notwithstanding that the evidence on which the action is or will be based, if substantiated, discloses the commission of an offence and no person has been charged with or convicted of the offence.

(6) For the purposes of this section “company” means, in addition to a company as defined in section 2, any other body of persons, corporate or unincorporate.

Action for recovery of deposits, etc.

30. (1) Notwithstanding any rule of law, any deposit taken in contravention of section 6 or 8, and any interest accrued thereon, may be recovered by the depositor as money had and received.

(2) Where the registration of a registered deposit-taking company is revoked under section 14 or suspended under section 15, or where the licence of a licensed deposit-taking company is revoked under section 16F, such revocation or suspension shall not affect any right—

  • (a) of any person against such company; or

  • (b) of such company against any person.

Liability of directors, etc.

31. (1) Where an offence under this Ordinance committed by a company is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any director, manager, chief executive, secretary or other officer of the company or any person who was purporting to act in any such capacity, he as well as the company, shall be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

(2) For the purposes of this section, a person is deemed to be a director of a company if he occupies the position of a director, whatever the title of his office, or is a person in accordance with whose directions or instructions the directors of the company or any of them act; but a person shall not, by reason only that the directors of a company act on advice given by him in a professional capacity, be taken to be a person in accordance with whose directions or instructions those directors act.

(3) For the purposes of this section “company” means, in addition to a company as defined in section 2, any other body of persons, corporate or unincorporate.

Examination of deposit-taking companies.

31 A. Without prejudice to the provisions of sections 14, 15 and 16F, the Commissioner may at any time, with or without prior notice to a deposit-taking company, examine the books, accounts and transactions of the company.

Production of company’s books, etc.

31 B. For the purpose of an examination under section 31 A, a deposit-taking company shall afford the person carrying out the examination access to its books and accounts, to documents of title to its assets and other documents, to all securities held by it in respect of its customers’ transactions and its cash and to such information and facilities as may be required to conduct the examination, and shall produce to the person carrying out the examination such books, accounts, documents, securities, cash or other information as he may require:

Provided that, so far as is consistent with the conduct of the examination, such books, accounts, documents, securities and cash shall not be required to be produced at such times and such places as shall interfere with the proper conduct of the normal daily business of the company.

(2) Any deposit-taking company that fails to comply with subsection (1), or with any requirement under that subsection, shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $100,000 and to imprisonment for 12 months; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months,

and, in the case of a continuing offence, to a further fine of $5,000 for every day during which the offence continues.

(3) Any deposit-taking company that produces any book, account, document, security or information whatsoever under subsection (1) which is false in a material particular shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $500,000 and to imprisonment for 2 years; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

Examination by authorities from outside Hong Kong.

31C. The appropriate recognized banking supervisory authority of a country, state or place outside Hong Kong may, with the approval of the Commissioner, examine the books, accounts and transactions of the principal place of business in Hong Kong or any local branch—

  • (a) of a deposit-taking company which is incorporated in that country, state or place; or

  • (b) of a deposit-taking company which is incorporated in or outside Hong Kong and is a subsidiary of a bank which is incorporated in that country, state or place.

Search warrants and seizure.

32. (1) If a magistrate is satisfied by information on oath that there is reasonable ground for suspecting that an offence under this Ordinance has been committed, the magistrate may issue a warrant empowering any police officer to enter and search any premises specified in the warrant.

(2) A police officer to whom a warrant is issued under subsection (1) may—

  • (a) break open any outer or inner door of or in any premises which he is empowered by the warrant to enter and search;

  • (b) inspect, seize and remove any thing which the police officer has reasonable grounds for believing to be or to contain evidence of an offence under this Ordinance; and

  • (c) remove by force any person who obstructs any entry, search, inspection, seizure or removal which he is empowered by this subsection to make.

(3) A person from whom any books, accounts or other documents have been seized and removed under subsection (2) shall, pending any proceedings for an offence under this Ordinance, be entitled to take copies of or extracts from such books, accounts or other documents.

(4) Any person who obstructs a police officer in the exercise of any power conferred on him by subsection (2) shall be guilty of an offence and shall be liable on conviction to a fine of $50,000 and to imprisonment for 6 months.

Certain persons prohibited from acting as officers or employees of deposit-taking companies except with consent of Commissioner.

33. (1) No person who—

  • (a) is bankrupt or has entered into a composition with his creditors;

  • (b) has been convicted in any country or territory of an offence involving fraud or dishonesty; or

  • (c) has been a director, or otherwise concerned in the management, of any bank or deposit-taking company which has been wound up by a court or whose licence or registration, as the case may be, has been revoked,

shall, without the consent in writing of the Commissioner, be a director, manager or secretary of a deposit-taking company or an employee of such a company in any other capacity.

(2) Any person who contravenes subsection (1) shall be guilty of an offence and shall be liable—

  • (a) on conviction upon indictment to a fine of $100,000 and to imprisonment for 12 months; or

  • (b) on summary conviction to a fine of $50,000 and to imprisonment for 6 months.

Appeals.

34. (1) Where the Commissioner has—

  • (a) refused to register a company under section 10(2);

  • (b) revoked the registration of a company under section 14(1);

  • (c) suspended the registration of a company under section 15;

  • (d) refused to approve the establishment of a branch under section 16H(1) or 16J(1);

  • (e) refused to approve the establishment of an overseas representative office under section 16J(1);

  • (f) revoked an approval for the establishment of a branch under section 16H(5) or 16J(5);or

  • (g) revoked an approval for the establishment of an overseas representative office under section 16J(5),

the company concerned may appeal, to the Governor in Council against the refusal, revocation or suspension.

(2) Where the Financial Secretary has—

  • (a) refused to license a company under section 16B(1); or

  • (b) revoked the licence of a company under section 16F(1),

the company concerned may appeal to the Governor in Council against the refusal or revocation.

(3) Where—

  • (a) registration is refused under section 10(2) or revoked under section 14(1) or suspended under section 15; or

  • (b) a licence is refused under section 16B(1) or revoked under section 16F(1),

that refusal, revocation or suspension shall take effect immediately, notwithstanding that an appeal has been or may be made under this section.

Power to grant exemptions.

35. (1) The Financial Secretary may, by notice in the Gazette, exempt any person or class of persons from section 6.

(2) An exemption under this section shall be subject to such conditions as are specified in the notice.

(3) The Financial Secretary may at any time by notice in the Gazette—

  • (a) revoke an exemption under this section; or

  • (b) revoke, vary, or add to, any condition subject to which such exemption is granted.

Power to specify forms, etc.

36. (1) The Commissioner may specify the form of application for registration and of any notice, certificate or other document required for the purposes of this Ordinance.

(2) The Commissioner shall, by notice in the Gazette, specify the class of particulars in respect of a deposit-taking company to which section 19(1) applies.

Power to amend Schedules.

37. The Governor in Council may, by notice in the Gazette, amend any Schedule.

First Schedule

[ss. 8 & 37.]

specified sum
  • The sum for the purposes of section 8(1) (a) is $50,000 or an equivalent amount in any other currency.

  • The sum for the purposes of section 8(1) (b) is $500,000 or an equivalent amount in any other currency.

{The Second Schedule is omitted from this volume.}

Money Lenders Ordinance1

To provide for the control and regulation of money lenders and money-lending transactions, the appointment of a Registrar of Money Lenders and the licensing of persons carrying on business as money lenders; to provide protection and relief against excessive interest rates and extortionate stipulations in respect of loans; to provide for offences and for matters connected with or incidental to the foregoing; and to repeal the Money-lenders Ordinance 1911.

[12th December, 1980]

Part I. Preliminary

Short title and application.

1. (1) This Ordinance may be cited as the Money Lenders Ordinance.

(2) This Ordinance shall have effect notwithstanding any agreement to the contrary.

2. (1) In this Ordinance, unless the context otherwise requires—

Interpretation.

“disqualified person” means a person in respect of whom there is in force an order made by a court under section 32(2);

Second Schedule.

“effective rate”, in relation to interest, means the true annual percentage rate of interest calculated in accordance with the Second Schedule;

“firm” means an unincorporate body of 2 or more individuals, or 1 or more individuals and 1 or more bodies corporate, or 2 or more bodies corporate, who have entered into partnership with one another with a view to carrying on business for profit;

“interest” does not include any sum lawfully agreed to be paid in accordance with this Ordinance on account of stamp duty or other similar duty, but save as aforesaid includes any amount (by whatever name called) in excess of the principal, which amount has been or is to be paid or payable in consideration of or otherwise in respect of a loan;

“licence” means a money lender’s licence issued under section 8 or 13, and “licensed” and “licensee” have corresponding meanings;

“licensing court” has the meaning assigned to it by section 10;

“loan” includes advance, discount, money paid for or on account of or on behalf of or at the request of any person, or the forbearance to require payment of money owing on any account whatsoever, and every agreement (whatever its terms or form may be) which is in substance or effect a loan of money, and also an agreement to secure the repayment of any such loan, and “lend” and “lender” shall be construed accordingly;

“money lender” means every person whose business (whether or not he carries on any other business) is that of making loans or who advertises or announces himself or holds himself out in any way as carrying on that business, but does not include a person specified in Part 1 of the First Schedule;

First Schedule.

“prescribed” means prescribed by regulations made under section 34;

“principal”, in relation to a loan, means the amount actually lent;

“register” means the register kept by the Registrar under section 4;

“Registrar” means the Registrar of Money Lenders appointed under section 4.

Second Schedule.

(2) For the purposes of this Ordinance, where by an agreement for the loan of money the interest charged on the loan is not expressed in terms of a rate, any amount paid or payable to the lender under the agreement (other than simple interest charged in accordance with the proviso to section 22) shall be appropriated to principal and interest in the proportion that the total amount of principal bears to the total amount of the interest, and the rate per cent per annum represented by the interest charged as calculated in accordance with the Second Schedule shall be deemed to be the rate of interest charged on the loan.

(3) For the purpose of determining the amount of the principal of a loan, any amount thereof which is not shown to have been lent except for the purpose of treating it as an instalment paid by the borrower in repayment of the loan and which is so treated by the lender shall be disregarded.

Exemption.

3. (1) Parts II and III shall not apply to—

  • First Schedule.

  • (a) any person specified in Part 1 of the First Schedule; or

  • (b) as respects a loan specified in Part 2 of the First Schedule, any person who makes such loan.

(2) The Legislative Council may by resolution amend the First Schedule.

Registrar of Money Lenders and supervisory functions of Registrar.

4. (1) The Governor shall appoint a public officer to be the Registrar of Money Lenders.

(2) The Registrar shall establish and maintain a register in which he shall cause to be kept particulars, other than specified particulars, of—

  • (a) applications for the issue or renewal of licences;

  • (b) licences which are in force or have been revoked or suspended;

  • (c) such other matters, if any, as he thinks fit.

(3) In this section “specified particulars” mean particulars furnished under section 8 which are specified in regulations made under section 34 as particulars which shall not be entered in the register.

Official secrecy.

5. (1) Except as may be necessary for the exercise or performance of any function or duty under this Ordinance or for carrying into effect the provisions of this Ordinance, the Registrar and every person employed in carrying out or in assisting any person to carry out the provisions of this Ordinance—

  • (a) shall preserve and aid in preserving secrecy with regard to all matters relating to the affairs of any person that may come to his knowledge in the exercise or performance of any function or duty under this Ordinance;

  • (b) shall not communicate any such matter to any person other than the person to whom such matter relates; and

  • (c) shall not suffer or permit any person to have access to any records in the possession, custody or control of any person to whom this subsection applies.

  • (2) Subsection (1) does not apply—

  • (a) to the disclosure of information in the form of a summary of similar information provided by a number of persons if the summary is so framed as to prevent particulars relating to the business of any particular person being ascertained from it; or

  • (b) to the disclosure of information for the purpose of any legal proceedings in respect of an offence, or for the purpose of any report of any such proceedings.

  • (3) Any person who—

  • (a) contravenes subsection (1); or

  • (b) aids, abets, counsels or procures any person to contravene subsection (1),

Inspection of register.

commits an offence and shall be liable to a fine of $100,000 and to imprisonment for 2 years.

6. (1) Any person shall be entitled on payment of the prescribed fee—

  • (a) to inspect the register during ordinary office hours and take copies of any entry; or

  • (b) to obtain from the Registrar a copy, certified by or under the authority of the Registrar to be correct, of any entry in the register.

(2) The Registrar shall give public notice, in such manner as he may deem fit, of the place where and the times when the register may be inspected.

Part II. Licensingof Money Lenders

Restriction on carrying on of business of money lender.

7.(1) No person shall carry on business as a money lender—

  • (a) without a licence;

  • (b) at any place other than the premises specified in such licence; or

  • (c) otherwise than in accordance with the conditions of a licence.

  • (2) A licence shall be in the prescribed form.

Application for licence and public notification of application.

8. (1) An application for a licence shall be made to the Registrar in the prescribed form and in the prescribed manner, and shall be accompanied by the prescribed fee and a statement in writing containing the prescribed particulars in respect of the application.

(2) An application made under this section in respect of a body corporate may be made by any person authorized in that behalf by such body corporate.

(3) An application made under this section in respect of partners in a firm may be made by any such partner.

(4) The Registrar shall, in such manner as may be prescribed, give public notice of every application made under this section.

Investigation and lodgement of applications.

9. (1) Where an application is made under section 8, the applicant shall at the same time send a copy of the application to the Commissioner of Police, and the Commissioner of Police may cause an investigation to be carried out in respect of the application for the purpose of determining whether, in the opinion of the Commissioner of Police, there are grounds for objecting to the application under section 11.

(2) For the purpose of carrying out an investigation under this section, the Commissioner of Police may in writing require the applicant to produce for inspection such books, records or documents or to furnish such information relating to the application or any business carried on or intended to be carried on by him as the Commissioner of Police may specify.

(3) In respect of an application made under section 8, no step other than the registration of such application shall be taken by the Registrar prior to—

  • (a) the date on which a period of 60 days after the date on which the application is made expires; or

  • (b) the date on which the Commissioner of Police notifies the Registrar that any investigation carried out under this section in respect of the application has been completed,

whichever is the earlier (in this section referred to as “the material date”).

(4) Where the Registrar or the Commissioner of Police intends to object under section 11 to any application for a licence, he shall, not later than 7 days after the material date, serve notice on the applicant of his intention to object and of the grounds of such objection; and where such notice is served by the Commissioner of Police, he shall send a copy thereof to the Registrar.

(5) Upon the expiration of a period of 7 days after the material date in respect of any application made under section 8, the Registrar shall lodge the application in the office of a magistrate ordinarily sitting in or nearest to the area where the premises used or intended to be used by the applicant as his principal place of business as a money lender are situated, together with a copy of any notice served on the applicant under subsection (4).

(6) The Registrar shall give notice to the Commissioner of Police of any lodgement made under subsection (5).

Licensing court.

10. (1) Where an application is lodged in the office of a magistrate under section 9(5), that magistrate sitting with 2 assessors (in this Ordinance referred to as “the licensing court”) shall hear and determine the application in accordance with section 11.

(2) The magistrate shall be the presiding member of the licensing court.

(3) In determining any application lodged under section 9(5), the magistrate and each of the assessors shall have a vote but the decision of the licensing court shall be given as a single decision and shall be recorded in writing:

Provided that in the event of a difference between the members in deciding the application, the decision of the licensing court shall be that of the majority of the members.

(4) The Registrar shall be entitled, on request made at the office of the magistrate, to a copy of the decision of the licensing court.

(5) References in this section to an assessor are references to a person appointed to a panel of assessors under section 7A of the Magistrates Ordinance; and with respect to the selection and attendance of any such person as assessor at any sitting of a licensing court, sections 7A and 7B of that Ordinance shall apply mutatis mutandis for the purposes of this section as they apply in relation to proceedings heard with an assessor under that Ordinance.

Determination of application for licence.

11. (1) The licensing court shall fix a date for the hearing of an application lodged under section 9(5) and shall give 14 clear days’ notice of such date to the applicant, the Registrar and the Commissioner of Police; and the licensing court may adjourn the hearing to another date and from time to time as the licensing court may deem fit.

(2) Subject to subsection (3), the licensing court shall grant a licence upon the hearing of an application lodged under section 9(5) except where—

  • (a) the Registrar or the Commissioner of Police has served notice under section 9 of his intention to object to the application and, at the hearing of the application, objection to the application is made by or on behalf of the Registrar or, as the case may be, the Commissioner of Police; or

  • (b) objection to the application is made by any other person appearing at the hearing in person or by counsel who—

    • (i) has served notice of his intention to object and the grounds of such objection on the applicant, the Registrar and the Commissioner of Police and lodged a copy of such notice in the office of the licensing court, prior to the date fixed for the hearing under subsection (1); or

    • (ii) is granted leave by the licensing court to make such objection, and for the purposes of this section “counsel” means a person qualified to practise as a barrister or solicitor under the Legal Practitioners Ordinance.

(3) The licensing court shall not grant a licence to a person who is a disqualified person.

(4) The licensing court shall, in considering an application to which subsection (2) (a) or (b) applies, hear any evidence given by the applicant or any witnesses called on his behalf and any evidence adduced by or on behalf of the Registrar or the Commissioner of Police or any other person who appears at the hearing under subsection (2) (b).

(5) Subject to subsection (3), the licensing court shall not grant a licence upon an application to which subsection (2) (a) or (b) applies unless the court is satisfied—

  • (a) that the applicant, or in the case of a firm every partner thereof, is a fit and proper person to carry on business as a money lender;

  • (b) in the case of a body corporate, that any person who controls such body corporate or in accordance with whose directions or instructions the directors thereof are accustomed to act is a fit and proper person to be associated with the business of money-lending;

  • (c) that as respects the carrying on of business as a money lender, any person responsible or proposed to be responsible for the management of the business or any part thereof, or in the case of a body corporate any director or secretary or other officer thereof, is a fit and proper person to be associated with the business of money-lending;

  • (d) that the name under which the applicant applies to be licensed is not misleading or otherwise undesirable;

  • (e) that as respects any of the premises to which the application relates, such premises and the situation thereof are suitable for the carrying on of the business of money-lending;

  • (f) that the applicant has complied with the provisions of this Part and any regulations relating to the application; and

  • (g) that in all the circumstances the grant of such licence is not contrary to the public interest.

(6) A licence granted under this section shall be subject to such conditions as the licensing court may impose.

(7) A licence granted under this section shall not be issued and shall not enter into force except on payment to the licensing court of the prescribed fee.

Effect and duration of licence.

12. Every licence shall authorize the person named therein to carry on business as a money lender at any premises specified therein for a period of 12 months from the date on which it is granted.

Renewal.

13. (1) A licensee may apply for the renewal of his licence within a period of 3 months prior to the expiration thereof.

(2) This section does not apply to a licensee whose licence is revoked.

(3) An application for renewal made under this section shall be made in the prescribed manner and shall be accompanied by the prescribed fee.

(4) Sections 8, 9, 10 and 11 shall apply to an application for renewal made under this section as they apply to an application made under section 8.

(5) Any licence in respect of which an application for renewal is made under this section and which expires prior to the determination of such application shall, unless such application is withdrawn, or the licence is revoked or suspended under section 14, be deemed to continue in force until the determination of such application.

Revocation and suspension.

14. (1) On the application of the Registrar or the Commissioner of Police, a licensing court may make an order revoking or suspending any licence granted by the licensing court if, in the opinion of the licensing court—

  • (a) the licensee has ceased to be a fit and proper person to carry on business as a money lender; or

  • (b) the premises specified in the licence or any of such premises have, or the situation thereof has, ceased to be suitable for the carrying on of the business of money-lending; or

  • (c) the licensee has been in serious breach of any condition of the licence or has ceased to satisfy any other condition relating to his business as a money lender in respect of which the licensing court is required to be satisfied under section 11(5); or

  • (d) the business of the licensee has been carried on at any time or on any occasion since the date on which the licence was granted by recourse to the use of any methods, or in any manner, contrary to the public interest.

(2) The licensing court shall fix a date for the hearing of an application under this section, and shall give 14 clear days’ notice of such date to the Registrar and the Commissioner of Police and the licensee; such notice shall call on the licensee to show cause as to why such application ought not to be granted and an order for the revocation or suspension of his licence ought not to be made.

(3) In this section “licence” includes a licence deemed to continue in force under section 13(5).

Transfer of licence and addition or substitution of new premises.

15. (1) Except as provided in this section, a licence shall not be transferable.

(2) Where a licensed money lender dies, the widow or widower or any member of the family of the deceased money lender of the age of 21 years or upwards, or any person on behalf of the family, may apply to the licensing court which granted the licence to have his or her name endorsed on the licence.

(3) Where a licensee intends to carry on business as a money lender at any premises in addition to the premises specified in his licence, he may apply to the licensing court which granted the licence to have such additional premises endorsed on his licence.

(4) Where a licensed money lender intends to transfer his business as a money lender from any premises specified in his licence to any premises not so specified, he may apply to the licensing court which granted the licence to have the premises to which he intends to transfer such business endorsed on his licence in substitution for such first-mentioned premises.

(5) Every application under this section shall be made in the prescribed manner and shall be accompanied by the prescribed fee and notice of the application shall be given to the Registrar and the Commissioner of Police.

(6) The Registrar and the Commissioner of Police shall be entitled to appear and be heard at the hearing of any application under this section and to object to the granting of any such application.

(7) The licensing court shall not grant an application under this section unless the court is satisfied that—

  • (a) notice of the application has been given to the Registrar and the Commissioner of Police;

  • (b) in the case of an application under subsection (2), the applicant is a fit and proper person to carry on the business of the deceased money lender;

  • (c) in the case of an application under subsection (3), the additional premises and the situation thereof are suitable for the carrying on of the business of money-lending;

  • (d) in the case of an application under subsection (4), the premises to which the money lender intends to transfer his business and the situation thereof are suitable for the carrying on of the business of money-lender;

  • (e) in the case of an application in respect of any premises under subsection (3) or (4), any person responsible or proposed to be responsible for the management of the business carried on at such premises is a fit and proper person to be associated with the business of money-lending.

(8) Where the licensing court grants an application for an endorsement under this section, the endorsement shall be made in the office of the licensing court upon payment of the prescribed fee.

(9) A licence endorsed under subsection (2) shall have effect in all respects as if the licence had been issued to the person whose name is endorsed thereon and this Ordinance shall apply accordingly to such person as it applies to a licensee.

Appeals.

16. Any person aggrieved by a decision of a licensing court under section 11, 13, 14 or 15 may appeal to the High Court and the decision of the High Court shall be final.

Duty to notify changes of particulars.

17. (1) Where any change takes place in any particulars entered in the register in respect of any licensee, or a change takes place—

  • (a) in the case of a firm, in the membership thereof whether by reason of an amalgamation or the reduction of the number of partners or otherwise;

  • (b) in the case of a body corporate—

    • (i) in the officers thereof;

    • (ii) in the control thereof by any person;

    • (iii) in the number of shares, or shares of a prescribed class, therein held by any person whereby the nominal value of any such shares held by that person exceeds such proportion of the nominal value of the share capital thereof or of the issued shares of that class, as the case may be, as may be prescribed;

  • (c) in the persons responsible for the management of his business as a money lender at any premises where the business is carried on,

the licensee shall give notice in writing of such change to the Registrar within 21 days after the change takes place.

(2) Where notice of any change is given to the Registrar under subsection (1), the Registrar may by notice in writing require the licensee to furnish him with such information, verified in such manner, as the Registrar may specify with respect to such change.

Part III. Money Lenders’ Transactions

Form of agreement.

18. (1) No agreement for the repayment of money lent by a money lender or for the payment of interest on money so lent, and no security given to any money lender in respect of any such agreement or loan, shall be enforceable unless—

  • (a) within 7 days after the making of the agreement, a note or memorandum in writing of the agreement is made in accordance with subsection (2) and signed personally by the borrower, and a copy of such note or memorandum is given to the borrower at the time of signing; and

  • (b) there is included in or attached to such copy a summary, in such form as may be prescribed, of such provisions of this Part and Part IV as may be prescribed,

and no such agreement or security shall be enforceable if it is proved that the note or memorandum was not signed by the borrower before the money was lent or the security was given.

(2) The note or memorandum shall contain all the terms of the agreement and in particular shall set out—

  • (a) the name and address of the money lender;

  • (b) the name and address of the borrower;

  • (c) the name and address of the surety, if any;

  • (d) the amount of the principal of the loan in words and figures;

  • (e) the date of the making of the agreement;

  • (f) the date of the making of the loan;

  • (g) the terms of repayment of the loan;

  • (h) the form of security for the loan, if any;

  • (i) the rate of interest charged on the loan expressed as a rate per cent per annum, or the rate per cent per annum represented by the interest charged as calculated in accordance with the Second Schedule; and

  • (j) a declaration as to the place of negotiation and completion of the agreement for the loan.

Second Schedule.

(3) Notwithstanding subsection (1), if the court before which the enforceability of any agreement or security comes in question is satisfied that in all the circumstances it would be inequitable that any such agreement or security which does not comply with this section should be held not to be enforceable, the court may declare that such agreement or security is enforceable to such extent and subject to such modifications or exceptions as the court may order.

Duty of money lender to give information to borrower.

19. (1) In respect of every agreement, whether made before or after the commencement of this Ordinance, for the repayment of money lent by a money lender, the money lender shall, on demand in writing being made by the borrower at any time during the continuance of the agreement and on tender by the borrower of $10 for expenses, supply to the borrower or, if the borrower so requires, to any person specified in that behalf in the demand, a statement signed by the money lender or his agent showing—

  • (a) the date on which the loan was made, the amount of the principal of the loan and the rate per cent per annum of interest charged;

  • (b) the amount of any payment already received by the money lender in respect of the loan and the date on which it was made;

  • (c) the amount of every sum due to the money lender but unpaid, and the date on which it became due, and the amount of interest accrued due and unpaid in respect of every such sum; and

  • (d) the amount of every sum not yet due which remains outstanding, and the date on which it will become due.

(2) A money lender shall, on demand in writing by the borrower, supply a copy of any document relating to a loan made by him or any security therefor to the borrower or, if the borrower so requires and on payment by the borrower to the lender of $10, to any person specified in that behalf in the demand.

(3) Subsection (1) or (2) does not apply to a request made by a borrower less than 1 month after a previous request thereunder relating to the same agreement was complied with.

(4) If a money lender to whom a demand has been made under this section fails without reasonable excuse to comply therewith within 1 month after the demand has been made, he shall not, so long as the default continues, be entitled to sue for or recover any sum due under the agreement on account either of principal or interest, and interest shall not be chargeable in respect of the period of default.

Duty of money lender to give information to surety.

20. (1) A money lender who makes any agreement for the loan of money in relation to which security is provided shall within 7 days after the making of the agreement give to the surety (if a different person from the borrower)—

  • (a) a copy of the note or memorandum in writing made under section 18(1);

  • (b) a copy of the security instrument, if any; and

  • (c) a statement in writing signed by or on behalf of the money lender showing—

    • (i) the total sum payable under the agreement by the borrower;

    • (ii) the various amounts comprised in that total sum with the date, or the mode of determining the date, when each becomes due.

(2) Without prejudice to subsection (1), a surety may at any time during the continuance of an agreement (whether made before or after the commencement of this Ordinance) in relation to which the security is provided require the money lender by notice in writing to furnish him with a statement in writing signed by or on behalf of the money lender showing—

  • (a) the total sum paid under the agreement by the borrower;

  • (b) the total sum which has become payable under the agreement by the borrower but remains unpaid, and the various amounts comprised in that total sum, with the date when each became due; and

  • (c) the total sum which is to become payable under the agreement by the borrower, and the various amounts comprised in that total sum, with the date, or the mode of determining the date, when each becomes due.

(3) Subsection (2) does not apply to a request made by a surety less than 1 month after a previous request under that subsection relating to the same agreement was complied with.

(4) If a money lender fails to comply with subsection (1) or a request to which subsection (2) applies he shall not be entitled, while the default continues, to enforce the security so far as provided in relation to the agreement.

Early payment by borrower.

21. (1) Subject to subsection (2), a borrower under any agreement for the loan of money by a money lender shall be entitled at any time by notice in writing to the money lender and the payment to the money lender of all amounts payable as principal by the borrower which are outstanding under the agreement, together with interest computed up to the date of such payment, to discharge his indebtedness under the agreement:

Provided that the effective rate of such interest shall not exceed the effective rate at which interest would have been payable under the agreement if the borrower had not exercised his right under this section to discharge his indebtedness.

(2) Subsection (1) shall not apply in relation to any loan made by a money lender (whether an individual, a firm or a company registered under the Companies Ordinance) who, at the time the agreement for the loan is made and throughout the continuance of the agreement, is recognized by the Financial Secretary by notice in the Gazette for the purposes of this subsection or is a member of an association so recognized.

Illegal agreements.

22. Any agreement made for the loan of money by a money lender shall be illegal if it provides directly or indirectly for—

  • (a) the payment of compound interest;

  • (b) prohibiting the repayment of the loan by instalments; or

  • (c) the rate or amount of interest being increased by reason of any default in the payment of sums due under the agreement:

Provided that provision may be made by any such agreement that if default is made in the payment upon the due date of any sum payable to the money lender under the agreement, whether in respect of principal or interest, the money lender shall be entitled, subject to Part IV, to charge simple interest on that sum from the date of the default until the sum is paid at an effective rate not exceeding the effective rate payable in respect of the principal apart from any default, and any interest so charged shall not be reckoned for the purposes of this Ordinance as part of the interest charged in respect of the loan.

Loan etc. not recoverable unless money lender licensed.

23. No money lender shall be entitled to recover in any court any money lent by him or any interest in respect thereof or to enforce any agreement made or security taken in respect of any loan made by him unless he satisfies the court by the production of his licence or otherwise that at the date of the loan or the making of the agreement or the taking of the security (as the case may be) he was licensed.

Part IV. Excessive Interest Rates

Prohibition of excessive interest rates.

24. (1) Any person (whether a money lender or not) who lends or offers to lend money at an effective rate of interests which exceeds 60 per cent per annum commits an offence

(2) No agreement for the repayment of any loan or for the payment of interest on any loan and no security given in respect of any such agreement or loan shall be enforceable in any case in which the effective rate of interest exceeds the rate specified in subsection (1).

(3) The Legislative Council may by resolution alter the rate specified in subsection (1):

Provided that in relation to any agreement for the repayment of any loan or for the payment of interest on any loan which is in force at the date when such rate is so altered, the rate so specified as at the coming into force of such agreement shall continue to apply.

(4) Any person who commits an offence under this section shall be liable to a fine of $100,000 and to imprisonment for 2 years.

25. (1) Subject to section 24(2), where—

Reopening of certain transactions.

  • (a) proceedings are taken in any court by any person (whether a money lender or not) for the recovery of any money lent or the enforcement of any agreement or security in respect of any loan; and

  • (b) subject to subsection (3), there is evidence which satisfies the court that the transaction is extortionate,

the court may reopen the transaction so as to do justice between the parties having regard to all the circumstances, and, for that purpose, make such orders and give such directions in respect of the terms of the transaction or the rights of the parties thereunder as the court may think fit.

(2) For the purposes of this section, a transaction is extortionate if—

  • (a) it requires the debtor or a relative of his to make payments (whether unconditionally or on certain contingencies) which are grossly exorbitant; or

  • (b) it otherwise grossly contravenes ordinary principles of fair-dealing.

(3) Any agreement for the repayment of a loan or for the payment of interest on a loan in respect of which the effective rate of interest exceeds 48 per cent per annum shall, having regard to that fact alone, be presumed for the purposes of this section to be a transaction which is extortionate; but except where such rate exceeds the rate specified in section 24(1), the court may declare that any such agreement is not extortionate for the purposes of this section if, having regard to all the circumstances relating to the agreement, the court is satisfied that such rate is not unreasonable or unfair.

(4) In determining whether a transaction is extortionate for the purposes of this section, regard shall be had to such evidence as is adduced concerning—

  • (a) interest rate prevailing at the time it was made;

  • (b) the factors mentioned in subsections (5) and (6); and

  • (c) any other relevant considerations.

(5) Factors applicable under subsection (4) (b) in relation to the debtor include—

  • (a) his age, experience, business capacity and state of health; and

  • (b) the degree to which, at the time of entering into the transaction, he was under financial pressure, and the nature of that pressure.

(6) Factors applicable under subsection (4) (b) in relation to the lender or other person by whom the proceedings are taken include—

  • (a) the degree of risk accepted by the lender, having regard to the nature and value of any security provided;

  • (b) his relationship to the debtor;

  • (c) whether or not a specious cash price was quoted for any goods or services included in the transaction; and

  • (d) where one or more other transactions are to be taken into account, the question how far any such other transaction was reasonably required for the protection of the debtor or the lender, or was in the interest of the debtor.

(7) Any court in which proceedings might be taken for the recovery of any loan or security in respect of a loan shall have and may at the instance of the debtor or any surety exercise the like powers as may be exercised under this section where proceedings are taken for the recovery of a loan; and the court may entertain any application under this subsection by the debtor or surety notwithstanding that the time for repayment of the loan or any instalment thereof has not arrived.

(8) On any application relating to the admission or amount of a proof by a money lender in any bankruptcy proceedings, the court may exercise the like powers as may be exercised under this section where proceedings are taken for the recovery of money.

(9) The Legislative Council may by resolution alter the rate specified in subsection (3) but, in relation to any agreement referred to in that subsection which is in force at the date when such rate is so altered, the rate so specified as at the coming into force of such agreement shall continue to apply.

(10) In this section “debtor” means any person primarily liable for the repayment of a loan or for the payment of interest in respect of a loan.

Part V. General

Restriction on money-lending advertisements.

26. (1) A money lender shall not for the purpose of his business as such issue or publish or cause to be issued or published any advertisement, circular, business letter or other similar document which does not show the name of the money lender as specified in his licence in such manner as to be not less conspicuous than any other name.

(2) Where any advertisement, circular, business letter or other similar document issued or published by or on behalf of a money lender purports to indicate the terms of interest on which he is willing to make loans or any particular loan, such advertisement, circular, business letter or other document shall show the interest proposed to be charged—

  • (a) subject to section 24(1), as a rate per cent per annum; and

  • (b) in such manner as to be not less conspicuous than any other matter mentioned therein.

(3) A money lender shall not for the purposes of his business as such issue or publish or cause to be issued or published any advertisement, circular, business letter or other similar document containing a name or description or expression which might reasonably be held to imply that he carries on banking business.

Charges for expenses etc. not recoverable.

27. (1) Subject to subsection (2), any agreement entered into between a money lender and a borrower or intending borrower for the payment by the borrower or intending borrower to the money lender of any sum for or on account of costs, charges or expenses (other than stamp duties or similar duties) incidental to or relating to the negotiations for or the granting of the loan or proposed loan or the guaranteeing or securing of the repayment thereof shall be illegal.

(2) Subsection (1) shall not apply in relation to any agreement for the payment of any sum for or on account of costs, charges or expenses in respect of a loan if—

  • (a) except where paragraph (b) applies,—

    • (i) the money lender (whether an individual, a firm or a company registered under the Companies Ordinance) is approved for the purposes of this paragraph by the Registrar, after consultation with the Financial Secretary, by notice in the Gazette or is a member of an association so approved; and

    • (ii) the terms of the agreement relating to such costs, charges or expenses comply with such restrictions or conditions, if any, in respect of costs, charges or expenses of that kind as may be specially approved for the purposes of this paragraph by the Registrar, after consultation with the Financial Secretary, by notice in the Gazette; or

  • (b) the terms of the agreement relating to such costs, charges or expenses comply with such restrictions or conditions, if any, in respect of costs, charges or expenses of that kind as may be generally approved for the purposes of this paragraph by the Registrar, after consultation with the Financial Secretary, by notice in the Gazette.

(3) It shall not be lawful for any money lender or his partner, employer, employee, principal or agent or any person acting for or in collusion with any money lender to charge, recover or receive any sum as for or on account of any such costs, charges or expenses (other than stamp duties or similar charges) or to demand or receive any remuneration or reward whatsoever from a borrower or intending borrower for or in connexion with or preliminary to procuring, negotiating or obtaining any loan made or guaranteeing or securing the repayment thereof.

(4) If any money or money’s worth is directly or indirectly paid or allowed to or received by any person in contravention of this section, the amount or value thereof, to the extent of such contravention and notwithstanding any agreement to the contrary, may be recovered by the borrower from such person or, if such person is the money lender or a partner, employer, employee, principal or agent of the money lender or is in any way acting for or in collusion with him, may be set off against the amount actually lent (and that amount shall be deemed to be reduced accordingly) or may be recovered by the borrower from such person or from the money lender.

Power of Registrar to enter premises and inspect books etc.

28. For the purpose of ascertaining whether the provisions of this Ordinance are being or have been complied with by any money lender, the Registrar or any other person authorized by the Registrar in writing in that behalf may enter any premises where the business of such money lender is being carried on and may demand the production of and inspect the money lender’s licence or any books, accounts, documents or writings relating to any loan made by the money lender or relating to his business as a money lender, and may take notes, copies or extracts thereof or therefrom.

Offences by money lenders.

29. (1) Any person who carries on business as a money lender—

  • (a) without a licence; or

  • (b) at any place other than the premises specified in his licence; or

  • (c) otherwise than in accordance with the conditions of his licence; or

  • (d) during any period when his licence is suspended,

commits an offence.

(2) Any person who makes any false or misleading statement or furnishes any false or misleading information in connexion with any application for a licence or the renewal of a licence commits an offence.

(3) Any person who, being a licensee, fails to give notice under section 17(1) of any change in respect of such licensee, or who, having been required by the Registrar under section 17(2) to furnish any information in respect of such change, fails to furnish such information or furnishes any false or misleading information, commits an offence.

(4) Any money lender who—

  • (a) fails to make a note or memorandum in writing of an agreement in compliance with section 18;

  • (b) fails to give a copy of such note or memorandum to the borrower in compliance with section 18(1) (a); or

  • (c) fails to include in or attach to such copy a summary in writing in compliance with section 18(1) (b),

commits an offence.

(5) Any money lender who demands or accepts security for a loan in any form prohibited by regulations made under section 34 commits an offence.

(6) Any money lender who fails to comply with any demand in writing made by a borrower under section 19 to supply any statement or copy of any document to the borrower or any person specified in the demand commits an offence.

(7) Any money lender who fails to give a surety any information to which the surety is entitled under section 20(1) or in respect of which the surety has made a request by notice in writing under section 20(2) commits an offence.

(8) Any money lender who issues or publishes, or causes to be issued or published, any advertisement, circular, business letter or other similar document which contravenes any of the provisions of section 26 commits an offence.

(9) Any money lender who for any of the purposes of his business uses any name other than the name specified in his licence, or a name or description or expression which might reasonably be held to imply that he carries on banking business commits an offence.

Offences of fraudulent inducement and obstruction.

30. (1) Any person who by any false, misleading or deceptive statement, representation or promise, or by any dishonest concealment of material facts, fraudulently induces or attempts to induce—

  • (a) any money lender to lend money to any person or to agree to the terms on which money is or is to be borrowed;

  • (b) any person to borrow money from a money lender or to agree to the terms on which money is or is to be lent,

commits an offence.

  • (2) Any person who—

  • (a) wilfully obstructs the Registrar or any person authorized by him in writing in the performance of his functions under section 28;

  • (b) without reasonable cause fails to give the Registrar or any such person authorized by him such assistance or information as he may require in the performance of such functions,

commits an offence.

Liability for offences by bodies corporate.

31. Where at any time a body corporate commits an offence under this Ordinance with the consent or connivance of, or because of neglect by, any individual, the individual commits the like offence if at that time—

  • (a) he is a director, manager, secretary or similar officer of the body corporate; or

  • (b) he is purporting to act as such officer; or

  • (c) the body corporate is managed by its members, of whom he is one.

Penalties and disqualification.

32. (1) Any person who commits an offence under this Ordinance shall be liable—

  • (a) in the case of an offence under section 29, to a fine of $100,000 and to imprisonment for 2 years;

  • (b) in the case of any other offence for which no penalty is provided, to a fine of $10,000 and to imprisonment for 6 months.

(2) Where any person is convicted of an offence under this Ordinance, the magistrate may order that such person shall be disqualified from holding a licence for such period not exceeding 5 years from the date of such conviction as may be specified in the order.

(3) A licence held by any person against whom an order is made under subsection (2) shall, as from the date of the order, cease to have effect for the purposes of this Ordinance.

Burden of proof.

33. (1) When in any proceedings under this Ordinance against any person it is alleged that such person is not the holder of a licence, it shall in the absence of proof to the contrary be presumed that such person is not licensed.

(2) When in any proceedings under this Ordinance against any person it is alleged that—

  • (a) such person is not a person specified in Part 1 of the First Schedule; or

    First Schedule.

  • (b) that a loan alleged to have been made by such person is not a loan specified in Part 2 of the First Schedule,

the fact so alleged shall in the absence of proof to the contrary be presumed.

Regulations.

34. The Governor in Council may make regulations—

  • (a) prescribing anything required or permitted to be prescribed under this Ordinance;

  • (b) specifying any particulars furnished under section 8 as particulars which shall not be entered in the register under section 4;

  • (c) imposing restrictions in relation to the form in which security for any loan may be demanded or accepted by a money lender;

  • (d) for the better carrying into effect of this Ordinance.

Repeal and saving.

35. (1) The Money-lenders Ordinance 1911 is repealed.

(2) Any money lender who, at the commencement of this Ordinance, is registered under the Money-lenders Ordinance 1911 shall be deemed to be licensed as a money lender under this Ordinance until—

  • (a) the date on which such registration would, if this Ordinance had not been enacted, have expired by virtue of section 4(2) of that Ordinance; or

  • (b) if such money lender makes an application for a licence under this Ordinance within a period of 2 months after the commencement of this Ordinance, the date on which such application is finally disposed of under this Ordinance.

(3) An application for a licence made by a money lender to whom subsection (2) applies shall be made under section 13 and shall be treated as an application for the renewal of a licence.

(4) The Registrar shall take possession of the register and any documents relating thereto kept at the office of the Registrar of Companies under the Money-lenders Ordinance 1911, and such register and other documents shall be deemed to form part of the records kept by the Registrar under this Ordinance and shall be available for inspection in the same manner as the register kept under this Ordinance.

Existing loans.

36. (1) This section applies to any agreement made before the commencement of this Ordinance for the payment of any loan or for the payment of interest on any loan, and to any security given (whether given before or after the commencement of this Ordinance) in respect of any such agreement or loan

(2) Nothing in this Ordinance shall render any agreement or security to which this section applies void or unenforceable, but no such agreement or security shall be enforceable as against the borrower or surety or any other person except to the extent that—

  • (a) any benefit accruing to the lender by virtue thereof is not more favourable; and

  • (b) any obligation or liability incurred by the borrower or surety or other person by virtue thereof is not more onerous,

that 2 it would have been if such agreement had been made or, as the case may be, such security had been given on terms consistent with the requirements of this Ordinance.

(3) Where proceedings are taken in any court for the enforcement of any agreement or security to which this section applies, the court may make such orders and give such directions in respect of the terms thereof or the rights and obligations of the parties in respect thereof as the court may deem necessary or desirable having regard to the requirements of this Ordinance relating to an agreement or security of the kind in question.

first schedule

[ss. 2, 3 & 33.]

Part 1—Exempted Persons

1. A bank licensed under the Banking Ordinance and any subsidiary thereof.

2. A deposit-taking company registered or licensed under the Deposit-Taking Companies Ordinance and any subsidiary thereof.

3. A co-operative society registered under the Co-operative Societies Ordinance.

4. A credit union registered under the Credit Unions Ordinance and the Credit Union League of Hong Kong incorporated under Part XI of that Ordinance.

5. A trade union registered under the Trade Unions Ordinance.

6. A life insurance company registered as a company under the Companies Ordinance.

7. The Hong Kong Building and Loan Agency Limited.

8. The University and Polytechnic Grants Committee.

Part 2—Exempted Loans

1. A loan made by an employer to a bona fide employee.

2. A loan made to a registered company secured by the issue of a debenture or similar instrument.

3. A loan made by a company registered under the Companies Ordinance (other than a bank or a deposit-taking company) under a bona fide credit-card scheme operated by the company to any holder of a credit-card issued under that scheme.

4. A loan made bona fide for the purchase of immovable property on the security of a mortgage of that property.

5. A loan made by a company registered under the Companies Ordinance or a firm or individual whose ordinary business does not primarily or mainly involve the lending of money, in the ordinary course of that business.

6. A loan made by a licensed pawnbroker under the Pawnbrokers Ordinance, being a loan to which that Ordinance applies.

7. A loan regulated by any Ordinance relating to hire-purchase transactions.

8. A loan made by any statutory body under any power conferred by law in that behalf.

9. A loan made from—

  • (a) a fund established by resolution of the Legislative Council or by or under an Ordinance;

  • (b) any superannuation or provident fund.

10. A loan made from any chit-fund operated under the Chit-Fund Business (Prohibition) Ordinance.

[ss. 2 & 18.]

Calculation of True Annual Percentage Rate of Interest

second schedule

1. Any amount paid or payable to the lender under the agreement (other than simple interest charged in accordance with the proviso to section 22) shall be appropriated to principal and interest in the proportion that the total amount of principal bears to the total amount of the interest.

2. The amount of principal outstanding at any time shall be taken to be the balance remaining after deducting from the principal the total of the portions of any payments appropriated to principal in accordance with paragraph 1.

3. The several amounts taken to be outstanding by way of principal during the several periods ending on the dates on which payments are made shall be multiplied in each case by the number of calendar months during which those amounts are taken to be respectively outstanding, and there shall be ascertained the aggregate amount of the sum so produced.

4. The total amount of the interest shall be divided by one-twelfth part of the aggregate amount mentioned in paragraph 3 and the quotient, multiplied by one hundred, shall be taken to be the rate of interest per cent per annum.

5. If having regard to the intervals between successive payments it is desired so to do, the calculation of interest may be made by reference to weeks instead of months, and in such a case the foregoing paragraphs shall have effect as though in paragraph 3 the word “weeks” were substituted for the words “calendar months”, and in paragraph 4 the words “one-fifty-second” were substituted for the words “one-twelfth”.

6. Where any interval between successive payments is not a number of complete weeks or complete months, the foregoing paragraphs shall have effect as though 1 day were one-seventh part of a week or one-thirtieth part of a month (as the case may be).

Pawnbrokers Ordinance1

To amend the law relating to pawnbrokers.

[17th October, 1930]

Short title.

1. This Ordinance may be cited as the Pawnbrokers Ordinance.

Interpretation.

2. In this Ordinance, unless the context otherwise requires—

“identity document” means—

  • (a) an identity card issued in accordance with the provisions of the Registration of Persons Ordinance;

  • (b) a passport issued by a competent authority within or outside the Colony;

  • (c) any document which establishes the identity of the holder and is accepted by the Director of Immigration in lieu of a passport; and

  • (d) in the case of a member of the police force, the warrant card issued to him under section 18 of the Police Force Ordinance;

“licence” means a pawnbroker’s licence in force under section 8;

“month” means a Chinese lunar month;

“pawnbroker” includes every person who carries on the business of taking goods and chattels in pawn, or who purchases, receives or takes in any goods or chattels, and pays money for or advances money upon the same, with or under any undertaking, agreement or condition, express, implied or reasonably to be inferred from the nature or character of the dealing or the usage in respect thereof, that the said goods or chattels in whole or in part may be afterwards redeemed or repurchased upon any terms whatsoever.

Regulations.

3. The Governor in Council may by regulation provide for—

  • (a) conditions under which pawnbrokers’ licences shall be granted or renewed or revoked;

  • (b) the periods referred to in section 17;

  • (c) fees to be paid for such licences and for the renewal of such licences;

  • (d) the forms of such licences;

  • (e) books and documents to be kept by pawnbrokers and the particulars to be noted therein;

  • (f) maximum rates of interest to be charged by pawnbrokers;

  • (g) limiting the number of pawnbrokers’ shops that may be allowed in any area;

  • (h) the form of the pawn ticket and the particulars to be stated therein;

  • (i) forms to be used under this Ordinance;

  • (j) hours during which the business of pawnbroking may be carried on;

  • (k) the storage and safe keeping of pledges;

  • (l) offences in the case of contravention of any regulations made hereunder and prescribing penalties therefor:

    Provided that no penalty so prescribed shall exceed a fine of five hundred dollars; and

  • (m) generally more effectively carrying out the provisions of this Ordinance.

Servant, agent, etc., of pawnbrokers.

4. For the purposes of this Ordinance anything done or omitted by the servant or agent of a pawnbroker in the course of or in relation to the business of the pawnbroker shall be deemed to be done or omitted (as the case may be) by the pawnbroker; and anything by this Ordinance authorized to be done by a pawnbroker may be done by his servant or agent.

Assigns, executors, etc., of pawners.

5. The rights, powers and benefits by this Ordinance reserved to and conferred on pawners shall extend to and be deemed to be reserved to and conferred on the assigns of pawners and to and on the executors or administrators of deceased pawners; but any person representing himself to a pawnbroker to be the assign, executor or administrator of a pawner shall, if required by the pawnbroker, produce to the pawnbroker the assignment, probate, letters of administration or other instrument under which he claims.

Non-application to loans above $5,000.

6. Nothing in this Ordinance shall apply to a loan by a pawnbroker of above five thousand dollars, or to the pledge on which the loan is made, or to the pawnbroker or pawner in relation to the loan or pledge; and notwithstanding anything in this Ordinance a person shall not be deemed a pawnbroker by reason only of his paying, advancing or lending on any terms any sum or sums of above five thousand dollars.

Licence.

7. No person shall carry on the trade or business of a pawnbroker in any premises except under and in accordance with a valid pawnbroker’s licence in respect thereof on which any fees then due have been paid.

Grant and renewal of licences.

8. (1) The Commissioner of Police may grant to any person a pawnbroker’s licence.

(2) A pawnbroker’s licence shall be valid for one year from the date on which it is issued and may be renewed from year to year.

(3) Subject to subsection (4), the fee for a pawnbroker’s licence shall be paid in advance.

(4) A licensee may pay the licence fee in quarterly instalments in advance on finding security for such instalments to the satisfaction of the Secretary for Home Affairs.

(5) If the Commissioner of Police refuses to grant or renew a licence under subsection (1) or (2) the applicant for, or the holder of, the licence, as the case may be, may, within fourteen days of being notified of the refusal, appeal by way of petition to the Governor who may confirm, reverse or vary the decision of the Commissioner.

Suspension and cancellation of licences.

9. (1) Where a person holding a pawnbroker’s licence is convicted of any offence punishable by imprisonment for not less than twelve months, the court by which he is convicted may, in addition to imposing a penalty for such offence, order—

  • (a) that the licence shall be suspended for such period as may be specified in the order or that the licence shall be cancelled; and

  • (b) that the convicted licensee shall be disqualified from holding a licence for such period as the court determines.

(2) Upon making an order under subsection (1) the court shall cause particulars thereof to be endorsed on the licence and to be transmitted to the Commissioner of Police.

(3) A licensee shall in such manner and within such time as the court directs produce his licence for the purpose of an endorsement under subsection (2).

(4) No order of suspension, cancellation or disqualification under subsection (1) shall affect any contract of pawn or other contract made by the pawnbroker as such, nor shall he by reason only of the order lose his lien on, or right to, any pledge or to the loan and profit thereon, but he shall be allowed to pursue and wind up his business in respect of pledges which he has received before the making of the order.

Restriction of trade to pawnbroking.

10. No pawnbroker shall during the continuance of his licence carry on any trade or occupation in his place of business as such pawnbroker except that of pawnbroking and the sale of pledges forfeited under the provisions of this Ordinance.

Notification of name and nature of business.

11. Every pawnbroker shall cause to be painted and kept painted in large and legible English letters and Chinese characters, over the door of his said place of business, his or his firm’s name at length, with the addition of the word “Pawnbroker” after the English name and the character “

” after the Chinese name.

Inspection of goods, books, etc.

12. Every pawnbroker shall, whenever required by the Commissioner of Police or by any police officer not below the rank of sergeant, or by any police officer authorized thereto in writing by the Commissioner either generally or for a particular occasion or for particular premises, produce for the inspection of the person so requiring him all or any goods pawned or deposited with him and all books and papers relating to the same.

Interest on loans.

13. (1) Every pawnbroker may demand, receive and take simple interest, over and above the principal paid or advanced by him upon any goods pawned with him, from the person applying to redeem the said goods, before redelivering the same, at the following rates or at such other rates as may from time to time be prescribed by the Governor in Council—

First

month.
Succeeding

month.
On any sum—
not exceeding $310%3 %
exceeding—
$ 3and not exceeding$ 148%3 %
$ 14$ 285%3 %
$ 28$ 843 %2 %
$ 84$2802%2%
$2802%1½%:

Regulations.

Provided that, in the case of the special classes of goods set forth in the regulations the special rates of interest there set forth may subject to alteration by the Governor in Council be charged by the pawnbroker in lieu of the foregoing rates.

(2) The first month’s interest shall be deemed to be due on the first day of the first month of the loan and shall be deducted from the amount of the loan.

(3) The principal and interest shall be accepted by the pawnbroker in full satisfaction of all charges for or incidental to the loan to which the same relate, and no pawnbroker shall demand interest in excess of the authorized rate or shall charge compound interest.

List of rates to be exposed in the shop.

(4) Every pawnbroker shall expose in a conspicuous place in his shop a clearly legible list, in English and Chinese, to be furnished by the Secretary for Home Affairs, of the rates chargeable under this section.

Loans and interest must be in local currency.

(5) No loans shall be made by any pawnbroker, and no interest on loans shall be charged by him, in any currency other than the currency of the Colony.

Book to be kept by pawnbroker. Regulations. Form 1.

14. Every pawnbroker shall before advancing any money on loan enter or cause to be entered in a book to be kept by him for that purpose, and to be called the general book, a legible statement in the prescribed form or its equivalent in Chinese. If a Chinese form is used the rate of interest shall be denoted by a chop.

Ticket to be given to borrower. Regulations. Form 2.

15. Every pawnbroker shall at the time of making any loan deliver to the borrower a ticket containing a true and legible statement in the prescribed form or its equivalent in Chinese. If a Chinese form is used the rate of interest shall be denoted by a chop.

Return of ticket on redelivery of goods.

16. In order to entitle any person to redeem from the pawnbroker the goods pawned, the ticket must be returned to the pawnbroker by the person applying to redeem the goods, except as provided for in section 19.

Delivery of goods on production of ticket and repayment.

17. (1) On the tender of any such ticket together with the full amount then due for principal and simple interest, if made within six months from the day of making the loan in the case of goods pawned in any part of the New Territories (other than New Kowloon), and four months from the day of making the loan in the case of goods pawned elsewhere in the Colony, the pawnbroker shall deliver up the goods described therein to the person so tendering.

(2) The Governor in Council may by regulation prescribe periods in substitution for the periods of six months and of four months specified in subsection (1).

Exceptions to duty to deliver goods.

18. Section 17 shall not apply to cases where, on or before such tender, the pawnbroker has had from the borrower or the owner of the goods notice not to deliver the same, or has had knowledge or notice that the same have been or are suspected to have been unlawfully obtained from or lost by the owner, or to tickets as to which the borrower has taken such proceedings as are provided by section 19, in all which cases the pawnbroker shall withhold the goods.

Protection of owners and of pawners not having pawntickets.

19. (1) On the application of any person representing himself to be the borrower or the owner of the goods or ticket, as the case may be, and to have lost or been unlawfully deprived of the same, the pawnbroker shall, if the goods are still unredeemed or unsold, forthwith deliver to such applicant a copy of the entry in the general book, and the said applicant shall immediately thereupon proceed to a magistrate and shall verify such representation by written information on oath before such magistrate.

(2) If the said applicant verifies such representation to the satisfaction of the magistrate and obtains a certificate to that effect, endorsed upon the said copy, the pawnbroker shall, on the copy so endorsed being delivered by the said applicant, deliver to him, according to the circumstances of the case and as the magistrate may order, another ticket or the goods, either with or without payment of the principal or interest or both principal and interest, as the magistrate may direct.

Issue of search warrant for goods pawned without privity of owner.

20. A magistrate shall, upon written information on oath being laid before him that there are probable grounds for believing that any goods have been pawned without the privity of their owner, issue his warrant for searching any place where the goods may appear to him to be; and if any of the goods are discovered upon such search, the person executing the warrant shall take them or cause them to be taken into safe keeping to abide the order of a magistrate.

Unredeemed goods to become the property of pawnbroker.

21. Subject to the provisions of this Ordinance, goods pawned shall, from and after the expiration of the prescribed period specified in section 17, become, if the same are unredeemed, the property of the pawnbroker absolutely:

Provided nevertheless that if before the expiration of any such period the borrower is desirous of continuing the loan for a further period not exceeding the prescribed period applicable, the pawnbroker shall allow him to do so on his paying the interest then due. In any such case a new ticket shall be issued and a new entry shall be made in the general book.

Information to be given by applicant.

22. (1) Every person applying to borrow shall at the time of his application give to the pawnbroker to whom such application is made true information so as to enable him to comply with the requirements of sections 14 and 15.

(2) Every person applying to redeem goods or for a copy of an entry shall at the time of his application give to the person to whom such application is made a full and true account of himself, his name, his place of abode, the name and place of abode of the owner and the circumstances under which his application is made.

Unlawful pawning.

23. No person shall pawn or attempt to pawn the goods of any other person without being duly authorized or employed in that behalf.

Pawnbroker to seize applicant suspected of unlawful conduct.

24. Every pawnbroker to whom any application is made to borrow or redeem, or for a copy of an entry, who has reasonable cause to suspect any unlawful conduct on the part of the applicant in any of the above cases, is hereby required to seize and detain such applicant and is empowered to call in the aid of any other person for that purpose; and every person so seized shall with all reasonable speed be delivered into the custody of a police constable who shall convey him before a magistrate.

Liability of pawnbroker in respect of loss or damage.

25. (1) A pawnbroker shall make good all loss or damage accruing to a borrower in the following cases—

  • (a) where the goods pawned have been stolen, embezzled, lost or otherwise improperly disposed of before the period for the redemption thereof has elapsed; and

  • (b) where the goods before the said period has elapsed have by the default, neglect or misfeasance of the pawnbroker been destroyed, damaged or impaired in value.

(2) In any of the said cases a magistrate shall allow and award an amount in satisfaction of such loss or damage, from which shall be deducted the amount of principal and interest then due in respect of such goods.

(3) A pawnbroker shall not be responsible for damage caused by fire, rats, insects or other causes not attributable to his default.

Pawnbroker not to receive goods in pawn from person under 17.

26. No pawnbroker shall receive any goods in pawn from any person who is apparently under the age of seventeen years.

Pawnbroker not to receive goods in pawn unless identity document produced.

27. No pawnbroker shall receive any goods in pawn from any person unless he has first inspected the identity document of the borrower.

Taking in pawn goods with certain marks.

28. It shall not be lawful for any pawnbroker to receive in pawn any goods having upon them any mark or sign denoting them to be or to have been the property of the Crown or of any public department.

Hours of business.

29. Subject to any regulation made under this Ordinance by the Governor in Council, no goods shall be pawned or redeemed before 8 a.m. or after 8 p.m.:

Provided that goods may be pawned or redeemed on the day preceding Lunar New Years Day until 12 o’clock midnight.

Delivery to owner of property unlawfully pawned, with or without compensation to pawnbroker.

30. (1) If in any proceedings before a court or magistrate it appears that any goods brought before such court or magistrate have been unlawfully pawned with a pawnbroker, the court or magistrate, on proof of the ownership of the goods, may order either the delivery or the nondelivery thereof to the owner—

  • (a) on payment to the pawnbroker of the amount of the loan advanced by him thereon and the interest due; or

  • (b) on payment of any part of such loan or interest; or

  • (c) without payment of any part of such loan or interest,

as may seem just and fitting to the court or magistrate, according to the conduct of the owner and the pawnbroker and the other circumstances of the case.

(2) No such order shall be made by the court or magistrate unless the pawnbroker and the owner have been given an opportunity of being heard.

(3) Any such order made by the court or magistrate shall bar any civil remedy which the owner would have had for the recovery of the goods, and the owner shall not be entitled to claim the return of the goods from the pawnbroker except in accordance with the terms of such order.

31. (1) Every person who contravenes any of the provisions of section 23 shall be guilty of an offence and shall be liable on conviction to a fine of five hundred dollars and to imprisonment for six calendar months.

Penalties.

(2) Every person who contravenes any of the other provisions of this Ordinance, shall be guilty of an offence and shall be liable on conviction to a fine of five hundred dollars.

Credit Unions Ordinance1

To incorporate and regulate credit unions and the Credit Union League of Hong Kong, and to provide for matters incidental thereto.

[28th February, 1970]

Part I. Preliminary

Short title and commencement.

1. This Ordinance may be cited as the Credit Unions Ordinance and shall come into operation on a day to be appointed by the Governor by notice in the Gazette.

Interpretation.

2. In this Ordinance, unless the context otherwise requires—

“board” means a board of directors of a credit union constituted under section 28;

“by-laws” means the by-laws made in accordance with Part VII and approved by the Registrar under subsection (3) of section 5 or the by-laws (if any) prescribed under section 85;

“credit union” means a credit union registered under this Ordinance;

“director” means a director of a board;

“financial year” means the twelve months ending on the 31st day of March in any year or on such other annual date as may be provided in the by-laws;

“League” means the Credit Union League of Hong Kong incorporated under Part XI;

“officer” and “officer of a credit union” mean any of the persons

specified in section 30;

“Registrar” means the Registrar of Credit Unions appointed under section 82;

“share” means, in relation to a credit union, each sum of five dollars standing to the credit of a member in the accounts of that credit union;

“share balance” means the total value of all—

  • (a) fully paid up shares; and

  • (b) instalments paid in respect of other shares,

appearing for the time being in the accounts of a credit union;

“treasurer” means the person appointed under section 29 as treasurer or as treasurer and secretary of a board.

Part II. Formation and Powers of Credit Unions

Conditions of registration.

3. (1) Any fifteen or more persons—

  • (a) each of whom is not less than sixteen years of age;

  • (b) at least three of whom are not less than twenty-one years of age;

  • (c) who satisfy the requirements of section 15;

  • (d) who wish to associate themselves together as a credit union for the objects set forth in subsection (2),

may be registered as a credit union.

  • (2) The objects of a credit union shall be—

  • (a) to promote thrift among its members;

  • (b) to receive the savings of its members either as payment on shares or as deposits; and

  • (c) to make loans to its members, exclusively for provident or productive purposes.

Memorandum of association.

4. (1) The persons referred to in section 3 may apply for the registration of a credit union to the Registrar.

(2) Such persons shall sign in duplicate before two witnesses (who shall not be subscribers to the memorandum) a memorandum of association in the prescribed form and cause both copies thereof to be filed in the office of the Registrar.

(3) There shall be attached to the memorandum of association two copies of the by-laws by which it is proposed that the credit union shall be governed.

(4) The persons signing the memorandum of association shall appoint a provisional secretary, who shall hold office until a secretary of the board is appointed under section 29.

Registration.

5. (1) When the memorandum of association is duly filed, the Registrar shall consider whether the application complies with this Ordinance and may make such inquiries as he deems necessary for that purpose.

(2) The Registrar, after making such inquiries, may register the credit union, if he is satisfied—

  • (a) that the proposed by-laws do not conflict with any provision of this Ordinance;

  • (b) that the proposed by-laws are sufficient to enable the credit union to carry out its objects;

  • (c) that the body to which membership is limited is such as to ensure reasonable personal association amongst the members;

  • (d) that the applicants have reasonable prospects of carrying out the objects of a credit union;

  • (e) that the applicants and the application comply with the requirements of this Ordinance.

(3) On such registration the Registrar shall send to the provisional secretary of the credit union—

  • (a) one copy of the memorandum of association;

  • (b) one copy of the by-laws, with his approval endorsed thereon; and

  • (c) a certificate of registration, in the prescribed form.

Incorporation with limited liability; and effect thereof.

6. (1) Upon its registration, a credit union shall be a body corporate with perpetual succession and shall be capable of suing and being sued in its registered name and, subject to this Ordinance, of doing and suffering all such other acts and things as bodies corporate may lawfully do and suffer.

  • (2) In addition, upon such registration—

  • (a) all the movable property for the time being vested in any person in trust for the credit union shall vest in it;

  • (b) all liabilities incurred by any person as trustee of the credit union shall become its liabilities; and

  • (c) all legal proceedings pending by or against any such trustee may be prosecuted by or against the credit union in its registered name.

(3) The liability of a member of a credit union shall be limited to the amount of the shares held by him.

Restriction on name.

7. No credit union shall be registered under a name identical with that by which any other existing credit union has been registered, or so nearly resembling the same as to be likely to deceive, and the expression “credit union”, or the Chinese expression “

” shall be the last words of the name of every credit union.

Amendment of memorandum of association.

8. (1) Subject to this Ordinance, a credit union may, by resolution passed by two-thirds of the members, present and qualified to vote, at an annual meeting, or at a special meeting called for the purpose, amend its memorandum of association.

(2) No such amendment shall be of any effect until approved by the Registrar and his approval is endorsed by him on the memorandum of association.

Registered office.

9. Every credit union shall have a registered office in the Colony to which all communications and notices shall be sent. The credit union shall send to the Registrar written notice of the address of its registered office and of every change of the address thereof.

Powers.

10. For the purpose of carrying out its objects, a credit union may—

  • (a) deposit money in any bank in the Colony approved by the Registrar;

  • (b) invest in any stock, debenture stock, funds or securities in which a trustee may invest by virtue of the Trustee Ordinance;

  • (c) become a member of any other credit union;

  • (d) subject to section 43, borrow money;

  • (e) insure its loans, funds and property against loss;

  • (f) subject to this Ordinance, under the hands of its president and treasurer, or vice-president and treasurer, draw, make, accept, endorse, execute and issue promissory notes, bills of exchange, bills of lading, warrants and other negotiable or transferable instruments;

  • (g) hold, purchase, take on lease, sell, exchange, lease or otherwise dispose of any land;

  • (h) do all such other acts and things as are incidental or conducive to or consequential upon the attainment of the objects mentioned in section 3.

Part III. Capital, Shares and Membership

Capital divided into shares.

11. The capital of a credit union shall be unlimited in amount and shall be divided into shares of a value of five dollars each.

Allotment and subscription for shares.

12. (1) Subject to this Ordinance, shares in a credit union may be allotted, subscribed and paid for in the manner provided in the by-laws.

(2) Shares in a credit union shall be allotted only to the members thereof.

(3) No share shall be allotted to a member until he has paid for it in cash in full without any premium or discount.

(4) A credit union shall not issue to a member a certificate denoting ownership of a share.

Disposal of shares.

13. (1) Subject to this Ordinance, shares in a credit union may be transferred or withdrawn by the holder thereof in the manner provided in the by-laws.

(2) No transfer or withdrawal of shares in a credit union shall be valid unless approved by the board, which approval shall be withheld if the transfer or withdrawal would reduce the total number of members of the credit union to less than fifteen.

(3) A transfer of shares in a credit union may take place only between the members thereof and no charge in respect of any transfer shall be imposed by the credit union.

(4) A member of a credit union may not transfer or withdraw any shares if the transfer or withdrawal would make the total value of his shares less than his total liability to the credit union, whether as borrower, pledgor, guarantor or otherwise.

Restriction on disposal of shares by officers, etc.

14. (1) No officer or member of a credit union, whilst entrusted with or participating in the management of the affairs of the credit union, shall pledge, transfer, withdraw or otherwise dispose of his shares except in accordance with this Ordinance and the by-laws.

(2) If a credit union is wound up under Part IX, any disposition of shares by way of pledge, transfer, withdrawal or otherwise made by an officer or member thereof within the four months preceding the commencement of the winding-up shall be invalid and the officer or member shall remain liable to the creditors of the credit union to the extent of any shares so disposed of.

Membership limited to persons with common occupation, etc.

15. The membership of a credit union shall be limited to persons having a common bond of occupation, employment, association, or residence within a defined neighbourhood, community, or rural or urban area:

Provided that a member of a credit union who ceases to have the common bond to which membership of the credit union is limited may retain his membership thereof but may not obtain the grant of any loan therefrom exceeding the value of his shares in the credit union.

16. (1) A person shall not be admitted to membership of a credit union unless—

Admission to and conditions of membership.

  • (a) his application for membership has been approved by the board;

  • (b) he has paid such entrance fee, not exceeding one dollar, as may be provided in the by-laws; and

  • (c) he has subscribed to at least one share and has paid an amount thereon not less than such initial instalment as may be provided in the by-laws.

(2) Subject to subsection (1), the conditions of membership of a credit union shall be in accordance with the by-laws.

Minors.

17. (1) A minor may be admitted to membership of a credit union but shall not be qualified to vote at the annual or special meetings thereof until he has attained the age of sixteen years.

(2) The minority of any person duly admitted as a member of any credit union shall not debar that person from executing any document necessary to be executed or given under this Ordinance, and shall not be a ground for invalidating or avoiding any contract entered into by any such person with the credit union; and any such contract entered into by any such person with the credit union, whether as principal or as surety, shall be enforceable at law by or against such person notwithstanding his minority.

Expulsion of member.

18. (1) A member of the credit union who contravenes any provision of this Ordinance or acts in any way detrimental to the interests of the credit union may be expelled therefrom upon a resolution passed by two-thirds of the members present and qualified to vote, at an annual meeting, or at a special meeting called for the purpose.

(2) The grounds on which his expulsion is being considered shall be communicated to the member in writing by the board not less than seven days before the resolution for his expulsion is to be moved and he shall be given the opportunity to answer, either in writing before the meeting or orally thereat.

(3) The by-laws of a credit union may make provision in respect of the expulsion of members therefrom.

Cessation of membership.

19. Subject to this Ordinance, a member of a credit union who transfers or withdraws all his shares therein or who is expelled there-from shall, from the date of such transfer, withdrawal or expulsion, cease to be a member of the credit union.

Payment on cessation of membership.

20. (1) Subject to this section, any money owed in respect of shares by a credit union to a past member thereof shall, after deduction of any money owed by him to the credit union, be paid to him.

(2) A credit union may, if it thinks fit, postpone the payment of any money owed to a past member for not more than ninety days after his membership ends.

(3) No payment shall be made by a credit union to a past member unless all his liabilities to the credit union, whether as borrower, pledgor, guarantor or otherwise, have been fully discharged or otherwise fully provided for by a person other than the credit union.

Liability on cessation of membership.

21. A past member of a credit union shall have no further rights therein but shall not thereby be released from any remaining liability to the credit union.

Debts owed by members or past members.

22. (1) Any money owed to a credit union by a member or a past member shall be a civil debt and recoverable as such in a court of competent jurisdiction.

(2) A credit union shall have a lien on the shares of a member for any debt owed to it by him, and may set off any sum standing to the credit of such member in the accounts of the credit union towards the payment of such debt.

Payment to nominee or person entitled upon death of member.

23. (1) Subject to this section, any money owed in respect of shares by a credit union to a member thereof who dies shall be paid to the person nominated in accordance with this section, or, if there is no person so nominated, to such person as may appear to the board, on such evidence as it deems satisfactory, to be entitled by law to receive the same, after deducting such amounts as may be owed by the deceased member to the credit union.

(2) A member of a credit union over the age of sixteen years may in writing, signed by him in the presence of two attesting witnesses and deposited during his lifetime with the treasurer of the credit union, nominate any person (hereinafter in this section referred to as a nominee) to receive in the event of his death any money owed to him in respect of shares by the credit union.

(3) A member of a credit union shall be entitled to appoint only one nominee unless he holds more than one share.

(4) If more than one nominee is appointed by a member the exact proportion of the amount available which is to be payable to each nominee shall be specified at the time of nomination.

(5) If any payment is made under this section to a nominee who is a minor, a receipt given either by the minor or by his guardian shall be sufficient discharge to the credit union.

24. A record of members and shares shall be kept by every credit union and shall contain and be prima facie evidence of—

Record of members and shares.

  • (a) the name, address and occupation of each member;

  • (b) the number of shares (with the dates of allotment thereof) held by each member;

  • (c) the total number of shares and the amount paid up in respect thereof;

  • (d) the date on which each member was admitted to membership;

  • (e) the date on which a member ceased to be such;

  • (f) every appointment of a nominee under section 23.

Part IV. Meetings and Election of Board and Committees

Annual and special meetings.

25. (1) There shall be an annual meeting of the members of a credit union within sixty days after the end of the financial year within which the first meeting of the credit union is held pursuant to section 27 and thereafter within sixty days after the end of each subsequent financial year.

(2) Subject to this Ordinance, special meetings of the members may be called at the times and in the manner provided in the by-laws.

(3) Where in any case, due to the nature of the common occupation or employment of the persons forming a credit union, it is not practicable for all the members thereof to be present at the same instance at its annual or special meetings, substitute meetings of members may be held on two separate occasions in the manner provided in the by-laws, and meetings so held shall together be deemed to be annual or special meetings, whichever is appropriate.

(4) Subject to section 26, the voting and the procedure at annual and special meetings shall be in accordance with the by-laws.

26. (1) No member shall have more than one vote at any annual or special meeting and no voting by proxy shall be allowed thereat.

Voting.

(2) Voting at an election of members to the board, the supervisory committee or the credit committee of a credit union shall be by secret ballot.

First meeting.

27. (1) The provisional secretary of a credit union shall, within ten days after the receipt by him of the certificate of registration issued in accordance with section 5, notify each of the members of the credit union that he has received it and shall summon the first meeting of the members, which shall be held within fourteen days of the date of his receipt of the certificate.

(2) For the purposes of subsection (1), the body of persons which has been registered as a credit union under section 5 shall be deemed to be the members of the credit union.

Election and tenure of office of board of directors and committees.

28. (1) At its first meeting after registration, a credit union shall elect from among its members—

  • (a) a board consisting of five directors or of such greater number, not exceeding fifteen, as may be provided in the by-laws;

  • (b) a supervisory committee consisting of three members; and

  • (c) a credit committee consisting of three members.

(2) At the annual meeting in every subsequent financial year there shall retire from office the number nearest one-third of the directors, one member of the supervisory committee and one member of the credit committee.

(3) The directors and committee members who shall retire in any year shall be those who have been longest in office since their last election; as between persons who became directors or committee members on the same day, those who shall retire shall (unless they otherwise agree among themselves) be determined by lot.

(4) A retiring director or committee member shall be eligible for re-election.

(5) At the annual meeting at which a director or committee member retires under subsection (2) the credit union shall fill the vacated office by electing a person thereto from among its members.

(6) Any vacancy occurring—

  • (a) on the board or the credit committee, shall be filled by appointment by the board within fourteen days of the occurrence of such vacancy; or

  • (b) on the supervisory committee, shall be filled by appointment by that committee within fourteen days of the occurrence of such vacancy.

(7) Where an appointment is made under subsection (6) other than for the purpose of filling a temporary vacancy caused through illness, absence from the Colony or any other cause, the person so appointed shall retire at the same time as if he had become a director or committee member, as the case may be, on the day on which the person in whose place he is appointed was last elected.

Meetings of board and committees, and appointment of officers and procedure.

29. (1) Immediately following its election the board shall hold its first meeting and thereat shall appoint from among its members a president, a vice-president, a treasurer and a secretary:

Provided that the board may appoint one person to perform the functions of both treasurer and secretary.

(2) The supervisory committee and the credit committee shall hold their first meetings immediately after election and shall appoint for each committee—

  • (a) a chairman, who shall preside at the meetings of the committee; and

  • (b) a secretary.

(3) Subsequent meetings of the board and of each committee shall be held at least once in every month and at such other times as may be considered necessary by the president, in the case of the board, or by the chairman, in the case of each committee, or as may be provided in the by-laws.

(4) If the president and vice-president are both absent from any meeting of the board, the members present may appoint one of themselves to preside at the meeting.

(5) If the chairman is absent from any meeting of the supervisory committee or the credit committee, the members present may appoint one of themselves to preside at the meeting.

(6) The number of members which shall constitute a quorum at a meeting of the board, the credit committee or the supervisory committee shall be as provided by the by-laws.

Officers of a credit union.

30. The persons for the time being appointed to the offices referred to in section 29 shall be the officers of the credit union concerned.

Composition of the committees.

31. (1) No member of the supervisory committee may be a director of the board or a member of the credit committee.

(2) Neither the president nor the treasurer of the board nor more than one director of a credit union may be a member of the credit committee thereof.

Remuneration.

32. No director or member of either committee of a credit union shall, as such, receive remuneration from that credit union:

Provided that the treasurer may be paid such remuneration as may be determined at an annual meeting of the credit union.

Part V. Management

powers and duties of board

Powers and duties of the board.

33. (1) The board of a credit union shall have the general management of the affairs, funds and records of the credit union and, except where a contrary intention appears, shall exercise and perform all the powers and duties conferred and imposed by this Ordinance and in particular shall—

  • (a) act and make decisions upon all applications for membership of the credit union;

  • (b) determine the maximum number of shares which may be held by any one member, which shall not without the permission of the board exceed twenty per cent of the shares of the credit union and which shall apply to all members;

  • (c) determine the length of notice (which shall not exceed ninety days) required from a member of his intention to transfer or withdraw shares;

  • (d) determine the maximum length of time in respect of which loans made by the credit union to its members may remain outstanding, in whole or in part;

  • (e) subject to subsection (2) of section 40, determine the maximum amount of loans which may be made to a member, with security or without security;

  • (f) subject to section 41, determine the rates of interest payable during any specified period on such loans;

  • (g) fix from time to time the amount of any surety bond which shall be required in respect of any officer or member concerned with the receipt, management or expenditure of money for or on behalf of the credit union, and for such purposes may authorize the payment of any premium on such bonds by the credit union;

  • (h) appoint persons to act, under the direction of the board, in the furtherance of the education of persons in the objects and practices of credit unions.

(2) The board shall exercise and perform such other powers and duties as may be conferred or imposed upon it by the by-laws.

powers and duties of supervisory committee

Powers and duties of supervisory committee.

34. In addition to such powers and duties as may be conferred or imposed by the by-laws, the supervisory committee—

  • (a) shall carry out an examination of the affairs and audit the accounts of the credit union and prepare a balance sheet on the accounts at least once in each quarter of every financial year;

  • (b) shall make or provide for an annual audit of the accounts of the credit union and submit a report thereon together with a balance sheet to the annual meeting of the credit union for its approval;

  • (c) may, if it deems it to be necessary in the interests of the credit union, by the unanimous vote of all its members suspend any director of the board or any member of the credit committee from the functions of his office and call a special meeting of the credit union to consider a report of the committee on such suspension;

  • (d) may call a special meeting of the credit union to consider any matter which in the opinion of the committee ought to receive such consideration.

powers and duties of credit committee

Powers and duties of credit committee.

35. In addition to such powers and duties as may be conferred or imposed by the by-laws, the credit committee shall have general supervision over all loans made to the members of the credit union and, subject to paragraphs (d), (e) and (f) of subsection (1) of section 33, shall, in respect of every such loan—

  • (a) fix the amount thereof;

  • (b) decide on the security (if any) required therefor; and

  • (c) determine the conditions for repayment thereof.

Approval of loans.

36. Save as provided in section 38, no loan shall be made to a member of the credit union except with the prior and unanimous approval of the members of the credit committee.

Acceptable security for loans.

37. In addition to or in lieu of any other form of security, the credit committee may in its discretion accept an endorsement of a note by a member as guarantor or a pledge of shares by a member as security for a loan.

Loan officers.

38. (1) The credit committee, with the prior approval of the board, may appoint members of the credit committee as loan officers to act under the committee’s supervision.

(2) Notwithstanding anything contained in section 36, a loan officer may make loans to members of the credit union in the manner provided in the by-laws.

Part VI. Loans, Borrowing, Reserve Fund and Dividends

loans to members

Purposes of loans.

39. No loan shall be made to a member of a credit union under this Ordinance other than for provident or productive purposes.

Restrictions on loans.

40. (1) Save as is provided in paragraphs (a) and (b) of section 10, no credit union shall make a loan to any person who is not a member thereof.

(2) A loan shall not be made by a credit union to a member thereof if this would cause the member to owe the credit union more than ten per cent of the aggregate amount of the share balance, the reserve fund and any other funds of the credit union.

Rates of interest.

41. (1) The interest rate on any loan made by a credit union to a member thereof shall not exceed one per cent per month on the total of the unpaid balance of any such loan plus all charges (if any) made by the credit union in making the loan.

(2) The interest rate determined in respect of loans made to members of a credit union during any specified period shall be the same for all such loans.

Unanimous vote required for loans to directors or committee members.

42. No director or member of the supervisory committee or the credit committee may obtain a loan from the credit union in excess of the value of his shares except upon the unanimous vote of a majority of the board, the supervisory committee and the credit committee, sitting together, such director or member not being present at the taking of the vote.

borrowing powers

Borrowing powers.

43. (1) Subject to this section, a credit union may borrow money for the carrying out of its objects.

(2) No money shall be borrowed by a credit union save upon a resolution of its board.

(3) A credit union may not borrow money so that its total indebtedness would in consequence exceed fifty per cent of its share balance.

(4) A credit union may not borrow money so that its total indebtedness would in consequence exceed twenty-five per cent of its share balance, except in addition to the board’s resolution, upon a resolution passed by not less than three-fourths of the members, present and qualified to vote, at a special meeting of the credit union called for the purpose or if sanctioned in writing by not less than two-thirds of the total number of the members of the credit union qualified to vote.

Power to mortgage, etc. as security for borrowed money.

44. A credit union may mortgage, charge or pledge any of its property to secure any liability for the repayment of money borrowed in accordance with section 43.

reserve fund

Reserve fund.

45. (1) The board shall set aside a reserve fund, into which shall be paid—

  • (a) all entrance fees and fines collected from members; and

  • (b) during each financial year, not less than twenty per cent of the net earnings for the previous financial year, before the declaration or payment of any dividend in relation to the previous financial year,

until the reserve fund is equal to at least ten per cent of the share balance of the credit union, and such further amounts of the net earnings shall be paid into the fund in every year as may be necessary to maintain that percentage.

(2) The reserve fund shall not be used in making loans to members of the credit union.

(3) Any income received from any part of the reserve fund which is deposited or invested shall be paid to the general revenue of the credit union.

(4) The reserve fund shall be kept as a reserve against losses incurred from loans made by the credit union which remain outstanding after the time for their repayment in full has expired and other losses, other than excess expenditure over income, incurred by the credit union, and shall not be used for any other purpose except upon the winding-up of the credit union or with the prior approval in writing of the Registrar:

Provided that during the twelve months next following the date of its registration, an amount not exceeding the total of the entrance fees collected from members may be drawn from the reserve fund to meet any expenses incurred in the formation and organization of a credit union.

dividends

Declaration, limit and payment of dividend.

46. (1) After provision is made for the reserve fund, in accordance with section 45, and before the holding of the annual meeting of the credit union for that year, the board may by resolution recommend that a dividend, not exceeding six per cent per annum, shall be paid from the remainder of the net earnings and shall present any such resolution to that annual meeting.

(2) The annual meeting may declare a dividend for that year, which shall not exceed the amount recommended by the board.

(3) A dividend so declared shall be paid on all shares fully paid up and registered in the name of the same member throughout the previous financial year:

Provided that a member who is registered as owner at the end of a financial year of shares which became fully paid up during that year shall be entitled to the proportional part of such dividend calculated from the fifth day of the month following the date upon which such shares became fully paid up.

(4) Subject to subsection (3), payment of the dividend (if any) so declared may be made in such manner and amounts and at such times as may be provided in the by-laws.

Part VII. By-Laws

By-laws.

47. (1) The by-laws of every credit union shall be in a form approved by the Registrar.

(2) The by-laws of a credit union may, and, if so directed by the Registrar, shall, include provision for all or any of the following—

  • (a) the depositing of all or any specified funds or money of a credit union in a bank in the Colony approved by the Registrar;

  • (b) the imposition of charges on any member whose account remains inactive for a specified period;

  • (c) the imposition of fines upon members for failure to meet their obligations to the credit union;

  • (d) specifying the purposes for which the profits of the credit union may be used.

(3) Any by-laws which are prescribed under paragraph (a) of section 85 shall, subject to such modification as may be approved by the Registrar, be deemed to be the by-laws of a credit union.

(4) Notwithstanding anything contained in section 20 of the Interpretation and General Clauses Ordinance, it shall not be necessary to publish the by-laws of a credit union in the Gazette.

Amendment of by-laws.

48. (1) By-laws may be amended only by a resolution of two-thirds of the members present and qualified to vote, at the annual meeting of the credit union or at a special meeting thereof called for the purpose.

(2) No such amendment shall be of any effect until the same has been approved in writing by the Registrar.

Binding effect of the by-laws.

49. The by-laws of a credit union shall bind the credit union and the members thereof to the same extent as if each member had subscribed his name and affixed his seal thereto and there were in such by-laws a covenant on the part of himself, his executors, administrators and assigns to conform to such by-laws, subject to the provisions of this Ordinance.

Part VIII. Returns, Audit, Information and Inquiry

Return of names of officers.

50. A record of the name, occupation and address of each officer of a credit union shall be furnished to the Registrar not later than ten days after the appointment of the officer.

Return of supervisory annual audit.

51. A copy of the audit report and balance sheet, submitted to the annual meeting in accordance with paragraph (b) of section 34 and approved thereat, shall be furnished to the Registrar not later than thirty days after the date of such meeting.

Registrar’s annual examination.

52. (1) The accounts of a credit union shall be examined at least once in every year by or under the direction of the Registrar and a credit union undergoing such examination shall produce all cash in hand, books, records and other documents required by the person conducting the examination.

(2) Every such examination shall include an inquiry into overdue debts (if any) and a valuation of the assets and liabilities of the credit union.

(3) A copy of the report of the last examination carried out under this section and a copy of the audit report and balance sheet referred to in section 51 shall be posted in a conspicuous place at the registered office of the credit union for not less than one month.

Information for Registrar and verification thereof.

53. (1) A credit union shall furnish the Registrar with such statements with respect to its business, finances and other affairs and with such other information as he may from time to time require.

(2) Any statement and other information and any record and report required to be furnished by a credit union to the Registrar under this Ordinance or the by-laws shall be certified by the supervisory committee and verified by the president and the treasurer of the credit union.

Inquiry, examination and suspension.

54. (1) The Registrar and any person authorized by him may inquire into the condition and affairs of a credit union and for this purpose shall be given access to all books, records and other documents of the credit union and may make such inquiries as are in his opinion necessary to ascertain its financial condition, its ability to provide for the payment of its liabilities as they become due and whether or not it has complied with this Ordinance.

(2) The Registrar may, if he is satisfied, from an inquiry into the condition and affairs of a credit union, that any of its funds, securities or other property may have been misappropriated or improperly used or that the books, records or other documents do not show its true financial position, appoint an auditor to make such inquiry and audit of the affairs of the credit union as the Registrar considers necessary.

(3) The Registrar may, after an inquiry under this section, if he is satisfied that the continuance in business of such credit union would not be in the interests of its members or of the public, order the credit union to suspend business for such time as he may decide.

Part IX. Winding-Up

Winding-up of credit unions.

55. No credit union shall be wound up otherwise than in accordance with this Part.

56. (1) Save as is otherwise provided in this Part, the provisions of the Companies Ordinance relating to the winding-up of a company shall, to the extent that such provisions are applicable in the case, apply to the winding-up of a credit union.

Application of Companies Ordinance.

(2) For the purposes of such winding-up, the term “Registrar” in the Companies Ordinance shall have the meaning assigned to it by this Ordinance.

(3) The Colonial Secretary shall appoint a person to discharge the duties of Official Receiver in any such winding-up.

Credit union may resolve to be wound up by the court.

57. (1) Subject to this section, a credit union may—

  • (a) by instrument in writing signed by three-quarters of its members qualified to vote at its meetings; or

  • (b) by resolution passed by three-quarters of its members qualified to vote and voting at a special meeting called for the purpose,

resolve that it be wound up by the court.

(2) Every credit union shall give at least ten days prior notice in writing to the Registrar of its intention to issue any such instrument for the signature of its members or to hold any such meeting, as the case may be.

(3) Where a credit union resolves under subsection (1) that it be wound up by the court, a copy of the instrument or a record of the resolution, certified by the president and treasurer of the credit union, shall be delivered forthwith to the Registrar who shall, as soon as practicable thereafter, petition the court for an order to wind up the credit union.

Petition by Registrar for winding-up in other cases.

58. (1) The Registrar may, if he thinks fit, petition the court for an order to wind up a credit union if he is satisfied that—

  • (a) the number of members qualified to vote at meetings of the credit union has been reduced to less than fifteen;

  • (b) the registration of the credit union was obtained by fraud or mistake;

  • (c) it is not a bona fide credit union;

  • (d) it exists for an illegal purpose;

  • (e) it is not carrying on business or is not in operation; or

  • (f) it has wilfully, after notice from the Registrar, contravened any of the provisions of this Ordinance.

(2) The Registrar may, if he thinks fit, give notice to a credit union of his intention to petition the court under this section, setting out the grounds therefor and stating that, unless cause is shown to the contrary within a specified period, he will petition the court accordingly.

(3) The Registrar may, if he has given notice under subsection (2), and unless in his opinion sufficient cause to the contrary is shown by the credit union within the specified period, proceed with the petition.

No deposit required on winding-up.

59. Notwithstanding any requirement in any rules made under the Companies Ordinance relating to the winding-up of companies, no deposit with the Official Receiver shall be required in respect of a petition under section 57 or 58.

Winding-up for insolvency or on equitable grounds.

60. Notwithstanding anything contained in section 58, a credit union may be wound up by the court if—

  • (a) the credit union is unable to pay its debts;

  • (b) the court is of opinion that it is just and equitable that the credit union should be wound up.

Qualification as to contribution in winding-up.

61. In its application to the winding-up of a credit union subsection (1) of section 170 of the Companies Ordinance shall be so construed that a person shall be deemed to have ceased to be a member of the credit union, in respect of any share validly withdrawn or transferred before the commencement of the winding-up, with effect from the date of the receipt by the board of the notice of intention to withdraw or transfer such share.

Part X. Appeals

Appeal against action of Registrar.

62. (1) If the Registrar—

  • (a) refuses to register a credit union under section 5;

  • (b) fails to register a credit union within thirty days of the receipt of a memorandum of association duly filed for the purpose;

  • (c) refuses or fails to give his approval, within thirty days of the receipt, of any written application therefor, when his approval is required for any purpose under this Ordinance;

  • (d) under section 54, orders a credit union to suspend business,

any person aggrieved thereby may, subject to this section, appeal against such refusal, failure or order to the District Court.

(2) An appeal under this section shall be entered within fourteen days—

  • (a) after the date of any refusal to register or of any suspension order, in the case of an appeal under paragraph (a) or (d) of subsection (1); or

  • (b) after the date of the expiry of the period of thirty days mentioned therein, in the case of an appeal under paragraph (b) or (c) of subsection (1).

(3) The decision of the District Court on any such appeal shall be final.

Part XI. The Credit Union League of Hong Kong

Incorporation of league of credit unions.

63. (1) The body known as the Credit Union League of Hong Kong (hereinafter in this Part referred to as the former League) shall, on the date of commencement of this Ordinance, become a body corporate with perpetual succession and shall be capable of suing and being sued in the name of the Credit Union League of Hong Kong and, subject to this Ordinance, of doing and suffering all such other acts and things as bodies corporate may lawfully do and suffer.

(2) The League shall have and may use a common seal.

Objects of League.

64. The objects of the League are—

  • (a) to protect and assist the credit unions which are members of the League;

  • (b) to provide educational and advisory services for credit unions;

  • (c) to encourage and assist in the organization of credit unions;

  • (d) to arrange for bonds and insurance on behalf of credit unions and their employees;

  • (e) to set up a stabilization fund in accordance with section 72;

  • (f) to undertake such other services for credit unions and the credit union movement as shall be consistent with this Ordinance.

Vesting.

65. On the date of commencement of this Ordinance—

  • (a) all movable property vested before that date in any person in trust for the former League shall vest in the League;

  • (b) all liabilities lawfully incurred before that date by any person as trustee of the former League shall become liabilities of the League; and

  • (c) all legal proceedings pending by or against any such trustee may be prosecuted by or against the League.

Board of directors and officers.

66. (1) There shall be a board of the League consisting of five directors or of such greater number not exceeding fifteen as may be provided by the by-laws of the League.

Schedule.

(2) The first board of directors shall consist of the persons—

  • (a) whose names appear in the first column of the Schedule2;

  • (b) whose residential addresses are specified in the second column of the Schedule; and

  • (c) each of whom shall hold the office, if any, specified opposite each name in the third column of the Schedule.

(3) The first directors of the board shall hold office until either a board of directors is elected in accordance with the by-laws of the League or the 1st day of July 1970, whichever is the earlier.

(4) The board of the League shall have the general direction and management of the affairs, funds and records of the League.

League by-laws.

67. (1) The League may make by-laws, which shall be subject to the approval of the Registrar, for the carrying out of its objects.

(2) Such by-laws shall be consistent with this Ordinance and shall include provision for membership of the League and for the composition of and elections to the board.

(3) Notwithstanding anything contained in subsection (1), any by-laws which are prescribed under paragraph (a) of section 85 shall, subject to such modification as may be approved by the Registrar, be deemed to be the by-laws of the League.

(4) The by-laws of the League may, subject to the approval of the Registrar, be amended from time to time in the manner provided therein.

(5) Notwithstanding anything contained in section 20 of the Interpretation and General Clauses Ordinance, it shall not be necessary to publish the by-laws of the League in the Gazette.

Registration with Registrar.

68. (1) The League shall forward to the Registrar for registration the following—

  • (a) notice of the address of the principal office of the League and any change thereof;

  • (b) a copy of the by-laws of the League and any amendment thereto, certified as correct by two members of the board of the League; and

  • (c) a list of the name, occupation and address of each member of the board and each officer of the League and any change therein, certified as correct by two members of the board of the League.

(2) A document required to be registered under subsection (1) shall be forwarded to the Registrar within twenty-eight days of the commencement of this Ordinance or within twenty-eight days of any change or amendment, as the case may be.

Sealing and signing of documents.

69. (1) The common seal of the League shall not be affixed to any instrument except by the authority of a resolution of the board and in the presence of the president of the board and either the treasurer thereof or such other person as the board may appoint for the purpose.

(2) The president and the treasurer, or such other person, shall sign every instrument to which the seal is so affixed.

(3) The board shall be responsible for the safe custody of the common seal of the League.

Membership.

70. Subject to this Part, a credit union may become a member of the League.

Levy.

71. (1) A credit union which is a member of the League may, for the purpose of financing the League, provide in its by-laws for a yearly levy on each of its members.

(2) The amount of such levy and the time and manner of payment thereof to the League shall be as provided in the by-laws of the League.

Stabilization fund.

72. (1) The League may set up a fund, to be known as the stabilization fund, which shall be used in the manner set out in this section and shall not be used in any other manner except with the prior approval in writing of the Registrar.

(2) The stabilization fund may be used in providing interest free loans to a member credit union for the purpose of avoiding a liquidation thereof or for assisting in any matter connected with such liquidation.

(3) No such loan shall be provided except—

  • (a) where the League is satisfied that such provision is in the best interests of the credit union movement; and

  • (b) on a resolution, passed by at least two-thirds of the members of the board of the League, determining the amount of the loan and the conditions under which it is to be provided.

(4) Section 43 shall not apply in respect of any such loan.

Borrowing powers.

72A. (1) Subject to this section, the League may borrow money for the carrying out of its objects.

(2) No money shall be borrowed by the League save upon a resolution of its board.

(3) The League may not borrow money so that its total indebtedness would in consequence exceed fifty per cent of its total assets.

(4) The League may not borrow money, so that its total indebtedness would in consequence exceed twenty-five per cent of its total assets, except in addition to the board’s resolution, upon a resolution passed by not less than three-fourths of the members, present and qualified to vote, at a special meeting of the League called for the purpose or if sanctioned in writing by not less than two-thirds of the total number of the members of the League qualified to vote.

(5) In this section “total assets” does not include the stabilization fund set up under section 72.

Power to mortgage etc. as security for borrowed money.

72B. The League may mortgage, charge or pledge any of its property to secure any liability for the repayment of money borrowed in accordance with section 72 A.

Application of other sections to League.

73. Save in so far as is otherwise provided in this Part, sections 10, 49, 52, 53, 54, 76, 77, 80 and 81 shall, to the extent that they are applicable, apply to the League as though it were a credit union.

Saving.

74. Nothing in this Part shall affect or be deemed to affect the rights of Her Majesty the Queen, Her Heirs or Successors, or the rights of any body politic or corporate or of any other persons except such as are mentioned in this Part and those claiming by, from or under them.

Part XII. Offences and Penalties

Illegal loans.

75. (1) Save as is provided in paragraphs (a) and (b) of section 10, any director or any member of the supervisory committee or of the credit committee of a credit union, or any loan officer thereof, who knowingly makes or permits the making of a loan from any fund of the credit union to any person who is not a member of the credit union shall be guilty of an offence and shall be liable on conviction to a fine of three thousand dollars and to imprisonment for one year.

(2) A person who is convicted of an offence under subsection (1) shall be liable to the credit union for the amount so loaned, and the illegality of such a loan shall be no defence in any proceedings by the credit union for the recovery of that amount.

False returns to Registrar.

76. Any person who makes any return or furnishes any information, statement, record, or other document required by this Ordinance to be made or furnished to the Registrar knowing the same to be in any respect false or insufficient shall be guilty of an offence.

Prohibition of disclosure of certain information.

77. Any officer of a credit union, or any person entrusted with or participating in the management thereof, who discloses to any person any information regarding a transaction of a member of that credit union therewith, save in so far as may be necessary for the proper conduct of the business of that credit union, shall be guilty of an offence.

Failure to report resolution for winding-up.

78. Any person who—

  • (a) contravenes the provisions of subsection (2) of section 57; or

  • (b) being a president or treasurer of a credit union, fails to deliver to the Registrar a copy of the instrument or record of the resolution in accordance with subsection (3) of section 57,

shall be guilty of an offence.

Restriction on use of expression “credit union” or in Chinese “

79. Any person, other than a credit union or the League, who trades or carries on any business under any name or title of which the expression “credit union”, or the Chinese expression “

” is part shall be guilty of an offence:

Provided that nothing in this section shall apply to the use by any person or his successors in interest of any name or title under which he traded or carried on business at the commencement of this Ordinance.

Penalty.

80. Any person guilty of an offence against this Ordinance for which no penalty is provided shall be liable on conviction to a fine of two thousand dollars and, in the case of a continuing offence, to an additional daily penalty of fifty dollars.

Criminal liability of officers of credit union.

81. Every offence committed by a credit union shall be deemed to have been also committed by each officer of the credit union who is bound by this Ordinance or the by-laws of the credit union to fulfill the duties whereof such an offence is a breach or, if there is no such officer, then by each of the directors and members of the supervisory committee and credit committee, unless such officer, director or member is proved to have been ignorant of, or to have attempted to prevent, the commission of such offence.

Part XIII. Registrar

Appointment of Registrar.

82. (1) The Governor may appoint a public officer to be the Registrar of Credit Unions and may appoint other public officers to assist the Registrar.

(2) The Registrar may delegate to any public officer appointed to assist him under subsection (1) all or any of the powers and duties conferred or imposed on him by this Ordinance.

Register of Credit Unions to be kept.

83. (1) The Registrar shall keep at his office a register, to be known as the Register of Credit Unions, in which shall be entered particulars of the registration of every credit union.

(2) The Registrar shall keep such other records relating to credit unions as may be prescribed.

Forms of records, etc.

84. A credit union shall keep accounts, balance sheets, forms, records and books in such form as may be approved by the Registrar.

Part XIV. Regulations

Regulations.

85. The Governor in Council may make regulations for all or any of the following matters—

  • (a) the adoption by all or some credit unions or the League of such by-laws as may be prescribed hereunder;

  • (b) the procedure to be followed under this Ordinance;

  • (c) the examination of the accounts of credit unions by the Registrar or under his direction;

  • (d) the qualifications required of any person carrying out an audit under subsection (2) of section 54;

  • (e) the fees payable on the registration of a credit union under this Ordinance;

  • (f) the scale of fees payable to the Registrar for services rendered under this Ordinance;

  • (g) the form of a memorandum of association required under subsection (2) of section 4 and of a certificate of registration issued under subsection (3) of section 5;

  • (h) the records relating to credit unions which are to be kept by the Registrar;

  • (i) prescribing anything which is to be or may be prescribed under this Ordinance;

  • (j) any other matter necessary or expedient to carry out effectively the intent and purpose of this Ordinance.

{The Schedule is omitted from this volume.}

Chit-Fund Businesses (Prohibition) Ordinance1

To prohibit chit-fund businesses and to make provision for other connected purposes.

[12th May, 1972]

1. This Ordinance may be cited as the Chit-Fund Businesses (Prohibition) Ordinance.

Short title.

Interpretatior

2. In this Ordinance, unless the context otherwise requires—

“chit-fund” means a scheme or arrangement, whether known as chit-fund or “hwei” or by any other name, whereby or as part of which the participants subscribe periodically or otherwise to a common fund and that common fund is put up for sale or payment to the participants by auction, tender, bid, ballot or otherwise;

“operate” includes manage, form, conduct, organize, advertise and aid, assist or take part in operating;

“Registrar” means the Registrar of Companies.

Chit-fund business an offence.

3. (1) Subject to section 5 and to subsection (2), any person who operates a chit-fund shall be guilty of an offence and shall be liable on conviction to a fine of 10,000 dollars and to imprisonment for 3 years.

(2) Notwithstanding subsection (1), if an offence is committed under this section by reason only of the breach of one or both of paragraphs (a) and (c) of section 5(2), the offender shall be liable to a fine of 1,000 dollars and to imprisonment for one year.

Continuation of chit-funds upon filing of particulars.

4. (1) Subject to subsection (2) a person who was operating a chit-fund on the 1st December 1971, other than a chit-fund operated in accordance with section 5(2), may continue its operation until completion of the chit-fund or until the 31st December 1973, whichever is the earlier, if, within 30 days after the commencement of this Ordinance and upon payment of a fee of 5 dollars, he files with the Registrar in the form set out in the Schedule 2 the particulars required thereby.

Schedule.

(2) Subsection (1) shall not apply in a case where the particulars filed—

  • (a) are in any respect incomplete;

  • (b) are false or misleading;

  • (c) do not adequately identify the chit-fund to which they refer.

(3) Any person who files false or misleading particulars under this section shall be guilty of an offence and shall be liable on conviction to a fine of 10,000 dollars and to imprisonment for 3 years.

(4) A form filed under this section shall be available for inspection by any member of the public upon payment of a fee of 1 dollar.

Application of section 3.

5. (1) Section 3 shall not have effect—

  • (a) in respect of a chit-fund in operation on the 1st December 1971 until 30 days after the commencement of this Ordinance;

  • (b) in respect of a chit-fund continuing to operate by virtue of section 4(1);

  • (c) in respect of a chit-fund operated in accordance with subsection (2).

(2) A chit-fund may be operated if—

  • (a) there are not more than 30 participants;

  • (b) the operator is not at the same time operating another chit-fund;

  • (c) the common fund put up for sale or payment to the participants does not exceed 10,000 dollars; and

  • (d) no benefit accrues to the operator other than a right to receive the first subscription free of interest.

(3) Notwithstanding anything contained in this section any person who advertises a chit-fund, whether in a newspaper or by any other means, shall be guilty of an offence and shall be liable to a fine of 10,000 dollars and to imprisonment for 3 years.

Prohibition on registration of chit-fund companies.

6. A company which has as its object or as one of its objects the operation of chit-funds shall not be registered under the Companies Ordinance after the commencement of this Ordinance.

Alternatives open to registered chit-fund companies.

7. (1) Subject to subsection (2), a registered company which has as its object or one of its objects the operation of chit-funds shall within 90 days after the commencement of this Ordinance—

  • (a) amend its memorandum and articles of association in accordance with sections 8(1) and 13(1) of the Companies Ordinance so as to delete all references to the operation of chit-funds, and, if necessary, change its name in accordance with section 22(1) of the Companies Ordinance so as to delete any reference therein to chit-funds; or

  • (b) pass a resolution that it be wound up voluntarily in accordance with section 228(1) (b) of the Companies Ordinance; or

  • (c) pass a resolution that it be wound up by the court in accordance with section 177(a) of the Companies Ordinance and present a petition to that effect under section 179(1) of that Ordinance.

(2) In the case of a registered company continuing to operate a chit-fund by virtue of section 4(1), the period of 90 days specified in subsection (1) of this section shall run from the last day of operation of the fund.

Striking off of companies failing to comply with section 7.

8. (1) If a registered company—

  • (a) fails to comply with section 7; or

  • (b) having taken action under paragraph (b) or (c) of section 7(1), fails to proceed expeditiously in the opinion of the Registrar to complete its winding-up,

the company shall be deemed, for the purposes of section 291 of the Companies Ordinance, to have ceased to carry on business.

(2) Where a company is deemed under subsection (1) to have ceased to carry on business, the Registrar may, without complying with section 291(1) and (2) of the Companies Ordinance but after complying with section 291(3) of that Ordinance, strike the name of the company off the register under section 291(6) of that Ordinance.

(3) Save as provided in subsections (1) and (2), nothing in this section shall affect the application of the Companies Ordinance or the procedure prescribed thereby.

9. (1) If an offence under this Ordinance has been committed by a body of persons, whether corporate or unincorporate, any person who was, at the time of the offence, a director, partner, member, manager, secretary or principal officer of or employed by such body, or who was purporting to act in any such capacity, shall be guilty of a like offence.

Liability of directors, managers, etc., under sections 3 and 4.

(2) Where any person referred to in subsection (1) is charged with an offence under this Ordinance, it shall be a defence for him to prove that the offence was committed without his consent or connivance, and that he exercised such diligence to prevent the commission of the offence as he ought to have exercised having regard to the nature of his functions and to all other circumstances.

(3) Where the agent or servant of a person (hereinafter referred to in this section as “the principal”) does or omits to do anything which, if done or omitted to be done by the principal, would constitute an offence under this Ordinance, then the agent or servant and the principal shall be deemed to have committed an offence and shall be liable to be proceeded against and punished accordingly.

(4) Where the principal is charged with an offence under this Ordinance, it shall be a defence for him to prove—

  • (a) that he did not ratify the act or omission complained of; and

  • (b) that the act or omission was not within the ordinary scope of the employment of the agent or servant,

but it shall be no defence that he had no knowledge of the act or omission.

Savings of rights and claims.

10. Nothing in this Ordinance shall prejudice the enforcement by any person of any right or claim against any person ceasing to carry on business or to operate chit-funds, by virtue of this Ordinance.

{The Schedule is omitted from this volume.}

Securities Ordinance1

To establish a Securities Commission and a federation of stock exchanges, to make provision in relation to stock exchanges and dealers in securities, to control trading in securities and the business of advising on making investments, and to provide for the protection of investors and associated matters.

[For dates, see footnote 2, below.]

Part I. Preliminary Matters

Short title.

1. This Ordinance may be cited as the Securities Ordinance.

Interpretation.

2. (1) In this Ordinance, unless the context otherwise requires—

“auditor” means a professional accountant registered and holding a practising certificate under the Professional Accountants Ordinance;

“banker’s books” means—

  • (a) books of a banker;

  • (b) cheques, orders for the payment of money, bills of exchange, and promissory notes in the possession of or under the control of a banker; and

  • (c) securities in the possession or under the control of a banker, whether by way of pledge or otherwise;

“books” includes accounts and deeds;

“business”, in relation to a dealer, means the business of dealing in securities;

“certificate of registration” means a certificate of registration issued under Part VI;

“Commission” means the Securities Commission established under Part II;

“Commissioner” means the Commissioner for Securities appointed under section 6;

“committee”, in relation to a stock exchange or a company seeking approval as a stock exchange, means the management committee, executive committee, or board of directors, by whatever name it may be known, which is responsible for the day to day administration of the exchange or company, as the case may be;

“company” means a company as defined in section 2 of the Companies Ordinance, a company to which Part XI of that Ordinance applies, and any body corporate incorporated in Hong Kong having a share capital;

“constitution”, in relation to a company, means the memorandum and articles of association of the company or other instrument providing the constitution of the company;

“corporate member” means a company which carries on a business of dealing in securities and is a member of a stock exchange;

“corporation” means any company or other body corporate formed or incorporated either in Hong Kong or elsewhere; but does not include—

  • (a) any body corporate that is incorporated in Hong Kong and is a public authority or an organ or agency of the Crown;

  • (b) any corporation sole;

  • (c) any credit union registered under the Credit Unions Ordinance;

  • (d) any corporation registered under the Multi-storey Buildings (Owners Incorporation) Ordinance;

  • (e) any corporation which has been exempted by regulations from the provisions of this Ordinance that affect corporations, or any corporation that belongs to a class of corporations that has been so exempted;

“Council” means the Council of the Federation constituted under Part IV;

“Court” means the High Court;

“dealer”, subject to section 82(1), means a person who carries on a business of dealing in securities, whether he carries on any other business or not, and, in the case of a corporation which is a dealer, includes any director of the corporation who actively participates in, or is in any way directly responsible for the supervision of, the corporation’s business of dealing in securities; but does not include—

  • (a) a solicitor or professional accountant whose carrying on business as a dealer is wholly incidental to the practice of his profession;

  • (b) except where specifically provided in this Ordinance, an exempt dealer;

  • (c) a person who carries on a business of dealing in securities only through a registered or exempt dealer;

“dealer’s representative” means a person in the employment of, or acting for or by arrangement with, a dealer, not being an exempt dealer who performs for that dealer any of the functions of a dealer (other than work ordinarily performed by an accountant, clerk, or cashier) whether his remuneration is by way of salary, wages, commission, or otherwise, but, in the case of a corporation which is a dealer, does not include a director of the corporation;

“dealing in securities”, in relation to any person (whether acting as principal or agent), subject to section 3, means making or offering to make an agreement with any other person, or inducing or attempting to induce any other person to enter into or offer to enter into any agreement—

  • (a) for or with a view to acquiring, disposing of, subscribing for or underwriting securities;

  • (b) the purpose or pretended purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the value of securities;

“defalcation” means a misapplication of money, securities, or other property;

“director” has the same meaning as in section 2 of the Companies Ordinance;

“Disciplinary Committee” means the Securities Commission Disciplinary Committee established under section 38;

“document” includes any register, books, record, tape recording, any form of computer input or output, and any other document or similar material (whether produced mechanically, electrically, or manually, or by any other means whatsoever);

“exempt dealer” means a person declared under section 60 to be an exempt dealer for the purposes of this Ordinance;

“exempt investment adviser” means a person declared under section 61 to be an exempt investment adviser for the purposes of this Ordinance;

“Federation” means the Hong Kong Federation of Stock Exchanges constituted under Part IV;

“financial year” means—

  • (a) in the case of a dealer, the period notified by him under section 87A or permitted by the Commissioner under that section;

  • (b) in any other case, a period of 12 months ending on the 31st March in any calendar year;

“foreign stock exchange” means a stock exchange which is permitted to operate in a country or territory outside Hong Kong by the law of that country or territory or, in the case of a country or territory which has no written law relating to stock exchanges, is not prevented from operating by the law of that country or territory;

“individual member” means a natural person who carries on a business of dealing in securities on his own account, and not as a partner of a member firm or as a director of a corporate member, and is a member of a stock exchange;

“investment adviser” means any person who—

  • (a) for direct remuneration carries on a business of advising other persons concerning securities;

  • (b) for direct remuneration as part of a regular business issues analyses or reports concerning securities; or

  • (c) for direct remuneration pursuant to a contract or arrangement with a client, undertakes on behalf of the client the management of a portfolio of securities, including the arranging of purchases, sales, or exchanges of securities through a dealer or exempt dealer,

and, in the case of a corporation which is an investment adviser, includes any director of the corporation who actively participates in, or is in any way directly responsible for the supervision of, • the corporation’s business as an investment adviser; but does not include—

  • (i) a licensed bank;

  • (ii) a solicitor or professional accountant whose carrying on business as an investment adviser is wholly incidental to the practice of his profession;

  • (iii) the proprietor or publisher of, or any contributor to, a bona fide newspaper, magazine, journal, or other periodical publication that is generally available to the public, otherwise than on subscription, who, only in that bona fide newspaper, magazine, journal, or periodical publication, advises other persons concerning securities, or issues analyses or reports concerning securities, not being the proprietor or publisher of, or a contributor to, a newspaper, journal, magazine, or other periodical publication whose principal or only object is to advise others concerning securities or to issue analyses or reports concerning securities;

  • (iv) a dealer or exempt dealer to the extent that his giving of investment advice is incidental to his carrying on business as a dealer or exempt dealer;

  • (v) a trustee company registered under Part VIII of the Trustee Ordinance;

  • (vi) an exempt investment adviser;

“investment representative” means a person in the employment of, or acting for or by arrangement with, an investment adviser, not being an exempt investment adviser, who performs for that investment adviser any of the functions of an investment adviser (other than work ordinarily performed by an accountant, clerk or cashier) whether his remuneration is by way of salary, wages, commission, or otherwise, but, in the case of a corporation which is an investment adviser, does not include a director of the corporation;

“issue” includes distribute and circulate;

“licensed bank” means a bank licensed under the Banking Ordinance to carry on banking business in Hong Kong;

“listing”, in relation to a security, means the procedure whereby a security is listed on a stock exchange;

“member firm” means a firm which carries on a business of dealing in securities and is a member of a stock exchange;

“mutual fund corporation” means any corporation which is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities and which is offering for sale or has outstanding any redeemable shares of which it is the issuer;

“purchase”, in relation to any securities, includes subscribing for those securities;

“registered”, in relation to a dealer, dealer’s representative, investment adviser, or investment representative, means registered under this Ordinance;

“registered company” means a company formed and registered under the Companies Ordinance;

“representative” means a dealer’s representative or an investment representative;

“rules”, in relation to a stock exchange, means the rules governing the conduct of the exchange or its members, by whatever name they may be called and wherever contained;

“securities” means any shares, stocks, debentures, loan stocks, funds, bonds, or notes of, or issued by, any body, whether incorporated or unincorporated, or of any government or local government authority; and includes—

  • (a) rights, options, or interests (whether described as units or otherwise) in or in respect of any of the foregoing;

  • (b) certificates of interest or participation in, or temporary or interim certificates for, receipts for, or warrants to subscribe to or purchase, any of the foregoing; or

  • (c) any instruments commonly known as securities;

  • but does not include—

  • (i) any shares or debentures of any company which is a private company within the meaning of section 29 of the Companies Ordinance;

  • (ii) any interest arising under a partnership agreement or proposed partnership agreement (other than an agreement creating a limited partnership), unless the agreement or proposed agreement relates to an undertaking, scheme, enterprise, or investment contract promoted by or on behalf of a person whose ordinary business is or includes the promotion of similar undertakings, schemes, enterprises, or investment contracts, whether or not that person is, or is to become, a party to the agreement or proposed agreement, or unless the agreement is or would be an agreement, or is or would be within a class of agreements, prescribed by regulations for the purposes of this paragraph;

  • (iii) any negotiable receipt or other negotiable certificate or document evidencing the deposit of a sum of money, or any rights or interests arising under any such receipt, certificate, or document;

  • (iv) any bill of exchange within the meaning of section 3 or the Bills of Exchange Ordinance and any promissory note within the meaning of section 89 thereof;

  • (v) any debenture that specifically provides that it is not negotiable or transferable;

“share” means a share in the capital of a corporation; and includes the stock or any part of the stock of a corporation;

“stockbroker” means a dealer who is a member of a stock exchange, whether as an individual member, partner of a member firm, or director of a corporate member;

“stock exchange” or “exchange” means any company that is for the time being approved or deemed to be approved by the Commission under section 25;

“stock market” means a place where persons regularly meet together to negotiate sales and purchases of securities (including prices), or a place at which facilities are provided for bringing together sellers and purchasers of securities; but does not include the office of a stockbroker, or of a member firm or corporate member of a stock exchange;

“title” includes name or description;

“trust account” means a trust account established under section 84;

“underwriter” means a person who for remuneration undertakes to subscribe for or purchase on specified terms such specified securities as are offered to the public by a person issuing or selling those securities, but are not subscribed for or purchased by the public;

“unit trust” means any arrangement made for the purpose, or having the effect, of providing facilities for the participation by persons, as beneficiaries under a trust, in profits or income arising from the acquisition, holding, management or disposal of securities or any other property whatsoever.

(2) In this Ordinance a reference to securities of a corporation is a reference to securities—

  • (a) issued, made available, or granted by the corporation;

  • (b) proposed to be issued, made available, or granted by the corporation; or

  • (c) proposed to be issued, made available, or granted by the corporation when it is formed.

(3) In this Ordinance a security is regarded as listed on a stock exchange when the stock exchange has on the application of the company which issued the security, or on the application of any holder of the security, agreed to allow, subject to the requirements of this Ordinance, dealings in that security to take place on that exchange.

(4) A person shall not be treated as carrying on a business of dealing in securities by reason only of the fact that he is a member of a partnership which carries on such a business.

Saving for certain transactions.

3. (1) For the purpose of determining whether or not a person has dealt in securities or has communicated an offer to acquire or dispose of securities, no account shall be taken of his having (whether as principal or as agent)—

  • (a) effected any dealing through, or made an offer to acquire or dispose of securities to, a registered dealer or a registered dealer’s representative, or an exempt dealer or an exempt dealer’s representative;

  • (b) issued a prospectus which complies with, or is exempt from compliance with, Part II of the Companies Ordinance, or in the case of a company incorporated outside Hong Kong, complies with or is exempted from compliance with Part XII of that Ordinance;

  • (c) issued any document relating to securities of a corporation incorporated in Hong Kong that is not a registered company, being a document which—

    • (i) would if the corporation were a registered company be a prospectus to which section 38 of the Companies Ordinance applies, or would apply if not excluded by subsection (5)(b) of that section or by section 38A of that Ordinance; and

    • (ii) contains all the matters which, by virtue of Part XII of that Ordinance, it would be required to contain if the corporation were a company incorporated outside Hong Kong and the document were a prospectus issued by that company;

  • (d) issued a form of application for shares or debentures of a company, together with—

    • (i) a prospectus which complies with, or is exempt from compliance with, Part II of the Companies Ordinance or, in the case of a company incorporated outside Hong Kong, complies with or is exempt from compliance with Part XII of that Ordinance; or

    • (ii) in the case of a corporation incorporated in Hong Kong which is not a registered company, a document which contains the matters specified in paragraph (c) (ii);

  • (e) issued a prospectus which has been approved by the Commissioner in relation to a mutual fund corporation or unit trust authorized by the Commission under section 15;

  • (f) issued a form of application for the shares of a mutual fund corporation or the units of a unit trust, being a mutual fund corporation or unit trust which has been authorized by the Commission under section 15, together with a prospectus approved by the Commissioner;

or of his having as principal, acquired, subscribed for, or underwritten securities, or effected transactions with a person whose business involves the acquisition and disposal, or the holding, of securities (whether as principal or as agent).

(2) The Commissioner may, on application being made to him in that behalf, approve a prospectus for the purposes of subsection (1) (e).

(3) Any approval under subsection (2) may be given subject to such conditions as the Commissioner thinks fit.

Definition of related corporation.

4. (1) Where a corporation—

  • (a) is the holding company of another corporation;

  • (b) is a subsidiary of another corporation; or

  • (c) is a subsidiary of the holding company of another corporation,

that first-mentioned corporation and that other corporation are, for the purposes of this Ordinance, deemed to be related to each other.

(2) For the purposes of subsection (1), a corporation shall, subject to subsection (3), be deemed to be a subsidiary of another corporation if—

  • (a) that other corporation—

    • (i) controls the composition of the board of directors of the first-mentioned corporation;

    • (ii) controls more than half of the voting power of the first-mentioned corporation; or

    • (iii) holds more than half of the issued share capital of the first-mentioned corporation (excluding any part which carries no right to participate beyond a specified amount on a distribution of either profits or capital); or

  • (b) the first-mentioned corporation is a subsidiary of any corporation which is that other corporation’s subsidiary.

(3) For the purposes of subsection (2), the composition of a corporation’s board of directors shall be deemed to be controlled by another corporation if that other corporation by the exercise, of some power exercisable by it, without the consent or concurrence of any other person, can appoint or remove all or a majority of the directors, and for the purposes of this provision, that other corporation shall be deemed to have power to appoint or remove a director if—

  • (a) a person cannot be appointed as a director without the exercise in his favour by that other corporation of such a power; or

  • (b) a person’s appointment as a director follows necessarily from his being a director or other officer of that other corporation.

(4) In determining whether one corporation is a subsidiary of another corporation—

  • (a) any shares held by or power exercisable by that other corporation in a fiduciary capacity shall be treated as not held or exercisable by it;

  • (b) subject to paragraphs (c) and (d), any shares held or power exercisable—

    • (i) by any person as a nominee for that other corporation (except where that other corporation is concerned only in a fiduciary capacity); or

    • (ii) by, or by a nominee for, a subsidiary of that other corporation, not being a subsidiary which is concerned only in a fiduciary capacity,

    shall be treated as exercisable by that other corporation;

  • (c) any shares held or power exercisable by any person by virtue of the provisions of any debenture of the first-mentioned corporation or of a trust deed for securing any issue of any such debenture shall be disregarded; and

  • (d) any shares held or power exercisable by, or by a nominee for, that other corporation or its subsidiary (not being held or exercisable as mentioned in paragraph (c)) shall be treated as not held or exercisable by that other corporation if the ordinary business of that other corporation or its subsidiary, as the case may be, includes the lending of money and the shares are held or power is exercisable as aforesaid by way of security only for the purposes of a transaction entered into in the ordinary course of that business.

Interests in securities.

5. (1) Subject to this section, a person has an interest in securities for the purposes of sections 19, 67, 79, 135 and 141E(3) if he has authority (whether formal or informal or express or implied) to dispose of, or to exercise control over the disposal of, those securities.

(2) It is immaterial for the purposes of subsection (1) that the authority of a person to dispose of, or to exercise control over the disposal of, particular securities is, or is capable of being made, subject to restraint or restriction.

(3) For the purposes of subsection (1), a person shall not be deemed not to have authority to dispose of, or to exercise control over the disposal of, particular securities by reason only that his authority is exercisable jointly with another person.

(4) For the purposes of subsection (1), where a corporation has authority (whether formal or informal or express or implied) to dispose of, or to exercise control over the disposal of, securities and—

  • (a) the corporation is, or its directors are, accustomed or under an obligation, whether formal or informal, to act in accordance with the directions of a person in relation to those securities; or

  • (b) a person, or an associate of a person, has a controlling interest in the corporation,

that person shall be deemed to have authority to dispose of, or to exercise control over the disposal of, those securities.

(5) For the purposes of subsection (4) of this section, and of subsection (4) of section 135, a person is an associate of another person if the first-mentioned person is—

  • (a) a corporation that, by virtue of section 4, is deemed to be related to that other person;

  • (b) a person in accordance with whose directions that other person is accustomed or is under an obligation, whether formal or informal, to act in relation to the securities referred to in those subsections;

  • (c) a person who is accustomed or is under an obligation, whether formal or informal, to act in accordance with the directions of that other person in relation to those securities;

  • (d) a corporation that is, or the directors of which are, accustomed or under an obligation, whether formal or informal, to act in accordance with the directions of that other person in relation to those securities; or

  • (e) a corporation in accordance with the directions of which, or of the directors of which, that other person is accustomed or under an obligation, whether formal or informal, to act in relation to those securities.

(6) Where a person—

  • (a) has entered into a contract to purchase securities;

  • (b) has a right to have securities transferred to him or to his order, whether the right is exercisable presently or in the future and whether on the fulfilment of a condition or not; or

  • (c) has the right to acquire securities, or an interest in securities, under an option, whether the right is exercisable presently or in the future and whether on the fulfilment of a condition or not,

that person shall, to the extent to which he could do so on completing the contract, enforcing the right or exercising the option, be deemed to have authority to dispose of, or to exercise control over the disposal of, those securities.

(7) There shall be disregarded—

  • (a) for the purposes of sections 67 and 141E(3), an interest in securities of a person whose ordinary business includes the lending of money if he holds the interest only by way of security for the purposes of a transaction entered into in the ordinary course of business in connexion with the lending of money;

  • (b) for the purposes of sections 67, 79 and 141E(3), an interest in securities of a person who holds that interest only by virtue of his having control over the securities as a manager, agent, trustee, or nominee for, or as an employee of, another;

  • (c) where securities referred to in section 135(4) or 141E(3) are subject to a trust, the interest of a trustee in those securities if a person who is not a trustee has an interest in those securities by virtue of subsection (6) (b) of this section; and

  • (d) for the purposes of any prescribed provision of section 19, section 67, section 79, section 135 or section 141E(3), a prescribed interest in securities, being an interest of such person, or of the persons included in such class of persons, as is prescribed by regulations.

Part II. Commissioner for Securities and Securities Commission

commissioner for securities

Appointment of Commissioner for Securities.

6. The Governor may appoint a Commissioner for Securities.

Powers, functions and duties of Commissioner.

7. The Commissioner shall carry out the directions of the Commission in relation to the exercise of its functions and shall have and may exercise or perform such other powers, duties, and functions as are conferred or imposed upon him by or under this or any other Ordinance.

Commissioner to have seal.

8. (1) The Commissioner shall have an official seal which shall be affixed to all certificates of registration and other documents issued by him pursuant to this Ordinance, and shall be authenticated by his signature.

(2) Any certificate or other document purporting to be a certificate or document duly executed under the seal of the Commissioner shall be admissible in evidence and shall, unless the contrary is proved, be presumed to be a certificate or instrument so executed.

securities commission

Establishment of Securities Commission.

9. There is hereby established a Securities Commission, which shall be a body corporate with perpetual succession and a common seal and in that name may sue and be sued.

Membership of Commission.

10. (1) The Commission shall consist of not less than 7 members of whom—

  • (a) one shall be the Commissioner;

  • (b) another shall be the Registrar of Companies; and

  • (c) the remainder shall be persons appointed by the Governor.

(2) At least one of the members of the Commission appointed under subsection (1) (c) shall be a person qualified in law.

(3) Subject to this Part, a member of the Commission appointed under subsection (1) (c) shall hold office for a period of 2 years from the date of his appointment.

(4) At the expiry of his period of appointment, every retiring member of the Commission shall, subject to this Part, be eligible for reappointment.

(5) Any member of the Commission may at any time resign by giving notice in writing to the chairman of the Commission or, in the case of the chairman, by giving notice in writing to the Governor.

(6) Where any member of the Commission resigns or the office of any such member otherwise becomes vacant before the expiry of the period of his appointment, the Governor may appoint another person to hold office until the expiry of the period for which such member was originally appointed.

(7) If any member of the Commission—

  • (a) has been absent from the meetings of the Commission without its permission for a period longer than 3 months;

  • (b) becomes bankrupt or makes an arrangement with his creditors;

  • (c) becomes incapacitated by physical or mental illness;

  • (d) is found guilty, whether in Hong Kong or elsewhere, of any offence involving fraud or dishonesty or is sentenced to a term of imprisonment for any offence (whether or not involving fraud or dishonesty);

  • (e) ceases to be ordinarily resident in Hong Kong; or

  • (f) is otherwise unable or unfit to discharge the functions of a member of the Commission,

the Governor may by notice in writing declare his office as a member of the Commission to be vacant.

(8) The powers of the Commission shall not be affected by any vacancy in its membership, including a vacancy in consequence of which the number of members of the Commission is reduced below 7.

Chairman and deputy chairman of Commission.

11. (1) The Governor shall appoint one of the members of the Commission appointed under section 10(1)(c) to be the chairman of the Commission and may revoke the appointment at any time.

(2) If the office of chairman is vacant, or the chairman is absent from any meeting of the Commission or is incapacitated by illness or other cause from performing the duties of his office, the remaining members of the Commission may elect one of their number to act as chairman during the vacancy, absence or incapacity, as the case may be.

(3) A member of the Commission elected under subsection (2) shall, for the period that he acts as chairman, have and may exercise all the powers and functions of the chairman.

Meetings of the Commission.

12. (1) Meetings of the Commission shall be held at such times and places as the Commission or its chairman may appoint.

(2) At all meetings of the Commission 4 members shall form a quorum.

(3) At any meeting of the Commission, the chairman shall have a deliberative vote, and, in the case of an equality of votes, shall also have a casting vote.

(4) All questions before the Commission shall be decided by a majority of the valid votes recorded thereon. A question shall in the first instance be decided by a show of hands, but any member of the Commission may require a ballot to be held to determine the question.

(5) Subject to subsections (1) to (4) the procedure at meetings of the Commission shall be determined by the Commission, and for that purpose the Commission may make standing orders.

Functions of Commission.

13. The Commission shall have the following functions—

  • (a) to advise the Financial Secretary on all matters relating to securities;

  • (b) without prejudice to any duties imposed or powers conferred on any other person in regard to the enforcement of the law relating to securities, to be responsible for ensuring that the provisions of this Ordinance and the Protection of Investors Ordinance, and the provisions of any other Ordinance so far as they relate to securities, are complied with;

  • (ba) to report to the Financial Secretary the occurrence of any dealing in relation to securities which it believes or suspects to be an insider dealing within the meaning of section 141B;

  • (c) to be responsible for supervising the activities of the Federation;

  • (d) to take all reasonable steps to safeguard the interests of persons who invest or propose to invest in securities;

  • (e) to promote and encourage proper conduct amongst members of the Federation;

  • (f) to suppress illegal, dishonourable, and improper practices in relation to dealings in securities, whether on stock exchanges or otherwise;

  • (g) to promote and maintain the integrity of stockbrokers and other persons dealing in securities, and encourage the promulgation by stockbrokers and other dealers in securities of balanced and informed advice to their clients and to the public generally;

  • (h) to consider and suggest reforms of the law relating to securities.

Rules.

14. (1) The Commission may, after consultation with the Federation, make rules in respect of all or any of the following matters—

  • (a) the listing of securities on stock exchanges, and in particular—

    • (i) prescribing the requirements to be met before securities may be listed on exchanges;

    • (ii) prescribing the procedure for dealing with applications for the listing of securities at exchanges; and

    • (iii) providing for the cancellation of the listing of any specified securities at any stock exchange if the Commission’s requirements for listing, or the requirements of the undertaking referred to in paragraph (f), are not complied with or the Commission considers that such action is necessary to maintain an orderly market in Hong Kong;

  • (b) the conditions subject to which, and the circumstances in which, any stock exchange shall suspend dealings in securities;

  • (c) the procedure for and the method of allotment of any securities arising out of an offer made to members of the public in respect of those securities;

  • (d) the qualifications for membership of stock exchanges and the maximum number of persons that may be admitted to membership of any stock exchange;

  • (e) the type of business that may be carried on at stock exchanges;

  • (f) requiring companies the securities of which are listed or accepted for listing on a stock exchange to enter into an undertaking in the prescribed form with the exchange to provide such information at such times as may be specified, and to carry out such duties in relation to its securities as may be imposed, in the undertaking;

  • (fa) requiring the chairman of a stock exchange committee who has become aware of any matter which adversely affects, or is likely to adversely affect, the ability of any member of the exchange to meet his obligations as a dealer, to make a report concerning the matter to the Commission as soon as practicable after becoming aware of the matter;

  • (fb) requiring a stock exchange which expels, or suspends the membership of, any of its members, or requests any of its members to resign his membership, to notify the Commission of that fact within 3 trading days after the expulsion, suspension or making of the request, as the case may be, and, in addition, to cause the expulsion, suspension or request to be notified to the public in such manner and within such period as may be prescribed in the rules;

  • (g) anything which is to be or may be prescribed by rules.

(2) No rules made under this section shall have effect until they have been approved by the Governor and published in the Gazette.

(3) Nothing in this section prevents the Federation or any stock exchange from making rules on any matter mentioned in subsection (1) if those rules have been approved by the Commission and are not repugnant to any rule made by the Commission under subsection (1).

Powers of Commission.

15. (1) The Commission shall have all such powers as may be necessary to enable it to carry out its functions, and in particular may—

  • (a) refer complaints relating to the activities of stock exchanges to the Disciplinary Committee and, if it considers necessary, hold preliminary investigations into any such complaints;

  • (b) acquire, hold, and dispose of all forms of movable and immovable property;

  • (c) authorize mutual fund corporations and unit trusts for the purposes of this Ordinance.

(2) An authorization under subsection (1)(c) may be granted subject to such conditions as the Commission considers fair and reasonable.

Commission may establish committees.

16. (1) The Commission may establish standing or special committees and may refer to any such committee any matters for consideration, inquiry or management.

(2) Subject to sections 38 and 100, the Commission may delegate any of its powers, functions, and duties (other than the powers conferred by this section and the power to make rules conferred by section 14) to any committee established under subsection (1).

(3) The Commission may appoint as a member of any committee established under subsection (1) any person (including a stockbroker) who, in its opinion, appears to be qualified to be a member of the committee, whether that person is a member of the Commission or not.

(4) Every delegation under subsection (2) and every appointment under subsection (3) may be revoked by the Commission at any time, and no such delegation shall prevent the exercise or performance of any power or function or duty by the Commission.

(5) Where any committee established under subsection (1) purports to act pursuant to any delegation made under subsection (2), it shall be presumed, until the contrary is proved, to be acting in accordance with the terms of delegation.

(6) A committee established under subsection (1) may elect any of its members to be chairman and may, subject to any direction of the Commission, regulate its procedure in such manner as it thinks fit.

miscellaneous matters relating to commissioner and commission

Power of Governor to give directions to Commissioner and Commission.

17. (1) The Governor may give such directions as he thinks fit (either generally or in any particular case) with respect to the exercise or performance by the Commissioner or the Commission of the powers, duties, and functions of the Commissioner or the Commission under this Ordinance.

(2) The Commissioner and the Commission shall, in the exercise or performance of any powers, duties, or functions under this Ordinance, comply with any directions given by the Governor under subsection (1).

(3) The Commission shall, when required by the Financial Secretary, furnish to him reports with respect to the policy that it is pursuing or proposes to pursue in the exercise or performance of any of its powers, duties, and functions under this Ordinance.

Expenditure and income of Commissioner and Commission.

18. (1) All expenses incurred by the Commissioner or the Commission or any other person in the administration of this Ordinance shall be met out of money provided by the Legislative Council.

(2) All money, other than deposits made under Part VI or X, received by virtue of this Ordinance by the Commissioner or the Commission (including the Disciplinary Committee) in the exercise or performance of any of their powers, duties, or functions under this Ordinance shall be paid into the general revenue.

Unlawful use of information.

19. (1) Except in the performance of his duties under this Ordinance, every person who has been appointed under or who is or has been employed in carrying out or in assisting any persons to carry out the provisions of this Ordinance shall preserve and aid in preserving secrecy with regard to all matters coming to his knowledge in the performance of his duties under this Ordinance, and shall not communicate any such matter to any person nor suffer or permit any person to have access to any records in the possession, custody, or control of the Commissioner.

(2) Nothing in subsection (1) shall preclude a person from producing any document to any court in criminal proceedings or from disclosing to any court in criminal proceedings any matter or thing coming to his notice in the performance of his official duties referred to in that subsection or from producing any document or disclosing any matter or thing as aforesaid to the Tribunal established by section 141G.

(3) Regulations made under this Ordinance may prescribe a public office for the purposes of this section, and it shall not be a contravention of subsection (1) to disclose to the holder of that public office information connected with the duties of that office.

(4) Subject to subsection (5), a member of the Commission and a person employed in the administration of this Ordinance shall not directly or indirectly effect or cause to be effected on his own account or for the benefit of any other person any transaction in securities which he knows to be, or to be of a class which is, subject to investigation or proceedings under this Ordinance or otherwise under consideration by the Commissioner, or in respect of which a prospectus or any take-over document is, to his knowledge, being considered by the Registrar of Companies for registration under the Companies Ordinance.

(5) Subsection (4) does not apply to or in respect of any right of the holder of a security by virtue of being that holder—

  • (a) to exchange the security or convert it to another form of security;

  • (b) to participate in a scheme of arrangement approved by the Court under the Companies Ordinance;

  • (c) to subscribe for other securities or dispose of a right to subscribe for other securities;

  • (d) to charge or pledge the security to secure the repayment of money;

  • (e) to realize the security for the purpose of repaying money referred to in paragraph (d); or

  • (f) to realize the security in the course of performing a duty imposed by law.

(6) Where any member of the Commission or any person employed in the administration of this Ordinance is, in the course of his duties, required to consider any matter relating to—

  • (a) securities in which he has an interest or any corporation in the securities of which he has an interest;

  • (b) securities of the same class as securities in which he has an interest; or

  • (c) a person—

    • (i) with whom he is or has been employed or associated;

    • (ii) of whom he is or has been a client; or

    • (iii) who is or was a client of a person with whom he is or was employed or associated,

he shall forthwith so inform the Commission or the Commissioner.

(7) Any person who, without lawful authority or reasonable excuse, contravenes subsection (1), subsection (4), or subsection (6) shall be guilty of an offence and shall be liable on conviction to a fine of $10,000 and to imprisonment for 6 months.

Part III. Stock Exchanges

Restriction on establishment of stock exchanges.

20. (1) No person shall—

  • (a) establish or operate a stock market that is not the stock market of a stock exchange; or

  • (b) assist in the operation of a stock market that, to his knowledge, is not the stock market of a stock exchange.

(2) Any person who contravenes subsection (1) shall be guilty of an offence and shall be liable on conviction to a fine of $500,000 and, in the case of a continuing offence, to a further fine of $50,000 for each day during which the offence continues.

Restriction on use of the title “stock exchange”.

21. (1) No person, other than a stock exchange, shall—

  • (a) take or use the title “stock exchange”; or

  • (b) take or use, or have attached to or exhibited at any place, any title which resembles the title “stock exchange” or so closely resembles that title as to be calculated to deceive.

(2) Any person who contravenes subsection (1) shall be guilty of an offence and shall be liable on conviction to a fine of $100,000 and, in the case of a continuing offence, to a further fine of $5,000 for each day during which the offence continues.

Dealer not to deal in securities in a stock market that is not a stock exchange.

22. Any dealer who transacts a dealing in securities at or through a stock market in Hong Kong which, to his knowledge, is not the stock market of a stock exchange shall be guilty of an offence, and shall be liable on conviction to a fine of $50,000 in respect of each such dealing.

Power of entry and search, etc.

23. (1) Any authorized officer may, with the assistance of such other officers as may be necessary, without warrant—

  • (a) enter and search any premises in which he reasonably suspects that an offence against section 20 or section 22 is being or has been committed; and

  • (b) remove and detain any thing which he has reason to believe is evidence of the commission of the offence.

(2) Any such officer may, in the exercise of the powers conferred on him under subsection (1)—

  • (a) break open any outer or inner door of any premises which he is empowered to enter under that subsection;

  • (b) remove by force any person or thing obstructing him in the exercise of any such powers;

  • (c) detain any person found in the premises until they have been searched.

(3) In this section “authorized officer” means the Commissioner or any police officer not below the rank of superintendent.

(4) The provisions of section 102 of the Criminal Procedure Ordinance (which makes provision for the disposal of property connected with offences) shall apply to any thing which has come into the possession of the Commissioner under this section in the same way as it applies to property which has come into the possession of the police.

Power to order closure.

24. (1) If any person is charged with an offence against section 20, a magistrate may, on application made by or on behalf of the Commissioner, order that any premises in which the stock market is alleged to have been operated be locked and secured until the charge is heard and determined.

(2) Any person aggrieved by the making of an order under subsection (1) and having an interest in the premises in respect of which the order was made may apply to a magistrate to have the order discharged; and on the hearing of the application the magistrate may either confirm the order or direct that it be discharged.

(3) An application under subsection (2) shall not be heard unless a copy of the application has been served on the Commissioner at least 24 hours before the hearing.

(4) If any person is convicted of an offence against section 20, the court may order the premises in which the stock exchange was operated to be locked and secured for such period not exceeding 3 months as may be specified in the order.

(5) Where any order under subsection (1) or subsection (4) has been made, any authorized officer may take such steps as may be necessary to ensure that the premises to which the order relates are locked and secured.

(6) Any person who enters or attempts to enter any premises in respect of which an order made under subsection (1) or subsection (4) is in force without the authority of the Commissioner shall be guilty of an offence and shall be liable on conviction to a fine of $50,000.

(7) In this section “authorized officer” means the Commissioner or any police officer.

Power of Commission to approve a registered company as a stock exchange.

25. (1) An application may be made to the Commission under this section by or on behalf of a registered company for the approval of the company as a stock exchange.

(2) On receipt of any such application and a copy of the company’s memorandum and articles of association, the Commission in its discretion may, by certificate in writing under its seal, approve the company as a stock exchange if it is satisfied that the requirements specified in subsection (3) have been complied with.

(3) The requirements referred to in subsection (2) are as follows—

  • (a) that the objects contained in the company’s constitution include a provision giving the company power to operate a stock exchange;

  • (b) that at least 20 members of the company will carry on businesses of dealing in securities independently and in competition with one another;

  • (c) that the constitution of the company makes satisfactory provision for the exclusion from membership of the company of—

    • (i) a person who is not a registered dealer;

    • (ii) a person who is a director or employee of a licensed bank;

    • (iii) a person who is a solicitor or professional accountant holding a current practising certificate;

    • (iv) a person who performs any occupation, or carries on any business, for the time being prescribed by rules;

    • (v) a person who was not born in Hong Kong or who has not been ordinarily resident in Hong Kong for 5 out of the 7 years immediately preceding his application for membership of the company, unless he is, in the opinion of the Commission, a person of good reputation experienced in dealing in securities;

    • (vi) a corporation or firm which does not carry on a business solely as a dealer or as a dealer and investment adviser;

    • (vii) a corporation of which any director was not born in Hong Kong or has not been ordinarily resident in Hong Kong for 5 out of the 7 years immediately preceding the application of the corporation for membership of the company, unless the director is, in the opinion of the Commission, a person of good reputation experienced in dealing in securities;

    • (viii) a corporation, unless at least one of its directors or, in the case of a corporation having only one director, that director, actively participates in, or is directly responsible for the supervision of, the corporation’s business of dealing in securities, and unless each of the directors of the corporation who actively participates in, or is in any way directly responsible for the supervision of, the corporation’s business of dealing in securities is a member of the applicant company or of another company which is approved as a stock exchange under subsection (2);

    • (ix) a corporation the liability of whose members is limited, unless each director of the corporation who actively participates in the corporation’s business of dealing in securities is jointly and severally liable for the debts and obligations of the corporation, whether incurred before or after he became a director of the corporation;

    • (x) a firm of which any partner, being an individual, was not born in Hong Kong or has not been ordinarily resident in Hong Kong for 5 out of the 7 years immediately preceding the application of the firm for membership of the company, unless that individual is, in the opinion of the Commission, a person of good reputation experienced in dealing in securities;

    • (xi) a firm of which any partner is a corporation if that corporation is one which would be required to be excluded from membership of the company by virtue of subparagraph (vii);

    • (xii) a firm, unless at least one of its partners actively participates in, or is directly responsible for the supervision of, the firm’s business of dealing in securities, and unless each of the partners of the firm who actively participates in, or is in any way directly responsible for the supervision of, the firm’s business of dealing in securities is a member of the applicant company or of another company which is approved as a stock exchange under subsection (2);

    • (xiii) a limited partnership registered under the Limited Partnerships Ordinance, unless at least one of its partners actively participates in, or is directly responsible for the supervision of, the partnership’s business of dealing in securities, and unless each of the partners of the partnership who actively participates in, or is in any way directly responsible for the supervision of, the partnership’s business of dealing in securities is a general partner and is a member of the applicant company or of another company which is approved as a stock exchange under subsection (2);and

    • (xiv) a person who is in partnership with another person who carries on a business of dealing in securities but is not a member of the applicant company or of another company which is approved as a stock exchange under subsection (2);

  • (d) that the constitution of the company makes satisfactory provision—

    • (i) for the election by ballot at a general meeting of the company of a committee to administer the stock exchange to be operated by the company;

    • (ii) for all members of the company to have equal rights of voting at its general meetings;

    • (iii) for at least four-fifths of the membership of the committee referred to in sub-paragraph (i) to be comprised of persons who are members of the stock exchange to be operated by the company;

    • (iv) for the retirement of all the members of the committee at the first annual meeting of the company after approval under this section and for the retirement of at least one-third of the committee at each succeeding annual general meeting so that no person may be a member of the committee for more than 3 years without standing for re-election;

  • (e) that the rules of the stock exchange to be operated by the company are such as to ensure dealing in securities in such a manner as to protect purchasers, holders and sellers of securities to be dealt with on the exchange and include, in addition to any other provisions required by or under this Ordinance—

    • (i) a provision to the effect that, when a dealer who is a member of the company is purchasing and selling securities on his own account, he shall notify that fact to the person with whom he is dealing;

    • (ii) a provision prohibiting any member of the company who is a director of a corporation from acting as a dealer in the shares of that corporation;

    • (iii) a provision requiring the company to maintain adequate daily records of all dealings in securities on the stock exchange;

    • (iv) a provision requiring the company to keep the records maintained under sub-paragraph (iii) available for inspection by members of the public on payment of a fee not exceeding that prescribed by rules;

  • (f) that the company—

    • (i) has and will maintain to the satisfaction of the Commission an adequate and properly equipped place of business; and

    • (ii) undertakes to operate its stock market only at a place in Hong Kong approved by the Commission;

  • (g) that the company will make the deposits required to be made to the compensation fund established under Part X;

  • (h) that it is in the public interest to grant approval under this section.

(4) The Commission may, on application being made to it in writing by a company approved or deemed to be approved under this section, authorize the company to admit to membership—

  • (a) an individual who is not eligible for membership of the company by reason of his not being born in Hong Kong or not fulfilling the residential requirement for membership of the company if, in the opinion of the Commission, he is a person of good reputation experienced in dealing in securities;

  • (b) a corporation of which any director was not born in Hong Kong or has not been ordinarily resident in Hong Kong for 5 out of the 7 years immediately preceding the application of the corporation for membership of the company, if, in the opinion of the Commission, the director is a person of good reputation experienced in dealing in securities;

  • (c) a firm of which any partner—

    • (i) is an individual who was not born in Hong Kong or has not been ordinarily resident in Hong Kong for 5 out of the 7 years immediately preceding the application of the firm for membership of the company; or

    • (ii) is a corporation of which any director was not born in Hong Kong or has not resided in Hong Kong for 5 out of the 7 years immediately preceding the application of the firm for membership of the company,

    if, in the opinion of the Commission, the individual or, as the case may be, the director is a person of good reputation experienced in dealing in securities.

(5) Where, immediately before the commencement of this Part, any company was a recognized stock exchange within the meaning of section 2 of the Stock Exchanges Control Ordinance, that company, subject to subsection (6), shall be deemed to be approved as a stock exchange under subsection (2).

(6) Every company to which subsection (5) relates shall, not later than 6 months after the commencement of this Part, satisfy the Commission that it has complied with the requirements of paragraphs (b), (c), (d), (e), (f), and (g) of subsection (3), except that in relation to paragraph (c) the company is not required to amend its constitution so to provide for the exclusion from membership of the company of any of those persons mentioned in sub-paragraphs (iii), (v), (vii), (x), and (xi) of that paragraph who were members of the company at the commencement of this Part and who would, but for this exception, be liable under the constitution of the company to be excluded from that membership.

(7) If any company to which subsection (5) relates fails to satisfy the Commission as required by subsection (6), the Commission may, at any time while the requirements of subsection (6) remain unsatisfied, revoke the approval deemed to have been given under subsection (5).

Revocation of approval and suspension of dealings for misconduct, etc.

26. (1) The Commission may revoke any approval given or deemed to have been given under section 25 on giving 14 days’ notice in writing to the company of its intention to do so on the ground—

  • (a) that the stock exchange operated by the company no longer has at least 20 members;

  • (b) that the constitution of the company no longer complies with the requirements specified in paragraphs (c) and (d) of section 25(3);

  • (c) that the rules of the stock exchange no longer comply with the requirements of section 25(3) (e);

  • (d) that the stock exchange no longer maintains a place of business which complies with the requirement of section 25(3)(f) or that the exchange operates a stock market in Hong Kong at any other place of business;

  • (e) that the stock exchange has failed to make any deposit or payment into the compensation fund as required under Part X; or

  • (f) that the company is being wound up or has ceased to operate a stock market.

(2) The Commission may, instead of revoking the approval given or deemed to have been given under section 25, direct that the premises of the stock exchange be closed forthwith for the transaction of dealings in securities until such time as the stock exchange has, to the satisfaction of the Commission, complied with the requirement in question.

(3) Without prejudice to the exercise of its powers under subsections 1) and (2), the Commission may, where it has received a recommendation from the Disciplinary Committee pursuant to section 39(2) (a) in respect of a stock exchange which the Committee has found guilty of misconduct under that section—

  • (a) revoke the approval given or deemed to have been given under section 25; or

  • (b) direct that the premises of the stock exchange be closed for the transaction of dealings in securities until the Commission revokes the direction.

(4) While a direction under subsection (2) or subsection (3) remains in force, the approval given or deemed to have been given under section 25 to the company in question shall, for the purposes of the application of sections 20 to 22, be deemed to have been revoked.

(5) Where any direction under subsection (2) or subsection (3) is in force, any authorized officer may take such steps as may be necessary to ensure that the premises to which the direction relates are locked and secured.

(6) Any person who enters or attempts to enter any premises in respect of which a direction made under subsection (2) or subsection (3) is in force without the authority of an authorized officer shall be guilty of an offence and shall be liable on conviction to a fine of $50,000.

(7) In this section “authorized officer” means the Commissioner or any police officer.

27. (1) Without prejudice to the powers of the Commission under section 26, the Commissioner may, after consultation with the Federation, order that all stock exchanges be closed for the transaction of dealings in securities for a period not exceeding 5 bank trading days.

Commissioner may order closure of stock exchanges in emergencies, etc.

(2) The Commissioner may make an order under subsection (1) on the ground that, in his opinion, the orderly transaction of business at stock exchanges is being or is likely to be prevented because—

  • (a) an emergency or natural disaster has occurred in Hong Kong; or

  • (b) there exists an economic or financial crisis, whether in Hong Kong or elsewhere, or any other circumstance, which is likely to prevent orderly trading from being carried on at stock exchanges.

(3) Any order made under subsection (1) or under this subsection may be renewed by a further order for a further period of not more than 5 bank trading days.

(4) Any dealer who deals in securities at or through a stock exchange while an order made under subsection (1) is in force in respect of the exchange (being an order which has been notified to the committee of the exchange) shall be guilty of an offence, and shall be liable on conviction to a fine of $50,000.

(5) Where any order under subsection (1) has been made, the Commissioner may take such steps as are necessary to secure compliance with the order and may, in particular, cause the premises of stock exchanges to be locked and secured.

(6) Any person who, without the authority of the Commissioner, enters or attempts to enter the premises of a stock exchange which have been locked and secured under subsection (5) shall be guilty of an offence and shall be liable on conviction to a fine of $20,000.

Revocation of approval, etc., to be notified in the Gazette.

28. Where the Commission revokes any approval given or deemed to have been given under section 25 or issues any direction under section 26, or the Commissioner makes any order under section 27, notice of the revocation, direction, or order, as the case may be, shall be published in the Gazette.

Appeal against revocation of approval, etc.

29. (1) Where—

  • (a) the Commission has refused to approve a registered company as a stock exchange under section 25, has revoked any approval under section 26, or has given a direction under subsection (2) or (3) of section 26 in relation to a stock exchange; or

  • (b) the Disciplinary Committee has imposed any penalty on any stock exchange, or on any member of the committee of a stock exchange, pursuant to paragraph (b) or paragraph (c) of section 39(2),

the stock exchange or such member of the committee may, within 14 days—

  • (i) after notification of the refusal or after the publication in the Gazette of notice of the revocation or direction; or

  • (ii) after being notified of the decision of the Disciplinary Committee imposing the penalty,

appeal to the Governor in Council against the refusal, revocation or direction or against the decision of the Disciplinary Committee.

(2) After considering any appeal under subsection (1) the Governor in Council may confirm, reverse or vary the decision of the Commission or of the Disciplinary Committee, as the case may be; and the decision of the Governor in Council shall be final.

(3) Where approval is refused under section 25, any approval is revoked under section 26, or any direction is made under subsection (2) or subsection (3) of section 26, that refusal, revocation or direction shall take effect immediately, notwithstanding that an appeal has been or may be made under this section.

Commission to be notified of proposed amendments to constitution and rules of stock exchange.

30. (1) No amendment to the constitution or rules of a stock exchange, whether by way of rescission, alteration, or addition, shall have effect unless the amendment has been approved by the Commission.

(2) Where it is proposed to amend the constitution or rules of a stock exchange, the committee of the stock exchange shall forward written notice of the amendment to the Commission for its approval.

(3) The Commission may, within 14 days after receipt of a notice under subsection (2), give notice that it disallows the whole or any specified part of the proposed amendment to which the notice relates.

(4) A notice under this section may be served personally or by post.

Part IV. Hong Kong Federation of Stock Exchanges

Establishment of Hong Kong Federation of Stock Exchanges.

31. (1) There shall be an association of stock exchanges to be known as the Hong Kong Federation of Stock Exchanges.

(2) The Federation shall be a body corporate with perpetual succession and shall have a common seal which shall include the name of the Federation.

(3) Every stock exchange, when approved or deemed to have been approved under section 25, shall be deemed to be a member of the Federation.

(4) Any stock exchange whose approval is revoked under section 26 shall thereupon cease to be a member of the Federation.

Council of Federation.

32. (1) The Federation shall have a council, to be known as the Council of the Hong Kong Federation of Stock Exchanges, which shall have the management of the Federation and shall perform on behalf of the Federation the functions prescribed by section 36.

(2) Two persons shall be appointed by the committee of each stock exchange from among the members of the committee of that exchange to be members of the Council.

(3) Every appointment under subsection (2) shall be made annually, not later than a date specified by the Commission.

(4) Subject to this Ordinance, a member appointed under subsection (2) shall hold office for a period of 12 months.

(5) A retiring member of the Council shall be eligible for reappointment to the Council.

(6) If any member of the Council ceases to be a member, the committee of the stock exchange which appointed him may appoint another person who is a member of the committee of that exchange to be a member of the Council in his place until the expiry of the period for which the first-mentioned person was appointed.

(7) A member of the Council may at any time resign by giving notice to the Council in writing.

(8) Notwithstanding anything to the contrary in this section, no person shall be eligible to be a member of the Council if he—

  • (a) is not ordinarily resident in Hong Kong;

  • (b) is an undischarged bankrupt;

  • (c) has been convicted of an offence, whether in Hong Kong or elsewhere, involving fraud or dishonesty; or

  • (d) is serving a sentence of imprisonment or detained in a mental hospital.

  • (9) If the Council is satisfied that any of its members—

  • (a) has been absent from meetings of the Council for a period longer than 3 months without its permission;

  • (b) has become bankrupt or made an arrangement with his creditors;

  • (ba) has been convicted of an offence, whether in Hong Kong or elsewhere, involving fraud or dishonesty or has been convicted of any offence in respect of which he is sentenced to a term of imprisonment;

  • (c) is incapacitated from carrying out his duties by reason of physical or mental illness;

  • (d) is no longer ordinarily resident in Hong Kong; or

  • (e) is otherwise unable or unfit to discharge the functions of a member of the Council,

it may declare his office as a member of the Council to be vacant.

(10) The powers of the Council shall not be affected by any vacancy in its membership, or any irregularity in the appointment of any member of the Council.

(11) If any stock exchange for any reason ceases to be a member of the Federation, the membership of the Council of any person appointed by the committee of that exchange shall thereupon cease.

(12) If any stock exchange fails to appoint members of the Council as required by this section, the Commission may, after giving the exchange 14 days’ notice in writing of its intention to do so, appoint persons to fill the vacancies.

Chairman and deputy chairman of the Council.

33. (1) The Council shall, at its first meeting and in each year thereafter at the first meeting after the anniversary of the date on which it was constituted, elect one of its members to be chairman of the Council, and the person so elected shall hold office during its pleasure until the election of another chairman.

(2) When a member of the Council ceases to hold office as chairman of the Council, neither he, nor any other member of the Council who is a member of the stock exchange of which he is a member, shall be eligible for election as chairman of the Council until the expiry of at least 4 years from the date on which the first-mentioned member of the Council was elected to be the chairman.

(3) If the office of chairman is vacant for more than one month, the Commission may appoint such person as it thinks fit (including a person who is not a member of the Council) to be chairman for a period not exceeding 12 months.

(4) The Council may, at its first meeting and in each year thereafter after the anniversary of the date on which it was constituted, elect any other of its members to be deputy chairman, and the person so elected shall hold office as such during its pleasure until the election of another deputy chairman.3

(5) If the office of chairman is vacant, or the chairman is absent from any meeting of the Council or is incapacitated by illness or other cause from performing the duties of his office, the deputy chairman shall have and may exercise all the functions and powers of the chairman.

Deputies of members.

34. (1) If any member does not attend a meeting of the Council, the committee of the stock exchange which appointed him may appoint one of the other members of the exchange to attend the meeting as his deputy.

(2) While a person is attending any meeting as a deputy under this section, he shall be deemed for all purposes to be a member of the Council.

(3) No appointment of a deputy and no act done by him as such, and no act done by the Council while any deputy is acting as such, shall in any proceedings be questioned on the ground that the occasion for his appointment has not arisen or had ceased.

Meetings of the Council.

35. (1) Meetings of the Council shall be held not less often than once in every month at such times and places as the Council or its chairman may appoint.

(2) At all meetings of the Council 4 members shall form a quorum.

(3) At any meeting of the Council the chairman shall have a deliberative vote, and, in the case of an equality of votes, shall also have a casting vote.

(4) All questions before the Council shall be decided by a majority of the members present and voting thereon.

(5) A decision taken at a meeting of the Council shall be binding on each of the members of the Federation, whether the representatives of the member were present at the meeting or not.

(6) Subject to subsections (1) to (5) the procedure at meetings of the Council shall be determined by the Council.

Functions of the Federation.

36. The Federation shall have the following functions—

  • (a) to communicate the views of its members to the Commission, and to communicate the decisions of the Commission to its members;

  • (b) to encourage or provide facilities for the training of persons desirous of becoming stockbrokers;

  • (c) to provide or promote facilities for the obtaining by stockbrokers, and persons desirous of becoming stockbrokers, of professional qualifications by means of examinations;

  • (d) to provide means for the amicable settlement of disputes between—

    • (i) members of the Federation;

    • (ii) any members of one member of the Federation and any members of another member of the Federation; or

    • (iii) any member of the Federation and any members of any other member of the Federation;

  • (e) to be the sole representative of members of the Federation in respect of any matter other than one involving the internal administration of the stock exchange of any such member;

  • (f) to promote research into all aspects of investment in securities;

  • (g) to encourage its members to improve the efficiency, methods, and procedures of the stock markets operated by them;

  • (h) to fix the hours of trading on stock exchanges;

  • (i) to determine all matters relating to the levying of brokerage in respect of transactions on stock exchanges, including the fixing of a uniform rate of brokerage in relation to all stock exchanges;

  • (j) to establish a uniform procedure for the transaction of dealings between members of one stock exchange and members of another;

  • (k) to perform any other function in relation to dealings in securities determined by the unanimous decision of the Council and approved by the Commission, not being a function which is inconsistent with this Ordinance.

Powers of Federation and Council.

37. (1) The Federation shall have all such powers as may be necessary to enable it to carry out its functions, and without prejudice to the generality of the foregoing may—

  • (a) acquire, hold, or dispose of movable or immovable property;

  • (b) for the purpose of financing its operations, impose levies on its members of such amounts as may be determined by the Council, with the concurrence of the Commissioner;

  • (c) appoint officers and other staff on such terms and conditions as the Council thinks fit.

(2) The Council may appoint committees of its members and may delegate to any such committee any of its functions or powers (other than the power of delegation conferred by this subsection) and may authorize such a committee to co-opt as members thereof persons who are not members of the Council.

(3) The Federation may, and if so directed by the Commission shall, make rules on any matter within its functions.

(4) Every rule made under subsection (3) shall be binding on and be enforceable against each stock exchange and against the members of each stock exchange, except to the extent that any such rule purports to exempt any specified stock exchange or any members or class of members of a stock exchange from its operation.

(5) The Federation may cause any rules made under subsection (3) to be promulgated in such manner as it thinks fit.

(6) All rules made under subsection (3) shall, subject to subsection (7), come into operation on the date on which they are made or on such later date as may be specified in the rules.

(7) No rule made under subsection (3) (not being a rule made at the direction of the Commission) shall come into operation unless it has been previously approved by the Commission.

Part V. Securities Commission Disciplinary Committee

Constitution of Disciplinary Committee.

38. (1) There shall be a committee, to be known as the Securities Commission Disciplinary Committee, appointed in accordance with this section to exercise the powers and perform the functions conferred on it by this Ordinance.

(2) The Disciplinary Committee shall be appointed by the Commission, and shall consist of 5 persons of whom—

  • (a) one shall be the member of the Commission appointed under section 10(1) (c) who is qualified in law, or if there is more than one such member, one of those members;

  • (b) two shall be other members of the Commission (other than the Commissioner);

  • (c) two shall be persons nominated by the Federation.

(3) The member of the Disciplinary Committee referred to in subsection (2) (a) shall be chairman of the Disciplinary Committee.

(4) A quorum of the Disciplinary Committee shall be 4 persons.

(5) A decision of the majority of the members of the Disciplinary Committee shall be the decision of the Committee. In the event of there being no majority, the decision of the chairman and one other member of the Committee shall be the decision of the Committee.

Powers of Disciplinary Committee.

39. (1) The Disciplinary Committee may inquire into any allegation, whether made by the Commission, the Commissioner or any other person, that any stock exchange, or the committee or any member of the committee of any such exchange, has been guilty of any misconduct.

(2) If, after inquiring into any such allegation, the Disciplinary Committee is of the opinion that the allegation is proved it may, if it thinks fit, subject to the provisions of this Ordinance, do one or more of the following things—

  • (a) recommend to the Commission that it exercise any of the powers conferred on it by section 26;

  • (b) disqualify any member of the committee of the stock exchange from holding office as such either permanently or for such period as the Disciplinary Committee may specify;

  • (c) impose a fine on the stock exchange not exceeding $10,000;

  • (d) reprimand the committee of the stock exchange or any member of the committee of the stock exchange.

(3) The Disciplinary Committee shall not, in respect of any allegation inquired into under subsection (1), impose on any stock exchange, or on the committee or any member of the committee of the exchange, any of the penalties referred to in subsection (2), or make any recommendation under that subsection, without first giving the committee of the exchange or, as the case may be, the member of the committee, an opportunity of being heard.

(4) Any stock exchange, or committee or member of the committee of a stock exchange, against which or whom an allegation of misconduct has been made, and any person appealing to the Disciplinary Committee under section 58, shall have a right to be represented by a solicitor or counsel at the inquiry under subsection (1) or on the hearing of the appeal.

(5) Where a stock exchange has been proceeded against before a court of law in respect of an offence arising out of misconduct, the Disciplinary Committee shall not impose a fine under subsection (2) (c) in relation to that misconduct.

(6) For the purposes of this section “misconduct” means—

  • (a) any failure by a stock exchange or the committee of a stock exchange to comply with the requirements of this Ordinance or any rules, regulations, or directions made or given thereunder;

  • (b) any wilful contravention by a stock exchange or the committee of a stock exchange of the constitution or rules of the exchange;

  • (c) any failure by a stock exchange or by the committee of a stock exchange to ensure that the rules of the exchange are complied with by its members;

  • (d) any act or omission relating to the operation of a stock exchange which, in the opinion of the Disciplinary Committee, is or is likely to be prejudicial to the interests of members of the investing public.

Costs.

40. After the hearing of any inquiry under section 39, or of any appeal under section 58, the Disciplinary Committee may make such order as to the payment of costs as it considers just.

Recovery of penalties, costs, and expenses.

41. Any sum ordered by the Disciplinary Committee to be paid by way of fine or costs in relation to an inquiry under section 39, or in relation to an appeal made under section 58, shall be deemed to be a civil debt due from the person ordered to pay it to the person to whom it is ordered to be paid and shall be recoverable accordingly in any court of competent jurisdiction.

Evidence at hearing, etc.

42. (1) The Disciplinary Committee, by notice in writing signed by the chairman and served on any person to whom it is addressed, may require the person to attend and give evidence before it at the hearing of any inquiry under section 39 or any appeal under section 58, and to produce all books, papers, and documents in that person’s custody or under his control relating to the subject-matter of the inquiry or appeal, as the case may be.

(2) At any inquiry under section 39 or at the hearing of any appeal under section 58, the Disciplinary Committee may—

  • (a) receive such evidence as it considers relevant to the inquiry or appeal, whether it would be admissible in a court of law or not; and

  • (b) require evidence to be given on oath, either orally or in writing, and books, papers, or documents to be produced.

(3) For the purpose of subsection (2) the chairman of the Committee may administer an oath.

(4) Any person who, without lawful authority or reasonable excuse, refuses or fails—

  • (a) to attend and give evidence when required to do so by the Disciplinary Committee; or

  • (b) to answer truly and fully questions put to him by a member of the Disciplinary Committee; or

  • (c) to produce any book, paper, or document which he has been required to produce,

shall be guilty of an offence and shall be liable on conviction to a fine of $10,000.

Immunity of Disciplinary Committee, witnesses, solicitors and counsel.

43. The Disciplinary Committee, and witnesses and any solicitor or counsel appearing before the Disciplinary Committee, shall have the same privileges and immunities in inquiries and appeals heard under this Part as they would have if those proceedings were proceedings in a court.

Witnesses’ expenses.

44. (1) Every witness giving evidence or attending to give evidence at the hearing of any inquiry under section 39 or any appeal under section 58 shall be entitled in the discretion of the Disciplinary Committee to such sum for his expenses and loss of time as the Disciplinary Committee may determine.

(2) Subject to any order made by the Disciplinary Committee as to the payment of costs or expenses, all such witnesses’ expenses shall be paid out of money provided by the Legislative Council.

Rules of procedure.

45. Subject to this Part, the Commission may make rules in respect of the hearing and determination of inquiries under this Part and of appeals made under section 58.

Form and proof of orders of Disciplinary Committee.

46. (1) Every decision of the Disciplinary Committee shall be in writing signed by the chairman of the Committee and shall contain a statement of the reasons for the decision.

(2) Every document purporting to contain a decision of the Disciplinary Committee and to be signed by the Committee’s chairman shall, until the contrary is proved, be deemed to be a decision of the Committee duly made.

Part VI. Registration of Dealers, Investment Advisers, and Representatives

Application of Part VI.

47. (1) Except so far as specifically provided, this Part does not apply to an exempt dealer or to an exempt investment adviser, or to the representative of an exempt dealer or exempt investment adviser, but—

  • (a) subject to section 61, nothing in this subsection exempts an exempt dealer who carries on a business as an investment adviser from being registered as such under this Part; and

  • (b) subject to section 60, nothing in this subsection exempts an exempt investment adviser who carries on a business of dealing in securities from being registered as a dealer.

(2) Where a person would, but for this subsection, be liable to a penalty for not being registered as a dealer, dealer’s representative, investment adviser, or investment representative, he shall not be so liable—

  • (a) until the expiry of a period of 3 months immediately following the commencement of this Part; or

  • (b) where, before the expiry of that period, he applies for registration, until—

    • (i) he is registered; or

    • (ii) his application is refused.

Registration as a dealer.

48. (1) A person (whether an individual or a body corporate, or a member of a partnership or director of a body corporate) shall not carry on a business in Hong Kong of dealing in securities, or hold himself out as carrying on such a business, unless he is registered as a dealer under this Part.

(1A) A corporation shall not carry on a business in Hong Kong of dealing in securities, or hold itself out as carrying on such a business, unless at least one of the directors of the corporation, or, in the case of a corporation having only one director, that director, actively participates in, or is directly responsible for the supervision of, the corporation’s business of dealing in securities and is registered as a dealer under this Part.

(2) Any person who knowingly acts in contravention of subsection (1) or (1A) shall be guilty of an offence and shall be liable on conviction to a fine of $50,000 and, in the case of a continuing offence, to a further fine of $500 for each day during which the offence continues.

Registration as an investment adviser.

49. (1) A person (whether an individual or a body corporate, or a member of a partnership or director of a body corporate) shall not in Hong Kong act as an investment adviser or hold himself out to be an investment adviser unless he is registered as an investment adviser under this Part.

(1A) A corporation shall not in Hong Kong act as an investment adviser, or hold itself out to be an investment adviser, unless at least one of the directors of the corporation, or, in the case of a corporation having only one director, that director, actively participates in, or is directly responsible for the supervision of, the corporation’s business as an investment adviser and is registered as an investment adviser under this Part.

(2) Any person who knowingly acts in contravention of subsection (1) or (1A) shall be guilty of an offence and shall be liable on conviction to a fine of $20,000 and, in the case of a continuing offence, to a further fine of $200 for each day during which the offence continues.

Registration as a representative.

50. (1) No person shall—

  • (a) act as a dealer’s representative in Hong Kong unless he is registered as such under this Part; or

  • (b) act as an investment representative in Hong Kong unless he is registered as such under this Part.

(2) Any person who knowingly acts in contravention of subsection (1) shall be guilty of an offence and shall be liable on conviction to a fine of $10,000 and, in the case of a continuing offence, to a further fine of $100 for each day during which the offence continues.

Grant of certificates of registration.

51. (1) Subject to sections 51A, 52 and 53, the Commissioner shall, on application by any person in the prescribed manner and on payment of the prescribed fee, issue to that person—

  • (a) a certificate of registration authorizing him to carry on business as a dealer in securities;

  • (b) a certificate of registration authorizing him to deal in securities as a representative of a registered dealer;

  • (c) a certificate of registration authorizing him to carry on business as an investment adviser; or

  • (d) a certificate of registration authorizing him to act as a representative of a registered investment adviser.

(2) A certificate of registration shall be—

  • (a) valid for a period of 12 months beginning with the day on which it is issued; and

  • (b) subject to such reasonable conditions as the Commissioner considers necessary.

(3) A certificate of registration issued to a dealer or investment adviser shall specify the name of the person thereby authorized to carry on a business of dealing in securities or as an investment adviser, as the case may be.

(4) The issue of a certificate of registration to a person shall not authorize such a person to carry on that business under any name other than that specified in the certificate.

(5) Notwithstanding subsection (4), if the Commissioner thinks fit, a certificate of registration to which that subsection relates may, at the request of the applicant for registration, authorize the applicant to carry on business as a dealer or investment adviser, either alone or jointly with any other person who is registered as a dealer or investment adviser, as the case may be, under such name or style as the applicant may specify.

Private company to have at least one director.

51A. Where an applicant is a corporation and is a private company within the meaning of the Companies Ordinance, the Commissioner shall not register the applicant as a dealer or as an investment adviser unless the corporation has at least one director thereof.

Deposit required before registration as a dealer.

52. (1) Subject to subsection (6), the Commissioner shall not register an applicant as a dealer unless the applicant has deposited with the Commissioner such amount as is prescribed in regulations.

(1A) Subject to subsection (6), where an applicant is a corporation the Commissioner shall not register the corporation as a dealer unless there has been deposited with the Commissioner in respect of each director of the corporation who actively participates in, or is in any way directly responsible for, the corporation’s business of dealing in securities in Hong Kong such amount as is prescribed in regulations.

(2) If—

  • (a) the dealer, being an individual person or member of a partnership of dealers, becomes bankrupt, the Commissioner shall pay the deposit to the dealer’s trustee in bankruptcy;

  • (b) the dealer, being a corporation, is ordered to be wound up by or under the supervision of the Court, the Commissioner shall pay the deposit to the liquidator of the corporation; or

  • (c) the certificate of registration of the dealer is revoked, or the dealer or any servant of the dealer, or where the dealer is a partnership or a corporation any member of the partnership or director or officer of the corporation, is convicted of an offence necessarily involving a finding that he or it was guilty of a breach of trust, defalcation, fraud, or misfeasance in respect of any money or securities of a person who is a client of the dealer, the Commissioner may direct that all or any part of the deposit be forfeited.

(3) In the event of the deposit or any part of the deposit being paid to the dealer’s trustee in bankruptcy or liquidator under subsection (2)(a) or subsection (2)(b), the amount paid shall be applied by the trustee or liquidator, as the case may be, in accordance with regulations made under this Ordinance for the purposes of this subsection.

(4) In the event of the deposit or any part of the deposit being forfeited under subsection (2)(c), the amount forfeited shall be applied by the Commissioner subject to and in accordance with regulations made under this Ordinance for the purposes of this subsection.

(5) Except as provided in this section or under regulations made under this Ordinance, no person may withdraw or transfer any deposit made under this section.

(6) The following persons are exempt from being required to deposit the amount required under this section—

  • (a) a dealer who carries on a business of dealing in securities only in the capacity of a stockbroker;

  • (b) any corporate member or member firm of a stock exchange;

  • (c) any corporation carrying on a business as a dealer each of whose directors who is engaged in dealing in securities has deposited the amount so required; and

  • (d) any other dealer who belongs to a class of dealers exempted from the provisions of this section by regulations.

(7) The Commissioner shall open one or more accounts at a licensed bank into which he shall pay all sums received from dealers by way of deposit under this section, and shall then ascertain what proportion of those sums ought, in his opinion, to be retained in the accounts to enable liabilities under subsection (2), or such other liabilities as may be prescribed by regulations, to be satisfied.

(8) After ascertaining the amount required to be retained under subsection (7), the Commissioner shall cause the balance of the sums to be invested in such manner as the Financial Secretary may direct.

(8A) Any document relating to the investment of money under subsection (8) may be kept in the office of the Commissioner or deposited by him for safe keeping with a licensed bank.

(9) Where the Financial Secretary has given a direction under subsection (8), he shall, as soon as practicable after the end of each financial year, by notice in the Gazette—

  • (a) declare a rate of interest to be paid for that financial year in respect of each sum deposited under this section;

  • (b) specify the manner and time of payment of that interest; and

  • (c) specify an amount to be charged for management expenses incurred by the Commissioner in administering that sum under this section.

(10) As soon as practicable after the publication of the notice referred to in subsection (9), the Commissioner shall, after deducting the appropriate amount chargeable in respect of management expenses, pay to each person who has deposited the prescribed sum under this section, or to that person’s duly authorized agent or personal representative, the appropriate amount of interest due in respect of that sum for the financial year in question.

(11) If any person who has made a deposit under this section ceases to be registered as a dealer and the deposit has not been or is not required to be disposed of under subsection (2), that person, or his agent or personal representative, may apply to the Commissioner for the deposit to be released to him.

(12) On making an application under subsection (11), the applicant shall—

  • (a) satisfy the Commissioner by a statutory declaration—

    • (i) that he knows of no other person who has made or is entitled to make a claim in respect of the deposit;

    • (ii) if he is not the dealer who made the deposit, that he is entitled to give a good discharge for the deposit and stating the circumstances in which he is so entitled; and

  • (b) provide the Commissioner with such information as will satisfy him that an advertisement in a form approved by him has been inserted once in an English language newspaper, and once in a Chinese language newspaper, circulating in Hong Kong.

(13) The Commissioner, on being so satisfied, shall cause the amount of the deposit to be released to the applicant.

Accounts of sums deposited under section 52.

52A. (1) The Commissioner shall keep proper accounts of all sums deposited under section 52, and shall in respect of the financial year beginning before and ending after the day on which this section commences, and in respect of each subsequent financial year, prepare a revenue and expenditure account, and a balance sheet made up to the last day of that year.

(2) The Commissioner shall appoint an auditor who shall audit the accounts kept under subsection (1) and shall audit and prepare an auditor’s report in respect of each balance sheet and revenue and expenditure account prepared under subsection (1) and shall submit the report to the Commissioner.

(3) Not later than the 31st July in each year the Commissioner shall cause a copy of the audited balance sheet, revenue and expenditure account and the auditor’s report to be sent to the Financial Secretary.

Refusal of registration.

53. (1) The Commissioner may refuse to register an applicant for registration under this Part—

  • (a) in the case of an applicant who is an individual, on the grounds that—

    • (i) the applicant has not provided the Commissioner with such information relating to him or any person employed by or associated with him, and to any circumstances likely to affect his method of conducting business, as may be prescribed by or under this Ordinance;

    • (ii) the applicant is detained under the Mental Health Ordinance in a mental hospital or is a patient, as defined in section 2 of that Ordinance;

    • (iii) the applicant is an undischarged bankrupt;

    • (iv) it appears to the Commissioner that, by reason of the applicant, or any person employed by or associated with the applicant for the purposes of his business, having been convicted, whether in Hong Kong or elsewhere, of an offence his conviction for which necessarily involved a finding that he acted fraudulently or dishonestly, or having been convicted of an offence against this Ordinance, or having committed a breach of any regulations made under this Ordinance relating to dealers, investment advisers, or representatives, the applicant is not a fit and proper person to be registered under this Part;

    • (v) it appears to the Commissioner that, by reason of any other circumstances whatsoever which either are likely to lead to improper conduct of business by, or reflect discredit on the method of conducting business of, the applicant or any person employed by or associated with him, the applicant is not a fit and proper person to be registered under this Part; or

    • (vi) the applicant is under 21 years of age; or

  • (b) in the case of an applicant that is a corporation, on the grounds that—

    • (i) the applicant has not provided the Commissioner with such information relating to it or any person employed by or associated with it, and to any circumstances likely to affect its method of conducting business as may be prescribed by or under this Ordinance;

    • (ii) any director of the applicant is detained under the Mental Health Ordinance in a mental hospital or is a patient as defined in section 2 of that Ordinance;

    • (iii) any director of the applicant is an undischarged bankrupt;

    • (iii a) where the application is for registration as a dealer, no director of the applicant is, or is in the opinion of the Commissioner likely to be, registered as a dealer, or where the application is for registration as an investment adviser, no director of the applicant is, or is in the opinion of the Commissioner likely to be, registered as an investment adviser;

    • (iv) it appears to the Commissioner that, by reason of the applicant, or any director or secretary of the applicant or any officer concerned in the management of the applicant’s business or any employee of the applicant, having been convicted, whether in Hong Kong or elsewhere, of an offence its or his conviction for which necessarily involved a finding that it or he acted fraudulently or dishonestly, or having been convicted of an offence against this Ordinance, or having committed a breach of any regulations made under this Ordinance relating to dealers, investment advisers, or representatives, the applicant is not a fit and proper person to be registered under this Part; or

    • (v) it appears to the Commissioner that, by reason of any other circumstances whatsoever which either are likely to lead to improper conduct of business by, or reflect discredit on the method of conducting business of, the applicant or any director or secretary of the applicant, or any officer concerned in the management of the applicant’s business, or any employee of the applicant, the applicant is not a fit and proper person to be registered under this Part

(2) The Commissioner shall not refuse an application for registration without first giving the applicant an opportunity of being heard.

(3) Where the Commissioner refuses an application for registration, he shall notify the applicant in writing of that fact and shall include in the notice a statement of the reasons for the refusal.

Renewal of registration.

54. (1) An application for renewal of registration under this Part shall—

  • (a) be made to the Commissioner in the manner prescribed by regulations;

  • (b) be accompanied by the fee prescribed by regulations; and

  • (c) be made not later than one month before the day on which the certificate of registration, if not renewed, would expire.

(2) The Commissioner may require an applicant under this section to supply him with any further information that he considers necessary to deal with the application.

(3) The Commissioner may not refuse an application under this section except—

  • (a) on a ground that would entitle him to revoke the registration of a person under section 55 or section 56; or

  • (b) by reason of the failure of the applicant to comply with subsection (1) or with any requirement of the Commissioner under subsection (2).

(4) An application under this section may be granted subject to such reasonable conditions as the Commissioner thinks necessary.

(5) On granting an application under this section, the Commissioner shall issue the appropriate certificate of registration which shall be valid for a period of 12 months from the expiry of the certificate of registration held by the applicant at the time of his application.

(6) Nothing in this section shall be construed as preventing a certificate of registration that has been renewed from being further renewed for a further period of 12 months.

(7) The Commissioner shall not refuse an application for renewal of registration under this section without first giving the applicant an opportunity of being heard.

(8) Where the Commissioner refuses an application for renewal of registration under this section, he shall notify the applicant in writing of that fact and shall include in the notice a statement of the reasons for the refusal.

Revocation and suspension of certificates of registration in certain cases.

55. (1) Where any registered person—

  • (a) being an individual, dies; or

  • (b) being a corporation, is dissolved,

the registration of that person is deemed to be revoked.

(2) The Commissioner may revoke the registration of a registered person or, if he thinks it appropriate to do so, suspend the registration of such a person for such time, or until the happening of such event, as he may determine—

  • (a) in the case of a registered person who is an individual, if that person—

    • (i) becomes a mentally disordered person or a patient, as defined in section 2 of the Mental Health Ordinance;

    • (ii) becomes bankrupt, or compounds with his creditors or makes an assignment of his estate for their benefit;

    • (iii) is convicted, whether in Hong Kong or elsewhere, of an offence the conviction for which necessarily involved a finding that he acted fraudulently or dishonestly;

    • (iv) is convicted of an offence against this Ordinance;

    • (v) ceases to carry on business in Hong Kong; or

    • (vi) is registered as a representative and the registration of the dealer or investment adviser, in relation to whom the certificate of registration of the representative was granted, is revoked or suspended; or

  • (b) in the case of a registered person that is a corporation if—

    • (i) the corporation goes into liquidation or is ordered to be wound up;

    • (ii) a receiver or manager of the property of the corporation is appointed;

    • (iii) the corporation has ceased to carry on business;

    • (iv) a levy of execution in respect of the corporation has not been satisfied;

    • (v) the corporation has entered into a compromise or scheme of arrangement with its creditors;

    • (vi) any director of the corporation is convicted, whether in Hong Kong or elsewhere, of an offence the conviction for which necessarily involved a finding that he acted fraudulently or dishonestly;

    • (vii) any director of the corporation is convicted of an offence against this Ordinance;

    • (viii) a director, secretary, or other person concerned in the management of the corporation who is required to be registered under this Part is not so registered or the registration of such a director, secretary, or other person has been revoked or suspended.

(3) The Commissioner may revoke a certificate of registration at the request of its holder.

(4) The Commissioner may at any time remove the suspension of the registration of a registered person if it appears to him desirable to do so.

(5) Every decision of the Commissioner revoking or suspending the registration of a registered person shall be notified to that person in writing and shall include a statement of the reasons on which it is based and take effect from the date on which it is notified to that person or such later date as is specified in the notice.

Powers of Commissioner in relation to misconduct, etc.

56. (1) The Commissioner may inquire into any allegation—

  • (a) that a registered person, whether an individual or corporation—

    • (i) has not provided the Commissioner, whether before or after becoming registered under this Ordinance, with such information relating to him, and to any circumstances likely to affect his method of conducting business, as may be required by or under this Ordinance;

    • (ii) is or has been guilty of any misconduct in relation to the conduct of his business; or

    • (iii) is no longer a fit and proper person to be registered by reason of any other circumstances which have led or are likely to lead to the improper conduct of business by him or to reflect discredit on the method of conducting his business; or

  • (b) that, in the case of a registered person that is a corporation, a director, secretary, or person concerned in the management of the corporation—

    • (i) is or has been guilty of any misconduct in relation to the conduct of his business; or

    • (ii) is not or is no longer a fit and proper person to be a director of, or a person concerned with the management of, the corporation.

(2) If after inquiring into any such allegation against a registered person, the Commissioner is of the opinion that the allegation is proved, he may if he thinks fit, subject to the provisions of this Ordinance, revoke the registration of that person or if he thinks it appropriate to do so—

  • (a) suspend the registration of the person for such time, or until the happening of such event, as he may determine; or

  • (b) reprimand him or, in the case of a registered person that is a corporation, reprimand any director, secretary, or person concerned in the management of the corporation.

(3) The Commissioner shall not impose any penalty under subsection (2) without first giving the registered person, and, in the case of a registered person that is a corporation, any director, secretary, or officer concerned in the management of the corporation against whom an allegation has been made under subsection (1), an opportunity of being heard.

(4) Every decision of the Commissioner imposing a penalty under subsection (2) on a person shall be notified to that person in writing and shall include a statement of the reasons on which it is based and take effect from the date on which it is notified to him, or such later date as is specified in the notice, notwithstanding that an appeal against the decision may be made under section 58 or that the time limited for the making of such an appeal has not expired.

(5) For the purposes of this section “misconduct” means—

  • (a) any failure to comply with the requirements of any regulations made under this Ordinance with respect to dealers, investment advisers, or representatives;

  • (b) any failure to observe the terms and conditions of a certificate of registration;

  • (c) any act or omission relating to the conduct of business of a dealer, investment adviser, or representative, which is or is likely to be prejudicial to the interests of members of the investing public.

Effect of revoking or suspending registration.

57. (1) For the purposes of sections 48 to 50 a person whose registration is revoked or suspended shall be deemed not to be registered.

(2) Subsection (1) does not operate so as to—

  • (a) avoid or affect any agreement transaction or arrangement relating to a dealing in securities entered into by a person whose registration has been suspended or revoked, whether the agreement, transaction, or arrangement was entered into before or after the suspension or revocation of the registration; or

  • (b) affect any right, obligation, or liability arising under any such agreement, transaction, or arrangement.

(3) A person whose registration is revoked under section 55 or section 56 may not apply to be registered under this Part, whether as a dealer, investment adviser, or representative, until the expiration of at least 12 months from the revocation.

(4) Where the Commissioner revokes or suspends the registration of any person under section 55 or section 56 or imposes any other penalty under section 56, he shall notify that person in writing of the revocation, suspension, or other penalty, and shall include in the notice a statement of the reasons as to why the registration of the person was revoked or suspended or, as the case may be, the penalty was imposed.

Appeal to the Disciplinary Committee against refusals of application, etc.

58. (1) Where—

  • (a) the application of any person for registration or renewal of registration under this Part is refused; or

  • (b) the application of a person for registration or renewal of registration under this Part is granted subject to conditions with which he is dissatisfied; or

  • (c) the registration of any registered person is revoked or suspended under section 55 or section 56; or

  • (d) the deposit of a registered dealer is forfeited under section 52(2) (c),

that person may, within one month of being notified of the decision by the Commissioner, appeal to the Disciplinary Committee in accordance with any rules made under section 45.

(2) After considering the representations submitted and evidence produced by or on behalf of the appellant and the Commissioner, the Disciplinary Committee may confirm, reverse, or vary that decision.

Appeals from decisions of the Disciplinary Committee, etc. in certain cases.

59. (1) An appeal shall lie to the Court against any decision of the Disciplinary Committee in relation to the hearing of an appeal under section 58 by any interested party who is aggrieved by the decision of the Committee; and the Court may confirm, vary, or reverse the decision of the Committee and give such other directions as it thinks just and equitable.

(2) Every such appeal shall be made within such time and in such manner, and shall be heard in accordance with such procedure, as may be prescribed by rules of court made under the Supreme Court Ordinance.

(3) The decision of the Court on an appeal under this section shall be final.

Exempt dealers.

60. (1) The Commissioner may declare any person to be an exempt dealer for the purposes of this Ordinance if he is satisfied that the business of that person complies with the following requirement, that is to say—

  • (a) the main business of that person consists of one or both of the following activities—

    • (i) carrying on some business other than the business of dealing in securities;

    • (ii) dealing in securities in one or more of the ways specified in subsection (2); and

  • (b) the greater part of any business of dealing in securities done by him in Hong Kong, otherwise than in one of the ways specified in subsection (2), is effected with or through the agency of one or more of the following persons—

    • (i) a registered dealer;

    • (ii) an exempt dealer; or

    • (iii) a member of a stock exchange outside Hong Kong.

(2) The ways of dealing in securities referred to in subsection (1) are—

  • (a) issuing any document which is or is to be deemed to be a prospectus within the meaning of the Companies Ordinance or any prospectus approved by the Commissioner that is issued by a mutual fund corporation or unit trust authorized by the Commission;

  • (b) making or offering to make with any person an agreement for or with a view to the underwriting of securities by that person;

  • (c) making any invitation to persons to subscribe for securities or to purchase securities on the first occasion that they are sold;

  • (d) making any invitation to persons to subscribe for or purchase securities of the Government or the government of any country or territory outside Hong Kong;

  • (e) effecting any transaction with a person whose business involves the acquisition and disposal or the holding of securities, being a transaction with that person as a principal.

(3) The Commissioner may revoke a declaration under subsection (1) that a person is an exempt dealer if it appears to him that—

  • (a) the business of that person does not comply with the requirements set out in subsection (1); or

  • (b) the circumstances relevant to the making of the declaration have materially changed since it was made.

(4) Without prejudice to subsection (1), the Commissioner may, by notice in the Gazette, declare—

  • (a) any licensed bank;

  • (b) any trustee company registered under Part VIII of the Trustee Ordinance; or

  • (c) any person belonging to 4 class of persons, or carrying on a type of business, prescribed in regulations for the purposes of this paragraph,

to be an exempt dealer for the purposes of this Ordinance.

(5) The Commissioner may at any time revoke a declaration made under subsection (4).

(6) The Commissioner shall cause to be published in the Gazette at least once in every year the names and addresses of all persons who are exempt dealers.

Exempt investment advisers.

61. (1) The Commissioner may declare any person to be an exempt investment adviser for the purposes of this Ordinance if he is satisfied that the business of that person complies with the following requirements, that is to say—

  • (a) the investment advice is given mainly to persons whose business involves the acquisition and disposal or the holding of securities; or

  • (b) the investment advice is given only to persons residing outside Hong Kong.

(2) The Commissioner may at any time revoke a declaration under subsection (1).

Offence to make a false representation for the purpose of obtaining a certificate of registration under this Part.

62. (1) Any person who for the purpose of obtaining a certificate of registration under this Part, whether for himself or for any other person, makes any representation, whether in writing, orally or otherwise, which he knows to be false or misleading as to a material particular shall be guilty of an offence, and shall be liable on conviction on indictment, to imprisonment for 5 years.

(2) For the purposes of subsection (1), “representation” means a representation—

  • (a) of a matter of fact, either present or past; or

  • (b) about a future event; or

  • (c) about an existing intention, opinion, belief, knowledge, or other state of mind.

(3) Proceedings in respect of an offence against this section may be brought at any time within 6 months of the discovery of the offence.

Information to be provided by dealers, etc.

63. (1) Every dealer and investment adviser shall forthwith notify the Commissioner in writing of any change which, while his certificate of registration is in force, may occur—

  • (a) in the address in Hong Kong at which he carries on the business of dealing in securities or of investment adviser, as the case may be; or

  • (b) in any information supplied in or in connexion with his application for registration or renewal of registration, being information prescribed by regulations.

(2) Every dealer and investment adviser shall forthwith, on ceasing to carry on business in Hong Kong as a dealer or an investment adviser, notify the Commissioner in writing of that fact.

(3) If, at any time while a corporation is registered as a dealer or investment adviser, any person becomes or ceases to be a director of the corporation, the corporation shall within 7 days after that event notify the Commissioner in writing of the name and address of that person and also his nationality or the fact that he has no nationality.

(4) If, at any time while a person is registered as a dealer’s representative or investment representative, that person leaves or enters the service of, or becomes or ceases to be an agent of, any dealer or investment adviser, that person shall within 7 days after that event notify the Commissioner in writing of the fact and of the name and address of the dealer or investment adviser.

(5) Any person who, without reasonable excuse, contravenes any of the provisions of this section shall be guilty of an offence and shall be liable on conviction to a fine of $2,000.

Commissioner to keep a register of dealers, etc.

64. (1) The Commissioner shall establish and maintain at his office-

  • (a) a register of dealers in which shall be entered the name of every registered dealer and such other particulars as may be prescribed by regulations in relation to registered dealers;

  • (b) a register of investment advisers in which shall be entered the name of every registered investment adviser and such other particulars as may be prescribed by regulations in relation to registered investment advisers;

  • (c) a register of dealers’ representatives in which shall be entered the name of every registered dealer’s representative and such other particulars as may be prescribed by regulations in relation to registered dealers’ representatives; and

  • (d) a register of investment representatives in which shall be entered the name of every registered investment representative and such other particulars as may be prescribed by regulations in relation to registered investment representatives.

(2) The registers kept under this section and, after registration or renewal of registration, as the case may be, all applications made for registration or renewal of registration under this Part shall, during such hours as may be prescribed and on payment of any fee prescribed by regulations, be open to inspection by members of the public.

(3) A copy of any extract of or entry in the registers kept under this section, purporting to be certified by the Commissioner, shall be admissible as evidence in any legal proceedings, whether under this Ordinance or otherwise.

Publication of names of registered dealers, etc.

65. (1) The Commissioner shall cause to be published in the Gazette, at such times and in such manner as he thinks proper, the names and addresses of all persons who are registered under this Part, and also—

  • (a) in relation to any such person who is not a corporation, his nationality or, as the case may be, that he has no nationality; or

  • (b) in relation to any such person which is a corporation, the country where the corporation is domiciled or under the law of which the corporation is incorporated.

(2) The information required by subsection (1) shall be published at least once each year.

(3) If the Commissioner at any time amends any of the registers kept by him under this Part by adding or removing the name of any person, he shall cause particulars of the amendment to be published in the Gazette within one month after making the amendment.

Part VII. Records

Application of Part VII.

66. (1) This Part applies to and in relation to—

  • (a) a person who is—

    • (i) a dealer;

    • (ii) a dealer’s representative;

    • (iii) an investment adviser; or

    • (iv) an investment representative; and

  • (b) securities listed on a stock exchange and any other securities of a class prescribed in regulations for the purposes of this subsection.

(2) The Governor in Council may, by order, apply any of the provisions of this Part, with such modifications and additions as he thinks fit, to financial journalists.

(3) For the purposes of subsection (2) “financial journalist” means a person who, in the course of his business or employment, contributes advice concerning securities for publication in a newspaper, magazine, journal, or other periodical publication.

Certain persons to maintain registers of securities.

67. (1) A person to whom this Part applies shall maintain a register of the securities in which he has an interest and of the particulars relating to their acquisition and disposal in a manner and form approved by the Commissioner.

(2) Particulars of the securities in which a person to whom this Part applies has an interest and particulars of his interest in those securities shall be entered by that person in the register within 14 days after he becomes aware of the acquisition of the interest or after the commencement of this section, whichever is the later.

(3) Where there is a change (not being a change prescribed by regulations) in the interest or interests in securities of a person to whom this Part applies, he shall, within 14 days after he becomes aware of the change, enter in the register full particulars of the change, including the date when the change occurred and the circumstances by reason of which the change occurred.

(4) For the purposes of this section, where a person acquires or disposes of securities there shall be deemed to be a change in the interest or interests of that person.

(5) A person who contravenes any provision of this section that is applicable to him shall be guilty of an offence and shall be liable on conviction to a fine of $5,000.

Certain notices to be given to the Commissioner.

68. (1) A person to whom this Part applies shall notify in writing to the Commissioner the place at which he keeps or intends to keep the register of his interests in securities.

(2) Notice under subsection (1) shall be given—

  • (a) if the person is a person to whom this Part applies at the commencement of this section, within one month after that date; or

  • (b) in any other case, in or as part of the person’s application for registration under this Ordinance.

(3) A notice under paragraph (a) of subsection (2) shall be given as provided in that paragraph notwithstanding that the person has ceased to be a person to whom this Part applies before the expiration of the appropriate time referred to in that paragraph.

(4) A person to whom this Part applies shall keep the register of his interests in securities at the place specified in the notice given under subsection (1) unless he gives a subsequent notice to the Commissioner in the form prescribed by regulations to the effect that the register is kept at some other place specified in the subsequent notice, in which case he shall keep the register—

  • (a) where only one such subsequent notice has been given, at the other place specified in that notice, or

  • (b) where more than one such subsequent notice has been given, at the other place specified in the later or latest of those notices.

(5) A person who ceases to be a person to whom this Part applies shall give notice in the form prescribed by regulations to the Commissioner of that fact within 14 days thereafter.

(6) A person who contravenes any provision of this section that is applicable to him shall be guilty of an offence and shall be liable on conviction to a fine of $2,000.

Defences.

69. (1) It shall be a defence to a prosecution for contravening any provision of section 67(5) or section 68(6) if the defendant proves that the contravention was due to his not being aware of a fact or occurrence the existence of which was necessary to constitute the offence.

(2) For the purposes of this Part, a person shall, in the absence of proof to the contrary, be presumed to have been aware at a particular time of a fact or occurrence relating to securities of which a servant or agent of the person, being a servant or agent having duties or acting in relation to his employer’s or principal’s interest in the relevant securities, was aware at that time.

Power of Commissioner to require certain information to be supplied to him.

70. The Commissioner may require a person to whom this Part applies to produce for inspection the register required to be kept pursuant to section 67, and the Commissioner may make copies of or take extracts from the register.

Power of Commissioner to supply copy of register.

71. The Commissioner may supply a copy of any such register, or a copy of an extract from it, to the Attorney General, who may, if he has reason to believe that an offence under this Ordinance may have been committed, deliver the copy to any person whom he thinks fit for the purposes of an investigation or a prosecution of the offence.

Part VIII. Trading in Securities

Offers by dealers.

72. (1) A dealer shall not in Hong Kong communicate an offer to acquire or dispose of securities of a corporation unless—

  • (a) the offer—

    • (i) is written in the English or Chinese language; or

    • (ii) if communicated verbally, is reduced to writing in the English or Chinese language and delivered to the person or persons to whom it was made not later than 24 hours after the verbal communication; and

  • (b) the offer—

    • (i) specifies the name and address of the offeror and, if any person is making the offer on behalf of the offeror, the name and address of that person;

    • (ii) contains a description of securities sufficient to identify them;

    • (iii) specifies the terms of the offer (including where appropriate the amount of consideration proposed to be paid for securities acquired pursuant to the offer);

    • (iv) where a dividend has been declared or recommended in respect of the securities, or it is anticipated that a dividend will be so declared or recommended before the transfer of the securities, states whether the securities are to be transferred with or without that dividend;

    • (v) specifies whether, in the event of a person accepting the offer, the offeror will pay any stamp duty which that person will become liable to pay in respect of the contract note as a result of the transaction;

    • (vi) bears a date which is not more than 3 days before the date on which the offer is communicated;

      First Schedule.

    • (vii) if the offer relates to the acquisition of securities, satisfies the requirements of the First Schedule;

      Second Schedule.

    • (viii) if the offer relates to the disposal of securities, satisfies the requirements of the Second Schedule;

    • (ix) where a report of an expert in connexion with the offer is included in or annexed to the offer, contains a statement to the effect that the expert has consented to the inclusion or annexure, and has not, before the communication of the offer, withdrawn that consent;

  • (c) the offer includes a translation, as the case requires, in the Chinese or English language of all the particulars required under paragraph (b), except where the Commissioner has previously agreed that the requirements of this paragraph may be dispensed with in any particular case.

(2) A document containing an offer to which subsection (1) relates which includes a statement purporting to be made by an expert shall not be communicated unless the expert has given and has not, before communication of a copy of the offer, withdrawn his written consent to the communication of the offer with the inclusion of the statement in the form and context in which it is included.

(3) Subject to subsection (5), any dealer who communicates an offer for the acquisition or disposal of securities without having complied with subsection (1) and subsection (2) shall be guilty of an offence and shall be liable on conviction to a fine of $10,000.

(4) Where any person has accepted an offer for the disposal or acquisition of securities under this section and the offer has been made without the requirements of subsection (1) and subsection (2) having been complied with in a material particular, that person may, subject to the rights of any bona fide purchaser of the securities for value, rescind the acceptance, by notice in writing, within 14 days after the date of the acceptance.

(5) Without prejudice to the provisions of section 3, this section does not apply to—

  • (a) any offer to dispose of securities of a corporation to persons who already hold securities of that corporation;

  • (b) any offer by a dealer if the offer is made to a person with whom, or on whose behalf, the dealer has transacted the sale or purchase of securities on at least 3 occasions during the period of 3 years immediately preceding the offer;

  • (c) any offer made to—

    • (i) a person whose business involves the acquisition or disposal or holding of securities; or

    • (ii) a solicitor or professional accountant; or

    • (iii) any other person who belongs to a class of persons prescribed in regulations for the purposes of this paragraph; or

  • (d) any offer made by a stockbroker in the ordinary course of trading on the exchange.

(6) Where a dealer communicates an invitation which invites a person to acquire or dispose of any security held by that person in a corporation, then for the purposes of this section—

  • (a) that invitation is deemed to be an offer; and

  • (b) an offer to acquire or dispose of that security made by that person in response to the invitation is deemed to be an acceptance by that person of an offer to acquire or, as the case may be, an offer to dispose of the security,

and references in this section to “acceptance” shall be construed accordingly.

(7) An offer to acquire or dispose of a right to acquire or dispose of a security or an interest in a security is deemed to be an offer to acquire or dispose of a security; and a reference to a person who holds securities includes a reference to a person who holds a right to acquire a security or an interest in a security.

(8) For the purposes of this section “expert” includes an engineer, valuer, professional accountant, and solicitor, and any other person whose profession gives authority to a statement made by him.

(9) For the purposes of this section an offer to acquire or dispose of securities in consideration or part consideration for other securities is deemed to be both an offer to acquire and an offer to dispose of securities.

Calls by registered dealers.

73. (1) Subject to subsection (3), a dealer shall not during, or as a consequence of, a call on any person, whether at his place of residence or his place of employment or otherwise, enter into any contract for the sale of securities unless he—

  • (a) calls on the person at the invitation of that person; and

  • (b) before entering into the contract provides the person with a written statement containing all the information which he would have been required to give to that person if the contract had been entered into as a result of an offer made under section 72.

(2) Any dealer who contravenes subsection (1) shall be guilty of an offence and shall be liable on conviction to a fine of $10,000 and to imprisonment for 2 years.

(3) Subsection (1) does not apply to—

  • (a) any contract for the sale of securities of a corporation with a person who already holds securities of that corporation;

  • (b) any contract for the sale of securities by a dealer with a person with whom the dealer has transacted the sale or purchase of securities on at least 3 occasions during the period of 3 years immediately preceding the date of the contract; or

  • (c) any contract for the sale of securities with—

    • (i) a person whose business involves the acquisition or disposal or holding of securities;

    • (ii) a solicitor or professional accountant;

    • (iii) any other person who belongs to a class of persons prescribed in regulations for the purpose of this paragraph.

(4) Where any contract for the sale of securities is entered into in contravention of subsection (1), the purchaser may, subject to the rights of any bona fide purchaser of the securities for value, rescind the contract by giving notice in writing to the seller within 28 days after the date on whch the contract was entered into.

(5) In this section “call” includes a visit in person and a communication by telephone.

Hawking of securities.

74. (1) Subject to subsections (2) and (3), a person shall not, whether on his own behalf or otherwise and whether by appointment or otherwise, call from place to place—

  • (a) making or offering to make with any person—

    • (i) an agreement for or with a view to having that other person purchase specific securities; or

    • (ii) an agreement the purpose or pretended purpose of which is to secure a profit to that other person from the yield of specific securities or by reference to fluctuations in the value of specific securities; or

  • (b) inducing or attempting to induce any other person to enter into an agreement of the type referred to in sub-paragraph (i) or sub-paragraph (ii) of paragraph (a),

whether or not in calling from place to place he does any other act or thing.

(2) Subsection (1) does not apply to—

  • (a) a person in so far as—

    • (i) he calls at the place of another person who is a banker, solicitor, professional accountant, registered or exempt dealer, registered or exempt investment adviser or registered dealer’s representative or registered investment representative; and

    • (ii) whether as principal or agent, he makes, or offers to make, with that other person an agreement referred to in sub-section (1) or induces, or attempts to induce, that other person to enter into such an agreement; or

  • (b) any other person calling from place to place who belongs to a class of persons prescribed in regulations for the purpose of this subsection.

(3) Nothing in this section applies to securities or any class of securities which have been exempted by the Commission for the purposes of this section provided that any conditions subject to which the exemption was granted have been fulfilled.

(4) Any person who contravenes subsection (1) shall be guilty of an offence and shall be liable on conviction to a fine of $50,000 and to imprisonment for 2 years.

(5) If in any proceedings for an offence against subsection (4) it is proved that the accused did any of the acts mentioned in paragraph (a) or paragraph (b) of subsection (1) on 2 or more occasions within any period of 14 days, he shall, until the contrary is proved, be deemed to have been calling from place to place.

(6) In this section “to call” includes to visit in person and to communicate by telephone.

Issue of contract notes.

75. (1) Every dealer (including an exempt dealer) shall, in respect of every contract for the purchase, sale, or exchange of securities entered into by him in Hong Kong (whether as principal or agent), not later than the end of the next trading day after the contract was entered into, make out a contract note which complies with subsection (2) and—

  • (a) where the contract was entered into as agent, deliver the contract note to the person on whose behalf he entered into the contract; or

  • (b) where the contract was entered into as principal, retain the contract note for himself.

(2) A contract note made out by a dealer under subsection (1) shall include—

  • (a) the name or style under which the dealer carries on his business as a dealer and the address of the principal place at which he so carries on business;

  • (b) where the dealer is acting as principal, a statement that he is so acting;

  • (c) the name of the person (if any) to whom the dealer is required to give the contract note;

  • (d) the date of the contract, and the date on which the contract note is made out;

  • (e) the quantity and description of the securities that are being acquired or disposed of;

  • (f) except in the case of an exchange, the price per unit of the securities;

  • (g) the amount of consideration payable under the contract or, in the case of an exchange, particulars of the securities exchanged sufficient to identify them;

  • (h) the rate or amount of commission (if any) payable in respect of the contract;

  • (i) the amount of stamp duty (if any) payable in connexion with the contract and, where applicable, in respect of the transfer;

  • (j) the date of settlement.

(3) Any dealer (including an exempt dealer) who completes a contract for the purchase, sale, or exchange of securities without having complied with subsection (1) shall be guilty of an offence and shall be liable on conviction to a fine of $5,000.

Dealers not to engage in option or forward trading.

76. (1) Except as provided in regulations, a dealer (including an exempt dealer) shall not transact in Hong Kong, or hold himself out as being prepared to transact in Hong Kong—

  • (a) any dealing whereby the dealer confers on any person an option to purchase from or sell to the dealer any securities listed on a stock exchange in Hong Kong; or

  • (b) any dealing in any such securities which is completed later than the end of the next trading day after the dealing was entered into.

(2) Any dealer who contravenes subsection (1) shall, subject to subsection (3), be guilty of an offence and shall be liable on conviction to a fine of $5,000.

(3) It shall be a defence to any criminal proceedings brought under subsection (2) in respect of a dealing mentioned in paragraph (b) of subsection (1) for the accused to prove that he took all reasonable and practicable steps to secure completion of the transaction within the period permitted by that paragraph.

(4) A contract entered into in contravention of subsection (1) shall not be enforceable by either the dealer or the other contracting party.

Dealers to provide certain information, etc. to client.

77. (1) Subject to subsection (2), every dealer (including an exempt dealer) shall, on being requested to do so by any person on whose behalf he has transacted a dealing in securities—

  • (a) provide that person with a copy of the contract note relating to the dealing, and a copy of his account with the dealer; and

  • (b) if the Commissioner on the application of the person so directs, make available for inspection by that person, at all reasonable times during the dealer’s ordinary hours of business, the dealer’s copy of the contract note and the person’s account with the dealer.

(2) Subsection (1) does not require a dealer (including an exempt dealer) to—

  • (a) provide, or keep available for inspection, a copy of any contract note which relates to a dealing transacted more than 2 years before the date of the request; or

  • (b) provide a copy of, or keep available for inspection, any account which relates to a dealing transacted more than 6 years before the date of the request.

(3) Any such dealer may impose a charge not exceeding an amount prescribed by regulations for a copy of a document provided pursuant to subsection (1).

(4) Any dealer who, without reasonable excuse, fails to comply with subsection (1) shall be guilty of an offence and shall be liable on conviction to a fine of $2,000.

Certain representations prohibited.

78. (1) A registered person shall not in any communication, whether written or oral, represent or imply or knowingly permit to be represented or implied in any manner to a person that the abilities or qualifications of the registered person have in any respect been approved by the Hong Kong Government, the Commission or the Commissioner.

(2) A statement made to the effect that a person is registered under this Ordinance or is the holder of a certificate of registration is not a contravention of subsection (1).

(3) Any registered person who, without reasonable excuse, contravenes subsection (1) shall be guilty of an offence and shall be liable on conviction to a fine of $2,000.

Disclosure of certain interests.

79. (1) Where, in a circular or other written communication issued in Hong Kong by him to more than one person, a dealer or an investment adviser (including an exempt dealer or exempt investment adviser) makes a recommendation, whether expressly or by implication, with respect to any securities or any class of securities of a corporation, he shall include in the circular or other communication, in type not less bold and not less legible than that used in its text, a statement as to whether or not he has, at the date specified in the circular or communication pursuant to subsection (5), an interest in any of the securities of that corporation.

(2) Subsection (1) does not require in the case of a circular or other written communication issued by a stockbroker the inclusion of a statement in relation to an interest that consists of the right to charge commission as provided by the rules of the stock exchange of which he is a member on the sale or purchase of the securities or class of securities that are being recommended.

(3) For the purposes of subsection (1), a person who has entered into an underwriting agreement in respect of any securities shall be deemed to have a financial interest in the sale or purchase of those securities.

(4) Where an offer to the public of securities is not fully subscribed, a person who has subscribed for or taken up, or is required to subscribe for or take up, any of those securities under an underwriting agreement shall not, during the period of 90 days after the close of the offer, make any offer or recommendation in respect of those securities unless the offer or recommendation contains or is accompanied by a statement to the effect that the offer or recommendation relates to securities that he has acquired, or is or will be required to acquire, under an underwriting agreement as a result of the offer to the public not being fully subscribed.

(5) Every circular or other written communication to which this section relates shall be dated and shall contain on its face the name of the dealer or investment adviser who issued it.

(6) A dealer or investment adviser who issues a circular or communication to which this section relates shall retain a copy of it bearing his signature in such manner, and for such time or until the happening of such event, as may be prescribed by regulations.

(7) For the purposes of this section, a circular or other written communication shall be deemed to have been issued by the person whose name is contained on its face.

(8) In this section a reference to securities does not include a reference to the stock or debentures of, or bonds made available by, a government or a local government authority, or to securities guaranteed by a government or a local government authority.

(9) Without prejudice to the power to make regulations under section 146, regulations may be made under that section—

  • (a) requiring the lodging with the Commissioner of copies of any circular or other written communication issued by a dealer or investment adviser; and

  • (b) making provision for or with respect to the keeping of records of circulars or other similar written communications issued by a dealer or by an investment adviser.

(10) Any dealer or investment adviser, whether registered or exempted from registration, who—

  • (a) issues a circular or other written communication in contravention of subsection (1) or subsection (5);

  • (b) contravenes subsection (4); or

  • (c) fails to retain a copy of a circular or other written communication as required by subsection (6),

shall be guilty of an offence and shall be liable on conviction to a fine of $5,000.

(11) An offence against subsection (10) is not committed by reason only that a circular or other written communication is issued to a person whose business involves the acquisition, disposal, or holding of securities.

Short selling prohibited.

80. (1) A person shall not sell securities at or through a stock exchange unless, at the time he sells them—

  • (a) he has or, where he is selling as agent, his principal has; or

  • (b) he reasonably and honestly believes that he has or, where he is selling as agent, that his principal has,

a presently exercisable and unconditional right to vest the securities in the purchaser of them.

(2) Any person who contravenes subsection (1) shall be guilty of an offence and shall be liable on conviction to a fine of $10,000 and to imprisonment for 6 months.

(3) For the purposes of subsection (1)—

  • (a) a person shall be deemed to be selling securities if he—

    • (i) purports to sell the securities;

    • (ii) offers to sell the securities;

    • (iii) holds himself out as entitled to sell the securities; or

    • (iv) instructs a dealer to sell the securities;

  • (b) a person who, at a particular time, has a presently exercisable and unconditional right to have securities vested in him or in accordance with his directions shall be deemed to have at that time a presently exercisable and unconditional right to vest the securities in a purchaser of them; and

  • (c) a right of a person to vest securities in a purchaser thereof shall not be deemed not to be unconditional by reason only of the fact that the securities are charged or pledged in favour of some other person to secure the repayment of money.

(4) Subsection (1) does not apply to or in relation to—

  • (a) a person acting in good faith in the reasonable and honest belief that he has a right, title, or interest to or in securities that he purports to sell, offers for sale, or holds himself out as capable of selling;

  • (b) a dealer acting in good faith for or on behalf of some other person in the reasonable and honest belief that such other person has a right, title, or interest to or in securities that he purports to sell, offers for sale, or holds himself out as capable of selling;

  • (c) a sale of securities by a stockbroker acting as principal when he acts as an odd lot specialist in accordance with the rules of the stock exchange of which he is a member, being a sale made solely for the purpose of—

    • (i) accepting an offer to purchase an odd lot of securities; or

    • (ii) disposing of a parcel or securities that is less than one board lot of securities, by means of the sale of one board lot of those securities; or

  • (d) a sale of securities falling within a class of transaction prescribed by regulations for the purposes of this paragraph.

Disposition of security documents.

81. (1) Where securities that are not the property of a dealer (including an exempt dealer) and for which the dealer, or any nominee controlled by the dealer, is accountable are held for safe custody in Hong Kong, the dealer shall, subject to subsection (2), either cause the securities—

  • (a) (not being bearer securities) to be registered as soon as practicable in the name of the person to whom the dealer or nominee is accountable or in the name of the dealer’s nominee; or

  • (b) to be deposited in safe custody in a designated account with the dealer’s bankers or with any other institution which provides facilities for the safe custody of documents to the satisfaction of the Commissioner.

(2) The Commissioner may, on the application of a dealer in writing, exempt the dealer from the provisions of subsection (1), but in granting the exemption may impose such conditions as he thinks fit.

(3) No dealer shall, without the specific authority in writing of the person to whom he is accountable, deposit any securities of which the dealer is not the owner as security for loans or advances made to the dealer or lend or otherwise part with the possession of any such securities for any purpose.

(4) An authority conferred under subsection (3) shall specify the period for which it is current, but shall not in any event, subject to subsection (5), remain in force for a period of more than 12 months.

(5) An authority conferred under subsection (3) may be renewed in writing for one or more further periods not exceeding 12 months at any one time.

(6) Any dealer who, without lawful authority or reasonable excuse, contravenes subsection (1) or subsection (3) shall be guilty of an offence.

(7) Any person guilty of an offence under subsection (6) shall be liable on conviction—

  • (a) in the case of a contravention of subsection (1), to a fine of $2,000; and

  • (b) in the case of a contravention of subsection (3), to a fine of $20,000 and to imprisonment for 2 years.

Part IX. Accounts and Audit

Application and interpretation of Part IX.

82. (1) This Part applies to the business of a registered dealer, other than a registered dealer who is a director of a corporation when acting for or on behalf of the corporation in its business of dealing in securities; and every reference in this Part to the term “dealer” shall be construed accordingly.

(2) In this Part, unless the context otherwise requires, any reference to the books, accounts, records, securities, trust accounts, or business of, or in relation to, a dealer who carries on business in partnership shall be read and construed as a reference to the books, accounts, records, securities, trust accounts, or business (as the case requires) of or in relation to the partnership.

(3) The Governor in Council may, by order published in the Gazette, apply all or any of the provisions of this Part, with or without modifications, to registered investment advisers.

Accounts to be kept by dealers.

83. (1) A dealer shall—

  • (a) cause to be kept such accounting and other records as will sufficiently explain the transactions, and reflect the financial position, of the business of dealing in securities carried on by him, and will enable true and fair profit and loss accounts and balance sheets to be prepared from time to time; and

  • (b) cause those records to be kept in such a manner as will enable them to be conveniently and properly audited.

(2) The records referred to in subsection (1) shall be kept—

  • (a) in writing in the English language; or

  • (b) in such a manner as to enable them to be readily accessible and readily converted into written form in the English language.

(3) Without affecting the generality of subsection (1), a dealer shall cause records to be kept—

  • (a) in sufficient detail to show particulars of—

    • (i) all money received and paid by the dealer, including money paid to, and disbursed from, a trust account;

    • (ii) all purchases and sales of securities made by the dealer, the charges and credits arising from them, and the names of the buyer and seller, respectively, of each of those securities;

    • (iii) all income received from commissions, interest, and other sources, and all expenses, commissions, and interest paid by the dealer;

    • (iv) all the assets and liabilities (including contingent liabilities) of the dealer;

    • (v) all securities that are the property of the dealer, showing by whom the security documents are held and, where they are held by some other person, whether or not they are held as security against loans or advances;

    • (vi) all securities that are not the property of the dealer and for which the dealer or any nominee controlled by the dealer is accountable, showing by whom, and for whom, the security documents are held distinguishing those which are held for safe custody, and those which are deposited with a third party whether as security for loans or advances made to the dealer or any related corporation or for any other purpose; and

    • (vii) all underwriting and sub-underwriting transactions entered into by the dealer; and

  • (b) containing copies of acknowledgements of the receipt of securities received by the dealer from or on behalf of clients, clearly identifying in respect of each receipt of securities the client and the securities.

(4) Without prejudice to subsection (3), a dealer shall keep records in sufficient details to show separately particulars of all transactions by the dealer with, or for the account of—

  • (a) clients of the dealer; and

  • (b) the dealer himself.

(5) A dealer shall retain—

  • (a) for a period of not less than 6 years, the records referred to in subsection (1); and

  • (b) for a period of not less than 2 years—

    • (i) each contract note received by him or made out to himself as principal; and

    • (ii) a copy of each contract note made out by him as agent.

(6) An entry in the accounting and other records of a dealer kept in accordance with this section shall be deemed to have been made by, or with the authority of, the dealer.

(7) Where matter that is intended to be used in connexion with the keeping of a record referred to in this section is recorded or stored by means of a mechanical device, an electronic device, or any other device in an illegible form, a person who wilfully—

  • (a) records or stores in that device matter that he knows to be false or misleading in a material particular;

  • (b) destroys, removes, or falsifies matter that is recorded or stored in that device; or

  • (c) fails to record or store matter in that device with intent to falsify any entry made or intended to be complied, wholly or in part, from that matter,

shall be guilty of an offence and shall be liable on conviction to a fine of $10,000 and to imprisonment for 6 months.

(8) For the purposes of this section, a record required to be kept by a dealer may be kept either by making entries in a bound book or by recording the relevant matters in any other manner.

(9) Where a record required by this section to be kept is not kept by making entries in a bound book but by some other means, the dealer shall take reasonable precautions for guarding against falsification and for facilitating discovery of any falsification.

(10) Notwithstanding any other provision of this section, a dealer shall not be deemed to have failed to keep a record referred to in subsection (1) by reason only that the record is kept as a part of, or in conjunction with, the records relating to any business other than dealing in securities that is carried on by him.

Certain money received by dealer to be paid into a trust account.

84. (1) A dealer shall establish and keep at a licensed bank one or more trust accounts designated or evidenced as such into which he shall pay—

  • (a) all amounts (less brokerage and other proper charges) which are received for or on account of any person (other than a stockbroker) from the sale of securities, except those amounts paid to that person or in accordance with his directions within 4 bank trading days after their receipt;

  • (b) all amounts (less any brokerage and other proper charges) which are received from or on account of any person (other than a stockbroker) for the purchase of securities, except those amounts attributable to the purchase of securities which are delivered to the dealer within 4 bank trading days after receipt of the amounts; and

  • (c) subject to any agreement to the contrary, all amounts derived by way of interest from the retention in a trust account of any amount mentioned in paragraph (a) or paragraph (b).

(2) All amounts required to be paid into a trust account under subsection (1) shall be retained there by the dealer until they are paid to the person on whose behalf they are being held or in accordance with his directions or, as the case may be, until they are required to complete payment in respect of the purchase of securities on behalf of any such person.

(3) Money required by this section to be paid into a trust account shall be so paid within 4 bank trading days after it is received by the dealer.

(4) All sums derived by way of interest from the payment of money by a dealer into a trust account under this section shall, subject to any agreement to the contrary, belong to the person to whom the dealer is accountable.

(5) No amount other than an amount referred to in paragraph (a) or (b) of subsection (1) shall be paid into a trust account.

(6) Every dealer shall keep records of—

  • (a) all amounts paid into a trust account kept by him, specifying the persons on whose behalf the amounts are held and the dates on which they were paid into the account;

  • (b) all withdrawals from the trust account, the dates of those withdrawals, and the names of the persons on whose behalf the withdrawals are made; and

  • (c) such other particulars (if any) as may be prescribed by regulations.

(7) A person who—

  • (a) without reasonable excuse, contravenes any provision of this section shall be guilty of an offence and shall be liable on conviction to a fine of $10,000; or

  • (b) with intent to defraud, contravenes any provision of this section shall be guilty of an offence and shall be liable on conviction on indictment to a fine of $50,000 and to imprisonment for 5 years.

Money in trust account not available for payment of debts, etc.

85. (1) Except as otherwise provided in this Part, money held in a trust account shall not be available for payment of the debts of a dealer or be liable to be paid or taken in execution under the order or process of any court of competent jurisdiction.

(2) Any payment made in contravention of subsection (1) shall be void ab initio, and no person to whom the money is paid shall obtain any title to it.

Claims and liens not affected.

86. Nothing in this Part shall be construed as taking away or affecting any lawful claim or lien which any person has in respect of any money held in a trust account or in respect of any money received for the purchase of securities or from the sale of securities before the money is paid into a trust account.

Dealer to appoint auditor.

87. (1) A dealer shall appoint an auditor to audit his accounts (including all trust accounts required to be kept by the dealer under section 84) and, where for any reason the auditor ceases to act for the dealer, the dealer shall, as soon as practicable thereafter, appoint another auditor to replace him.

(2) A person is not eligible for appointment under subsection (1) if—

  • (a) he is a servant of the dealer or is in the employment of any such servant;

  • (b) where the dealer is a partnership, he is a member of the partnership or in the employment of any such member;

  • (c) where the dealer is a corporation, he is an officer of the corporation or is in the employment of any such officer; or

  • (d) he belongs to any other class of persons prescribed in regulations for the purposes of this paragraph.

Dealer’s financial year.

87A. (1) A dealer shall—

  • (a) within one month after the date on which this section commences; or

  • (b) if he is not registered at that date, within one month after the issue to him of a certificate of registration under section 51,

notify the Commissioner in writing of the date on which his financial year ends.

(2) On application in writing by a dealer, the Commissioner may, subject to such conditions as he thinks fit, grant permission to the dealer to alter his financial year.

(3) Except with the written permission of the Commissioner, the period of a dealer’s financial year shall not exceed 12 months.

(4) Nothing in this section shall prejudice the operation of section 122 of the Companies Ordinance.

Dealer to lodge auditor’s report.

88. (1) A dealer shall, in respect of the financial year beginning before and ending after—

  • (a) the day on which this section commences; or

  • (b) the day on which the dealer commences to carry on business as a dealer,

whichever is the later day, and in respect of each subsequent financial year, prepare a true and fair profit and loss account and a balance sheet made up to the last day of the financial year and cause those documents to be lodged with the Commissioner not later than 4 months after the end of the financial year, together with an auditor’s report containing the information prescribed by regulations.

(2) Notwithstanding subsection (1), the period within which the documents referred to in subsection (1) are required to be lodged may be extended by the Commissioner for a period not exceeding one month, where an application for the extension is made by the dealer and the Commissioner is satisfied there are special reasons for requiring the extension.

(3) An extension under subsection (2) may be allowed subject to such conditions, if any, as the Commissioner thinks fit to impose.

(4) Any dealer who fails to lodge the documents required by this section with the Commissioner within the time allowed by or under this section shall be guilty of an offence and shall be liable on conviction to a fine of $5,000.

Auditor to send report directly to Commissioner in certain cases.

89. If, during the performance of his duties as auditor for a dealer, an auditor—

  • (a) becomes aware of any matter which in his opinion adversely affects the financial position of the dealer to a material extent; or

  • (b) discovers evidence of a contravention by the dealer of section 81, section 83, or section 84,

he shall, as soon as practicable thereafter, send to the Commissioner and to the dealer a report in writing of the matter or, as the case may be, concerning the contravention.

Power of Commissioner to appoint auditor.

90. (1) Where—

  • (a) a dealer has failed to lodge an auditor’s report under section 88; or

  • (b) the Commissioner has received a report under section 89,

the Commissioner may, if he is satisfied that it is in the interests of the dealer concerned, the dealer’s clients, or the general public, to do so, appoint in writing an auditor to examine, audit, and report, either generally or in relation to any matter, on the books, accounts, and records of, and securities held by, the dealer.

(2) Where the Commissioner is of the opinion that the whole or any part of the costs and expenses of an auditor appointed by him under this section should be borne by the dealer concerned or the stock exchange of which he is a member, he may, by order in writing, direct the dealer or stock exchange to pay a specified amount, being the whole or part of those costs and expenses, within the time and in the manner specified.

(3) Where a dealer or stock exchange has failed to comply with an order of the Commissioner under subsection (2) the amount specified in the order may be sued for and recovered by the Commissioner as a debt in any court of competent jurisdiction.

Power of Commissioner to appoint an auditor on the application of a client.

91. (1) On receipt of an application in writing from a person who alleges that a dealer has failed to account to him in respect of any money or securities held or received by that dealer for him or on his behalf, the Commissioner may, after first giving the dealer an opportunity to give an explanation of the failure, appoint in writing an auditor to examine, audit, and report, either generally or in relation to any particular matter, on the books, accounts, and records of, and securities held by, that dealer.

(2) Every application under subsection (1) shall state—

  • (a) particulars of the circumstances under which the dealer received the money or securities in respect of which he is alleged to have failed to account;

  • (b) particulars of that money or those securities and of the transactions of the applicant and the dealer relating thereto; and

  • (c) such other particulars as may be prescribed by regulations.

(3) Every statement in any such application shall be verified by statutory declaration made by the applicant and shall, if made in good faith and without malice, be privileged.

(4) The Commissioner shall not appoint an auditor under subsection (1) unless he is satisfied—

  • (a) that the applicant has good reason for making the application; and

  • (b) that it is in the interests of the dealer or the applicant or the public generally that the books, accounts, and records of, and securities held by, the dealer should be examined, audited, and reported on.

Auditor to report to Commissioner.

92. An auditor appointed under section 90 or section 91 shall, on the conclusion of the examination and audit in respect of which he was appointed, make a report thereon to the Commissioner.

Powers of auditors.

93. An auditor appointed by the Commissioner to examine and audit the books, accounts, and records of, and securities held by, a dealer may for the purpose of carrying out the examination and audit—

  • (a) examine on oath the dealer concerned and, where the dealer carries on business in partnership or is a corporation, any of the members of the partnership or, as the case may be, any director of the corporation and any of the dealer’s servants and agents and any other auditor appointed under this Ordinance in relation to those books, accounts, records, and securities;

  • (b) employ such persons as he considers necessary; and

  • (c) by instrument in writing under his hand, authorize any person employed by him to do, in relation to the examination and audit, any act or thing that he could do himself as an auditor, except to examine any person on oath or to exercise any other powers conferred by this paragraph.

Right of auditors and employees to communicate certain matters.

94. Except for the purpose of carrying into effect the provisions of this Ordinance or so far as may be required for the purposes of any legal proceedings, whether civil or criminal, an auditor appointed under section 90 or section 91 and an employee of any such auditor shall not divulge any information which may come to his knowledge in the course of performing his duties as an auditor or employee under section 90 or section 91, as the case may be, to any person other than—

  • (a) the Commission;

  • (b) the Commissioner;

  • (c) the Financial Secretary or any person approved or designated by the Financial Secretary; and

  • (d) in the case of an employee, the auditor by whom he is employed.

Books, accounts, and records to be produced on demand.

95. (1) On request by an auditor appointed under this Part or a person who produces a written authority in that behalf under section 93 (c)

  • (a) a dealer and, where the dealer is a corporation or carries on business in partnership, the directors of the corporation or the other members of the partnership, and the dealer’s servants and agents, shall produce any books, accounts, and records of any securities held by the dealer relating to the dealer’s business; and

  • (b) an auditor appointed by a dealer shall produce any books, accounts, and records held by him relating to the business of the dealer.

(2) A dealer and, where the dealer is a corporation or carries on business in partnership, the directors of the corporation or the other members of the partnership, as the case may be, and the dealer’s servants and agents and any auditor appointed by the dealer shall answer all questions relevant to an examination and audit which are put to him by an auditor appointed under this Part or a person who produces a written authority in that behalf given under section 93(c).

(3) Any person mentioned in subsection (1) who, without reasonable excuse, fails to comply with any request made to him under that subsection, or any person mentioned in subsection (2) who, without reasonable excuse, refuses or fails to answer any question put to him under that subsection, shall be guilty of an offence and shall be liable on conviction to a fine of $10,000 and to imprisonment for 2 years.

Offence to destroy, conceal, or alter records or send records or other property outside Hong Kong.

96. (1) Any person who, with intent to prevent, delay, or obstruct the carrying out of any examination and audit under this Part—

  • (a) destroys, conceals or alters any book, account, record or document relating to the business of a dealer; or

  • (b) sends or attempts to send, or conspires with any other person to send, out of Hong Kong any such book, account, record, or document, or any property of any description belonging to or in the disposition of or under the control of a dealer,

shall be guilty of an offence and shall be liable on conviction to a fine of $50,000 and to imprisonment for 2 years.

(2) If, in a prosecution for an offence under subsection (1), it is proved that the person charged—

  • (a) destroyed, concealed, or altered any book, account, record, or document mentioned in that subsection; or

  • (b) sent or attempted to send, or conspired to send, out of Hong Kong any such book, account, record, or document or any property mentioned in paragraph (b) of that subsection,

the onus of proving that in so doing he did not act with intent to prevent, delay, or obstruct the carrying out of an examination and audit under this Part shall lie on him.

(3) Any person who, with intent to prevent, delay, or obstruct the carrying out of an examination and audit under this Part, leaves, or attempts to leave, Hong Kong shall be guilty of an offence and shall be liable on conviction to a fine of $50,000 and to imprisonment for 2 years.

Right of committee to impose obligations, etc., on members of exchange not affected by this Part.

97. Nothing in this Part shall prevent the committee of a stock exchange from imposing on members of the exchange any further obligations or requirements which the committee thinks necessary with respect to—

  • (a) the audit of accounts;

  • (b) the information to be given in reports by auditors; or

  • (c) the keeping of accounts, books, and records.

Part X. Compensation Fund

Interpretation.

98. (1) In this Part, unless the context otherwise requires—

“Committee” means the Securities Commission Compensation Fund Committee established under section 100(1);

“compensation fund” means the fund established under section 99;

“default”, in relation to the failure of a stockbroker, or a member firm or corporate member of a stock exchange, to perform a legal obligation, means a default arising from—

  • (a) the bankruptcy or insolvency of the stockbroker or member firm or, as the case may be, the winding up or insolvency of the corporate member;

  • (b) any breach of trust committed by the stockbroker, member firm, or corporate member; or

  • (c) any defalcation, fraud, or misfeasance committed by the stockbroker, member firm, or corporate member or any servant employed by that stockbroker, member firm, or corporate member;

“legal obligation” includes an obligation aising under a contract or quasi-contract or under a trust (including a constructive trust);

“stockbroking business” means—

  • (a) a stockbroker’s business of dealing in securities listed or quoted on a stock exchange;

  • (b) the administration of any trust, or the carrying on of the business of any company, in conjunction with, or as an adjunct to, a stockbroking business; and

  • (c) the retention of securities whether for safe-keeping or otherwise, and whether for specific consideration or otherwise.

(2) A reference in this Part to a claimant or person making a claim includes, in the event of his death, insolvency, or other disability, a reference to his personal representative or any other person having authority to administer his estate.

Establishment of compensation fund.

99. The Commission shall establish and maintain a compensation fund, to be known as the Stock Exchanges Compensation Fund, for the purposes set out in this Part.

Securities Commission Compensation Fund Committee.

100. (1) There shall be a committee, to be known as the Securities Commission Compensation Fund Committee, which shall be responsible, subject to this section, for the administration of the compensation fund.

(2) The Committee shall consist of five persons appointed by the Commission of whom at least two shall be members of the Commission and two shall be persons nominated by the Council of the Federation.

(3) The Commission shall nominate one of the members of the Committee who is also a member of the Commission to be chairman of the Committee.

(4) The Committee shall exercise on behalf of the Commission such of the powers, duties, and functions of the Commission under this Part as may from time to time be delegated to the Committee by the Commission; but the Commission may not delegate its power of delegation under this section or its powers under section 110.

(5) Any power, duty, or function delegated under this section may be exercised by members forming a majority of the Committee as if by this Part that power, duty, or function had been conferred on a majority of the members of the Committee.

(6) Any delegation under this section may at any time be varied or revoked.

(7) The Commission may at any time remove any member of the Committee appointed by it under this section and may fill any vacancy in the Committee however arising.

(8) Subject to any direction of the Commission, the Committee may regulate its procedure in such manner as it thinks fit.

Money constituting the compensation fund.

101. (1) The compensation fund shall consist of—

  • (a) all money paid to or deposited with the Commission by stock exchanges in accordance with the provisions of this Part;

  • (b) all money recovered under any guarantee entered into under this Part;

  • (c) all money recovered by or on behalf of the Commission by the exercise of any right of action conferred by this Part;

  • (d) all money borrowed under subsection (2);

  • (e) all other money lawfully paid into the fund.

(2) The Commission may from time to time borrow for the purposes of the compensation fund from any lender and may charge any investments acquired under section 105 by way of security for any such loan; but the aggregate sum owing at any one time in respect of any such loans shall not exceed $1,000,000.

Money to be kept in bank account.

102. The Commission shall open at one or more licensed banks a separate bank account or separate bank accounts and shall, pending its application in accordance with this Part, pay into or transfer to that account or those accounts all money forming part of the compensation fund.

Accounts of fund.

103. (1) The Commission shall keep proper accounts of the compensation fund, and shall in respect of the financial year beginning before and ending after the day on which this section commences, and in respect of each subsequent financial year, prepare a revenue and expenditure account, and a balance sheet made up to the last day of that year.

(2) The Commission shall appoint an auditor to audit the compensation fund.

(3) The auditor so appointed shall annually audit the accounts of the compensation fund and shall audit, and prepare an auditor’s report in respect of, each balance sheet and revenue and expenditure account prepared under subsection (1) and shall submit the report to the Commission.

(4) Not later than the 31st day of July in each year the Commission shall cause a copy of the audited balance sheet, revenue and expenditure account, and the auditor’s report to be sent to the Council of the Federation and to each stock exchange.

Stock exchanges to make deposits in respect of members.

104. (1) Every stock exchange shall, subject to the provisions of this Part, deposit with the Commission and keep deposited in respect of each stockbroker belonging to that exchange—

  • (a) a sum of $25,000 payable in cash; and

  • (b) a guarantee, in such form and complying with such conditions as may be prescribed by rules, given by a licensed bank guaranteeing the payment to the compensation fund, on the demand of the Commission, of the sum of $25,000.

(2) The amount and, subject to subsection (3), the guarantee referred to in subsection (1) shall be deposited—

  • (a) in respect of every stockbroker who is a member of a stock exchange at the date of commencement of this Part, not later than one month after that date; and

  • (b) in respect of every stockbroker who is admitted as a member of a stock exchange after the commencement of this Part, not later than one month after the date on which he is admitted to membership of the exchange.

(3) The Commission may, if it is satisfied that a stock exchange is operating a system whereby the obligations of any stockbroker belonging to the exchange to any other stockbroker belonging to that exchange will be met or substantially met in the event of his failing to fulfil those obligations or any of them, exempt the exchange from compliance with depositing the guarantee required under subsection (1)(b).

(4) Any amount due under this section may be sued for and recovered by the Commission as a debt in any court of competent jurisdiction.

Balance of sums in bank account may be invested.

105. (1) The Commission may invest any money which forms part of the compensation fund and is not immediately required for any other purposes provided for by this Part either—

  • (a) on fixed deposit with a licensed bank; or

  • (b) in securities in which trustees are authorized by law to invest trust funds.

(2) As soon as practicable after the end of each financial year, the Commission shall notify the contributing stock exchanges in writing of—

  • (a) the rate of interest to be paid for that financial year in respect of each sum deposited under section 104(1) (a);

  • (b) the manner and time of payment of that interest; and

  • (c) the amount to be charged to meet the expenses incurred or involved in the administration of the compensation fund.

(3) Any fixed deposit receipts or documents relating to the investment of money in securities under subsection (1) may be kept in the office of the Commission or deposited by the Commission for safekeeping with a licensed bank.

Repayment of deposits in certain cases.

106. (1) Where a stock exchange has deposited a sum of money or a guarantee with the Commission under section 104 in respect of a stockbroker and that stockbroker dies or otherwise ceases to be a member of the stock exchange, the Commission shall, unless the money or guarantee is required to satisfy any claims or liabilities arising before the stockbroker died or otherwise ceased to be a member of the exchange, within 6 months after the death of the stockbroker or his ceasing to be a member of the exchange, deliver to the exchange the sum or guarantee deposited in respect of the stockbroker.

(2) If—

  • (a) any money or guarantee has been delivered to a stock exchange pursuant to subsection (1); and

  • (b) the exchange obtained the guarantee by means of a direct levy imposed on the stockbroker in respect of whom the money or guarantee was deposited,

the exchange shall, if that stockbroker has satisfied all financial obligations due from him to the exchange and is otherwise in good standing with the exchange and is not bankrupt or insolvent, deliver the money or guarantee to him or, if he has died, to his personal representative.

Replenishment of fund in certain cases.

107. (1) Subject to subsection (4), if at any time resort has to be made to any money or guarantee deposited under section 104 in order to satisfy any claim made against the compensation fund in relation to a stockbroker, or to a member firm or corporate member of a stock exchange, the exchange to which the stockbroker, member firm, or corporate member belongs, or belonged at the time of the default giving rise to the claim, shall, on being required to do so by the Commission, replenish the fund by depositing with the Commission an amount that is equal to that paid in connexion with the satisfaction of the claim, including any legal and other expenses paid or incurred in relation to the claim.

(2) Subject to subsections (3) and (4), if any stock exchange, whether because of insolvency or any other reason, is unable to deposit the amount required under subsection (1), each remaining stock exchange shall, if required to do so by the Commission, replenish the compensation fund by depositing in respect of each stockbroker belonging to the exchange a sum equal to that proportion which the amount not deposited in accordance with subsection (1) bears to the total number of stockbrokers belonging to the remaining exchanges.

(3) A stock exchange may not be required, pursuant to subsection (2), to deposit any sum or sums representing an amount exceeding $50,000 in respect of each stockbroker belonging to the exchange; and if on one or more occasions a stock exchange has, pursuant to that subsection, deposited a sum or sums representing that amount, the exchange shall not be liable to deposit further sums under that subsection.

(4) The Commission may not require a stock exchange—

  • (a) to make a deposit under subsection (1) in respect of any payment made to satisfy a claim under this Part unless it has first exhausted all relevant rights of action and other legal remedies, conferred by section 118, against the stockbroker, member firm, or corporate member in relation to whom or to which the claim arose; or

  • (b) to make a deposit under subsection (2) unless it has first exhausted all relevant rights of action and other legal remedies against the stock exchange that is primarily liable by virtue of subsection (1).

(5) Any amount required to be deposited under this section may be sued for and recovered by the Commission as a debt in any court of competent jurisdiction.

Payments out of the fund.

108. (1) Subject to this Part, there shall from time to time be paid out of the compensation fund as required and in the following order—

  • (a) all legal and other expenses incurred in investigating or defending claims made under this Part or incurred in relation to the fund or in the exercise by the Council of the Federation or the Commission of the rights, powers, and authorities vested in them by this Part in relation to the fund;

  • (b) the expenses incurred or involved in the administration of the fund;

  • (c) the amounts of all claims, including costs, allowed by the Council of the Federation or established against the Federation under this Part; and

  • (d) all other money payable out of the fund in accordance with this Part.

(2) If at any time the money deposited in the compensation fund is insufficient for any payment under subsection (1), the Commission may require the guarantor under any guarantee deposited with it under section 104(1) to pay to the Commission all or any part of the sum guaranteed, in which event the guarantor shall pay the amount so required.

(3) Any amount required to be paid under subsection (2) may be sued for and recovered by the Commission as a debt in any court of competent jurisdiction.

Claims against the fund.

109. (1) Where in consequence of any act done in the course of or in connexion with the stockbroking business of a stockbroker, or a member firm or corporate member of a stock exchange, a person has a cause of action against that stockbroker, member firm or corporate member in relation to any money, securities or other property entrusted to or received by the stockbroker, member firm or corporate member or any person employed by the stockbroker, member firm or corporate member, that person shall be entitled, subject to this Part, to claim compensation from the compensation fund in respect of any pecuniary loss suffered by him.

(2) Subsection (1) does not entitle any stockbroker, or any member firm or corporate member of a stock exchange, to make a claim against the compensation fund.

(3) Except as otherwise provided in this Part, the total amount that may be paid under this Part to all persons who suffer loss through any default mentioned in subsection (1) shall not in any event exceed $1,000,000 in respect of each stockbroker concerned in or connected with the default; but for the purposes of this subsection any amount paid from the compensation fund shall, to the extent that the fund is subsequently reimbursed in respect of any such payment (not being a deposit made under section 107), be disregarded.

(4) A person shall not have a claim against the compensation fund in respect of a default committed before the commencement of this Part.

(5) Subject to this Part, the amount which any claimant is entitled to claim as compensation from the compensation fund is the amount of the actual pecuniary loss suffered by him (including the reasonable costs of and incidental to the making and proving of his claim) less the amount or value of money or other benefits received or receivable by him in reduction of the loss from any source other than the compensation fund.

(6) In addition to any compensation payable under this Part, interest shall be payable out of the compensation fund on the amount of the compensation, less any amount attributable to costs and disbursements, at such rate as may be determined by the Commission from time to time, which shall be calculated from the day on which the default was committed and continue until the day on which the claim is satisfied.

(7) For the purposes of this section—

  • (a) “stockbroker” includes a person who has been, but, at the time of any default mentioned in subsection (1), had ceased to be, a member of a stock exchange if, at the time when the claimant entered into the transaction or course of dealing giving rise to the claim, the claimant had reasonable grounds for believing that person to be a member of the exchange;

  • (b) “member firm” includes a firm which has been, but, at the time of any default mentioned in subsection (1), had ceased to be, a member firm of a stock exchange if, at the time at which the claimant entered into the transaction or course of dealing giving rise to the claim, the person claiming compensation had reasonable grounds for believing that firm to be a member firm of a stock exchange;

  • (c) “corporate member” includes a corporation which has been, but, at the time of any default mentioned in subsection (1), had ceased to be, a corporate member of a stock exchange if, at the time when the claimant entered into the transaction or other course of dealing giving rise to the claim, the claimant had reasonable grounds for believing that corporation to be a corporate member of a stock exchange.

Powers of Commision to increase payments made in respect of claims.

110. (1) If, after consultation with the Council of the Federation and after taking into account all ascertained or contingent liabilities of the compensation fund, the Commission considers that the assets of the fund so permit, it may by notice published in the Gazette increase the total amount which may be claimed from the fund under section 109; and from the date of that publication, until the notice is revoked or varied, the amount specified in the notice shall be the maximum amount that may be claimed under that section.

(2) A notice under subsection (1) may be varied or revoked by the Commission by notice published in the Gazette.

Rights of innocent partner, etc. in relation to the fund.

111. (1) Notwithstanding anything to the contrary in this Part, where all persons submitting claims under section 109 have been fully compensated in accordance with the provisions of this Part for the loss sustained by them as a result of the failure of a partner of a member firm or a director of a corporate member to perform a legal obligation, any other partner of that firm who has made payment to any person in compensation for loss sustained by him as a result of that failure or, where a corporate member or director of a corporate member has made such a payment, that corporate member, or director, shall be subrogated to the extent of that payment to all the rights and remedies of that person against the compensation fund if the Council of the Federation considers, having regard to all the circumstances, that he—

  • (a) was in no way party to the default which resulted in the failure to perform that obligation; and

  • (b) acted honestly and reasonably in the matter.

(2) If any partner of the firm, or any corporate member or director of a corporate member, is aggrieved by the decision of the Council of the Federation under subsection (1), he or it may, within 28 days after receipt of notice of the decision, appeal to the Commission against the decision.

(3) An appellant shall, on the same day as lodging a notice of appeal with the Commission, lodge a copy of the notice with the Council of the Federation.

(4) The Commission shall inquire into and decide on the appeal and, if the Commission considers having regard to all the circumstances that the appellant—

  • (a) was in no way a party to the default in question; and

  • (b) acted honestly and reasonably in the matter,

it may direct that the appellant shall, to the extent of any payment made by him, be subrogated to all the rights and remedies in relation to the compensation fund of the person to whom he or it has made payment in compensation.

Notice calling for claims against the fund.

112. (1) The Council of the Federation may cause to be published in one or more English language newspapers and one or more Chinese language newspapers, published daily and circulating generally in Hong Kong, a notice specifying a date, not being earlier than 3 months after publication of the notice, on or before which claims for compensation from the compensation funds may be made in relation to the person specified in the notice.

(2) Where any person wishes to claim compensation under this Part, he shall lodge his claim in writing with the Council of the Federation—

  • (a) if a notice under subsection (1) has been published, on or before the date specified in the notice; or

  • (b) if no such notice has been published, within 6 months after the claimant became aware of the default giving rise to the claim.

(3) Any claim which is not made within the time limited by subsection (2) shall, unless the Council of the Federation otherwise determines, be barred.

(4) An action for damages shall not lie against the Federation or against any member or employee of the Federation or against any member of the Council of the Federation by reason of any notice published for the purposes of this section in good faith and without malice.

Power of the Council of Federation in respect of claims.

113. (1) Where the Council of the Federation is satisfied that a claim made under section 109 is a proper claim, it shall, subject to this Part, make a determination allowing the claim.

(2) If the Council is not satisfied as to the propriety of a claim under section 109, it shall make a determination disallowing the claim or, if it is satisfied only as to the propriety of part of such a claim, it shall make a determination allowing the claim as to that part.

(3) Where the Council of the Federation makes a determination under subsection (1) or subsection (2), it shall forthwith serve notice of its determination in writing on the claimant or on his solicitor and deliver a copy of the notice to the Commission.

(4) If the Council of the Federation disallows or only partially allows a claim against the compensation fund, the determination of the Council shall specify the reasons for the disallowance or, as the case may be, partial allowance.

(5) If, in the case of any particular claim, after taking into account all ascertained and contingent liabilities of the compensation fund, the Council of the Federation considers that the assets of the fund so permit, it may, with the prior approval of the Commission, allow in respect of a claim which is in excess of the total amount limited by or under section 109 such additional sum in or towards the compensation of the claimant as it thinks fit.

(6) The receipt of a copy of a notice under subsection (3) notifying the allowance or partial allowance of a claim is sufficient authority for the Commission to pay to the claimant the amount allowed under this section.

Council of Federation may require production of securities, etc.

114. (1) The Council of the Federation may at any time require any person to produce any securities, documents, or statements of evidence necessary—

  • (a) in order to substantiate any claim made against the compensation fund; or

  • (b) for the purpose either of exercising its rights against a stockbroker, or against a member firm or corporate member of a stock exchange, or against any other person concerned; or

  • (c) for the purpose of enabling criminal proceedings to be brought against any person in respect of a default, being a default which is or involves the commission of a criminal offence.

(2) Where any claimant required to produce any securities, documents, or statements of evidence under subsection (1) fails to produce them the Council of the Federation may, if it is satisfied that securities, documents, or statements are in the possession of, or available to, the claimant, refuse to allow the claimant’s claim until such time as he produces them.

Court proceedings to establish a claim against the fund.

115. (1) Subject to subsection (2), a person whose claim has been disallowed, or only partially allowed, under section 113 may, at any time after the service under that section of the notice notifying the disallowance or partial allowance, commence proceedings against the Federation to establish his claim against the compensation fund.

(2) Except with leave of the Court, no proceedings against the Federation in respect of a claim which has been disallowed, or only partially allowed, under section 113 may be commenced after the expiration of 3 months after the service of the notice under subsection (3) of that section.

(3) Any proceedings brought against the Federation to establish a claim against the compensation fund shall be by action as for a debt due from the Federation.

Supplementary provisions relating to proceedings brought under section 115.

116. In any proceedings brought under section 115—

  • (a) all defences that would have been available to the person or persons in relation to whom the claim arose shall be available to the Federation;

  • (b) all questions as to costs shall be in the discretion of the Court; and

  • (c) evidence which would be admissible against the stockbroker or any other person by whom it is alleged a default was committed is admissible to prove the commission of the default, notwithstanding that the stockbroker or other person is not the defendant in or a party to those proceedings.

Form of court order establishing claim.

117. Where, in any proceedings brought against the Federation to establish a claim against the compensation fund, the Court is satisfied that the default on which the claim is founded was actually committed and that the claimant otherwise has a valid claim, the Court shall by order—

  • (a) allow the amount of the claim or such part of the claim as it thinks proper;

  • (b) declare the fact and date of the default and the amount allowed under paragraph (a); and

  • (c) direct the Commission to pay to the claimant the amount declared under paragraph (b).

Subrogation of the Commission to rights, etc., of claimant on payment from fund.

118. On the Commission making any payment out of the compensation fund in respect of any claim under this Part—

  • (a) the Commission shall be subrogated to the extent of that payment to all the rights and remedies of the claimant in relation to the loss sustained by him by reason of the default on which the claim was based; and

  • (b) the claimant shall have no right under bankruptcy or legal proceedings or otherwise to receive in respect of the loss any sum out of the assets of the stockbroker, member firm, or corporate member concerned, or where the loss was caused by the defalcation, fraud, or misfeasance of a servant of a stockbroker, member firm, or corporate member, the assets of that servant, until the Commission has been reimbursed the full amount of its payment.

Payment of claims only from the fund.

119. No money or other property belonging to the Commission or to the Federation or to a stock exchange, other than the compensation fund, shall be available for the payment of any claim under this Part, whether the claim is allowed by the Council of the Federation or is made the subject of an order of the Court or otherwise.

Provision where fund is insufficient to meet claims or where claims exceed total amount payable.

120. (1) Where the amount at credit in the compensation fund is insufficient to enable the payment of the whole amount of all claims against it which have been allowed or in respect of which orders have been made, then the amount at credit shall, subject to subsection (2), be apportioned between the claimants in such manner as the Council of the Federation or, as the case may be, the Court thinks equitable; and any such claim, so far as it remains unpaid, shall be charged against further receipts of the fund and paid out of the fund when there is again money available in the fund.

(2) Where the aggregate of all claims against the compensation fund which have been allowed, or in respect of which orders of the Court have been made, in relation to the default giving rise to the claims exceeds the total amount which may be paid under this Part in respect of the stockbroker or stockbrokers concerned in the default, that total amount shall be apportioned between the claimants in such manner as the Council of the Federation or, as the case may be, the Court thinks equitable; and, on payment out of the fund of that total amount in accordance with that apportionment—

  • (a) all such claims and any order of the Court relating to them; and

  • (b) all other claims which may subsequently arise or be made in connexion with the default,

shall be absolutely discharged.

Power of Commission to return contributions on winding up stock exchange.

121. In the event of a stock exchange being wound up under the Companies Ordinance, the Commission may, in its absolute discretion, after the satisfaction of all outstanding liabilities against the compensation fund, pay to the liquidator of the exchange the whole or any part of the amounts contributed by the exchange under this Part, together with any income accrued in respect thereof; and on any such payment being made those amounts shall form part of the assets of the exchange and be available to the liquidator for distribution in accordance with the Companies Ordinance.

Part XI. Inspections and Investigations

inspections

Inspection of books, etc. of registered persons and others.

122. (1) For the purpose of ascertaining whether a person who is, or at any time has been, a registered dealer, an exempt dealer, a registered investment adviser, or a registered representative is complying or has complied with the provisions of this Ordinance that are applicable to him in that capacity, and, in the case of a person who is or was a registered person, the conditions’ or restrictions (if any) subject to which his certificate of registration was issued, the Commissioner may inspect and make copies of or take extracts from any—

  • (a) register or document required by this Ordinance, or, in the case of a person who is or was registered under this Ordinance, by the conditions and restrictions to which the certificate is or has been subject, to be kept by that person; and

  • (b) banker’s books, and the books of any dealer or exempt dealer, in so far as they relate to the business carried on by the first-mentioned person in his capacity as a registered dealer, an exempt dealer, a registered investment adviser, or a registered representative.

(2) For the purpose of enabling the Commissioner to exercise his powers under subsection (1) the Commissioner may require any person whom he has reason to believe to be in possession of any register, document, or books mentioned in that subsection to produce to him that register or document or, as the case may be, those books.

(3) The Commissioner shall not, except for the purposes of this Ordinance or in the course of criminal proceedings, make a record of, or disclose to another person, any information that he acquires by reason of the making of an inspection under this section.

(4) If the Commissioner contravenes subsection (3), he shall be guilty of an offence and shall be liable on conviction to a fine of $2,000.

(5) It is not a contravention of subsection (3) to communicate information to the holder of a prescribed office.

(6) In this section, “prescribed office” means a public office that is prescribed by regulations for the purposes of this section.

Power of Commissioner to investigate transactions.

123. (1) The Commissioner may require—

  • (a) a registered dealer;

  • (b) an exempt dealer;

  • (c) a person whom the Commissioner reasonably believes to have acquired or disposed of securities through a nominee for him or a trustee on his behalf or to be or have been the real owner of securities held by a nominee or trustee;

  • (d) a nominee or trustee referred to in paragraph (c) (including an authorized trustee company registered under Part VIII of the Trustee Ordinance);

  • (e) an agent of a person referred to in paragraphs (c) and (d),

to disclose to him in relation to any acquisition, disposition or holding of securities the name (including any aliases), address and occupation of the person from or to or through whom or on whose behalf the securities were acquired or disposed of or were or are held, the quantity of securities so acquired, disposed of or held, and the actual instructions given to or by that person in respect thereof.

(2) A person who—

  • (a) without lawful excuse fails to disclose to the Commissioner under subsection (1) all information referred to therein which he has or can obtain; or

  • (b) knowingly furnishes to the Commissioner thereunder information that is false or misleading in a material particular,

commits an offence and is liable on conviction to a fine of $5,000 and to imprisonment for 3 months.

Investigation of certain matters.

124. Where the Commissioner has reason to suspect that a person has contravened a provision of this Ordinance or has been guilty of a breach of trust, defalcation, fraud, or misfeasance or of an offence against any other law with respect to trading or dealing in securities or that insider dealing within the meaning of section 141B has taken place, the Commissioner may make such investigation as he thinks expedient for the due administration of this Ordinance.

Seizure of documents and articles believed to relate to a contravention of Part VIII or Part XII.

125. (1) If a magistrate is satisfied by information on oath that there is reasonable ground for suspecting that, at premises that are specified in the information, a person is in possession of any document or article which relates to an offence alleged to have been committed against Part VIII or Part XII, the magistrate may grant a warrant empowering the Commissioner or any police officer—

  • (a) to enter the premises, if necessary by force, at any time within one month from the date of the warrant; and

  • (b) to search for, seize, and remove any document or article which the Commissioner or police officer has reasonable grounds for believing to be evidence of the alleged offence.

(2) Any document or article seized under subsection (1) may be retained for a period of 6 months from the date of seizure or, if within that period any proceedings in respect of an offence against Part VIII or Part XII are commenced and the document or article is relevant to those proceedings, until the conclusion of those proceedings.

(3) Notwithstanding subsection (2), a document or article seized under subsection (1) may be retained for a period longer than 6 months if the person entitled to it is not in Hong Kong or his whereabouts are unknown; and if that person subsequently returns to Hong Kong or his whereabouts subsequently become known and, within 14 days of that return or the discovery of his whereabouts, any proceedings in respect of an offence against Part VIII or Part XII are commenced against him, and the document or article is relevant to those proceedings, the document or article may be retained until the conclusion of those proceedings.

(4) A person from whom a document has been seized under subsection (1) shall, unless the document is already the subject of an order made under subsection (5), be entitled at all reasonable times to inspect and to take copies of or extracts from the document.

(5) Where any person is convicted of an offence against Part VIII or Part XII, the court may make an order authorizing the destruction, or the disposal in any other specified manner, of any documents or articles produced to the court which are shown to its satisfaction to be connected with the commission of the offence; but an order under this subsection may not authorize the destruction or disposal of a document or article before the conclusion of the proceedings to which the order relates.

(6) Subject to subsections (2) to (5), section 102 of the Criminal Procedure Ordinance (which makes provision for the disposal of property connected with offences) shall apply to property which has come into the possession of the Commissioner under this section in the same way as it applies to property which has come into the possession of the police.

investigations

Interpretation for the purposes of sections 127 to 134.

126. In sections 127 to 134, unless the context otherwise requires—

“inspector” means an inspector appointed under section 127(1);

“investigation” means an investigation made under section 127 by an inspector;

“prescribed person” means a person suspected or believed by an inspector, on reasonable grounds, to be capable of giving information concerning any matter to be investigated by the inspector.

Investigation by inspector.

127. (1) Where it appears to the Commission that it is desirable for the protection of the public or of the holders of securities to appoint an inspector to investigate—

  • (a) any alleged breach of trust, defalcation, fraud, or misfeasance; or

  • (b) any matter concerning dealing in securities or the giving of investment advice,

the Commission may, by instrument in writing, appoint a person as an inspector to investigate the allegation or matter and to report on it in such manner as the Commission directs.

(2) The Commission shall, in an instrument appointing an inspector, specify full particulars of the appointment including—

  • (a) the matters into which the investigation is to be made; and

  • (b) the terms and conditions of the appointment including terms and conditions relating to remuneration.

(3) An inspector may require a prescribed person by notice in the form prescribed by regulations given in the manner as prescribed—

  • (a) to produce to the inspector such documents relating to a matter with which his investigation is concerned as are in the custody or under the control of that person;

  • (b) to give to the inspector all reasonable assistance in connexion with the investigation; and

  • (c) to appear before the inspector for examination on oath,

and may administer the oath referred to in paragraph (c).

(4) Where documents are produced to an inspector under this section the inspector may take possession of them for such period as he considers necessary for the purposes of his investigation, and during that period he shall permit a person who would be entitled to inspect any one or more of those documents if they were not in the possession of the inspector to inspect at all reasonable times such of them as that person would be so entitled to inspect.

(5) A prescribed person—

  • (a) shall comply with a requirement of an inspector under subsection (3);

  • (b) shall not knowingly furnish to the inspector, whether on examination in pursuance of such requirement or otherwise, information that is false or misleading in a material particular; or

  • (c) when appearing before an inspector for examination in pursuance of such a requirement, shall take an oath in accordance with the requirement.

(6) Any person who, without reasonable excuse, contravenes any of the provisions of subsection (5) shall be guilty of an offence and shall be liable on conviction to a fine of $5,000.

(7) A solicitor or counsel acting for a prescribed person—

  • (a) may attend an examination of that person; and

  • (b) may, to the extent that the inspector permits—

    • (i) address the inspector; and

    • (ii) examine that person,

    in relation to matters in respect of which the inspector has questioned that person.

(8) A prescribed person is not excused from answering a question put to him by an inspector on the ground that the answer might tend to incriminate him but, where that person claims, before answering the question, that the answer might tend to incriminate him, neither the question nor the answer is admissible in evidence against him in criminal proceedings other than proceedings under subsection (6) or in relation to a charge of perjury in respect of the answer.

(9) A person who complies with the requirement of an inspector under subsection (3) shall not incur any liability to any person by reason only of that compliance.

(10) A person required to attend for examination under this section is entitled to such allowances and expenses as may be prescribed by regulations.

(11) Where a prescribed person fails to comply with a requirement of an inspector under subsection (3), the inspector may, unless that person proves that he had a lawful authority for his failure, certify the failure by writing under his hand to the Court.

(12) Where an inspector gives a certificate under subsection (11), the Court may inquire into the case and—

  • (a) order the prescribed person to whom the certificate relates to comply with the requirement of the inspector within such period as is fixed by the Court; or

  • (b) if the Court is satisfied that that person failed without lawful authority to comply with the requirement of the inspector, punish him in the same manner as if he had been guilty of contempt of court.

Notes of examination.

128. (1) An inspector may cause notes of an examination made by him under this Part to be recorded in writing and be read to or by the person examined and may require that person to sign the notes and, subject to this section, notes signed by that person may be used in evidence in any legal proceedings against that person.

(2) A copy of the notes signed by a person shall be furnished without charge to that person upon request made by him in writing.

(3) Notes made under this section that relate to a question the answer to which a person has claimed might tend to incriminate him shall not be used as evidence in criminal proceedings other than proceedings under section 127(6) or in relation to a charge of perjury in respect of the answer.

(4) Nothing in this section affects or limits the admissibility of other written evidence or of oral evidence.

(5) The Commission may give a copy of notes made under this section to a solicitor or counsel who satisfies the Commission that he is acting for a person who is conducting or is, in good faith, contemplating legal proceedings in respect of matters required to be investigated by the inspector, being affairs investigated by an inspector under this Part.

(6) A solicitor or counsel to whom a copy of notes is given under subsection (5) shall not use the notes except in connexion with the institution or preparation of, and in the course of, legal proceedings and shall not disclose for any other purpose the notes or any part of the contents of them to any person.

(7) Any solicitor or counsel who contravenes subsection (6) shall be guilty of an offence and shall be liable on conviction to a fine of $2,000.

(8) Where a report is made under section 130 any notes recorded under this section relating to that report shall be furnished with the report.

Delegation of powers, etc., by inspector.

129. (1) An inspector may by instrument in writing—

  • (a) delegate all or any of his powers or functions under this Part except this power of delegation, the power to administer an oath, and the power to examine on oath; and

  • (b) vary or revoke a delegation given by him.

(2) A power or function delegated by an inspector may be exercised or performed by the delegate in accordance with the instrument of delegation as in force from time to time.

(3) A delegate shall, at the request of a prescribed person, produce the instrument of delegation for inspection.

(4) A delegation under this section by an inspector of a power or function does not prevent the exercise of the power or the performance of the function by the inspector.

Report of inspector.

130. (1) On completion of an investigation under section 127, the inspector shall report his findings to the Commission and shall deliver a copy of the report to the Attorney General.

(2) Subject to subsection (3), the Commission shall give a copy of the inspector’s report to the prescribed person whose affairs were investigated by the inspector.

(3) Subject to subsection (4), the Commission shall not give a report to a prescribed person if the Attorney General believes that legal proceedings that have been, or that in its opinion might be, instituted might be prejudiced by the report.

(4) The court before which legal proceedings are brought against a prescribed person for or in respect of matters dealt with in a report under this section may order that a copy of the report be given to that person.

(5) The Commission may, if it is of the opinion that it is in the public interest to do so, cause the whole or any part of a report under this section to be printed and published.

(6) If, from a report under this section, it appears to the Attorney General that an offence may have been committed by a person and that a prosecution ought to be instituted, the Attorney General shall cause a prosecution to be instituted.

(7) Where it appears to the Attorney General that a prosecution ought to be instituted, he may, by notice in writing given before or after the institution of a prosecution in accordance with subsection (6), require a prescribed person to give all assistance in connexion with prosecution that he is reasonably able to give.

(8) If from a report under this section it appears to the Commission or to the Attorney General that proceedings ought in the public interest to be brought by a prescribed person for the recovery of damages in respect of a breach of trust, defalcation, fraud, or misfeasance in connexion with the affairs of the prescribed person or for the recovery of property of the prescribed person, either the Commission or the Attorney General may cause proceedings to be instituted accordingly in the name of the prescribed person.

Privileged communications.

131. (1) An inspector shall not require disclosure by a solicitor or counsel of any privileged communication, whether oral or written, made to or by him in that capacity, except as regards the name and address of his client.

(2) Nothing in sections 127 to 130 shall be construed as affecting section 4 of the Inland Revenue Ordinance.

Cost of investigation.

132. (1) Subject to this section, the expenses of and incidental to an investigation by an inspector (including the expenses incurred and payable by the Commission in any proceedings brought by it in the name of a prescribed person) shall be paid out of money provided by the Legislative Council.

(2) An application referred to in subsection (3) may be made to a court by or on behalf of—

  • (a) the Commission or the Attorney General in the course of proceedings in that court instituted in the name of a prescribed person under section 130(8); or

  • (b) the Attorney General on, or within 14 days after, a conviction by the court in proceedings certified by the Attorney General, for the purposes of the application, to have been instituted as a result of an investigation by an inspector;

and the court may make such order with respect to the application and its subject matter as it thinks fit.

(3) The application that may be made under subsection (2) is an application for one or more of the following orders—

  • (a) that a specified person pay the whole, or a specified part of, the expenses of and incidental to, the investigation that led to the proceedings;

  • (b) where expenses have been paid under subsection (1), that a specified person reimburse the Commission to the extent of the payment;

  • (c) that a specified person reimburse the Commission in respect of the remuneration of any person employed by the Commission in connexion with the investigation.

(4) If no proceedings under section 130(6) are commenced against a prescribed person, or, where the prescribed person is a corporation, against any director of the corporation, within 6 months after the completion of an investigation by an inspector, the prescribed person may apply to a court for an order for the payment of costs incurred by him in connexion with the investigation; and the court may, if it finds that the investigation was not warranted, order the Commission to pay to the prescribed person such sum, not exceeding the amount of costs actually incurred by the prescribed person in respect of the investigation, as it thinks just.

(5) A copy of an application made under subsection (4) shall be served on the Commission and the Commission shall be entitled to be heard at the proceedings to determine the application.

Concealing, etc., of books relating to securities.

133. (1) A person who—

  • (a) conceals, destroys, mutilates, or alters a document relating to a matter which is the subject of an investigation by an inspector;

  • (b) sends, causes to be sent, or conspires with another person to send, out of Hong Kong any such document; or

  • (c) being a prescribed person to whom notice has been given under section 127(3), leaves Hong Kong,

shall be guilty of an offence and shall be liable on conviction to a fine of $20,000 and to imprisonment for 2 years.

(2) It shall be a defence to a prosecution under subsection (1) to prove that the person charged did not act with intent to defeat the purposes of section 127 or to delay or obstruct the carrying out of an investigation under that section.

Commission may make certain orders.

134. (1) Where an investigation is being made under section 127 and it appears to the Commission that facts concerning securities to which the investigation relates cannot be ascertained because a prescribed person referred to in that section has failed or refused to comply with a requirement of an inspector under that section, the Commission may, by order published in the Gazette, make one or more of the following orders—

  • (a) an order restraining a specified person from disposing of any interest in specified securities;

  • (b) an order restraining a specified person from acquiring specified securities;

  • (c) an order restraining the exercise of any voting or other rights attached to specified securities;

  • (d) an order directing a person who is registered as the holder of securities in respect of which an order under this section is in force to give notice in writing of that order to any person whom he knows to be entitled to exercise a right to vote attached to those shares;

  • (e) an order directing a company not to make payment, except in the course of a winding up by the Court, of any sum due from the company in respect of specified securities;

  • (f) an order directing a company not to register the transfer or transmission of specified securities;

  • (g) an order directing a company not to issue shares to a person who holds shares in the company by reason of his holding those shares nor in pursuance of an offer made to such a person by reason of his holding those shares.

(2) A copy of an order under subsection (1) and of any order by which it is revoked or altered shall be served—

  • (a) where it relates to specified securities, on the authority or body that issued them or made them available or, where the securities are rights or options, on the authority or body against whom the right is, or would be enforceable, or which issued or made available the securities to which the option relates; and

  • (b) where it relates to a corporation, on the corporation.

(3) A person aggrieved by an order under subsection (1) may apply to the Court for revocation of the order and the Court may, if it is satisfied that it is reasonable to do so, revoke the order and any order by which it has been altered or varied.

(4) Any person who contravenes an order under subsection (1) shall be guilty of an offence and shall be liable on conviction to a fine of $5,000.

(5) Without prejudice to the powers of the Attorney General in relation to the prosecution of criminal offences, a prosecution under this section shall not be instituted except with the consent in writing of the Commission.

Part XII. Prevention of Improper Trading Practices

offences

False markets and trading.

135. (1) A person shall not intentionally create or cause to be created, or do anything with the intention of creating—

  • (a) a false or misleading appearance of active trading in any securities on any stock market in Hong Kong; or

  • (b) a false market in respect of any securities on any such stock market.

(2) For the purposes of subsection (1)(b), a false market is created in relation to securities when the market price of those securities is raised or depressed or pegged or stabilized by means of—

  • (a) sales and purchases transacted by persons acting in collaboration with each other for the purpose of securing a market price for those securities that is not justified either by the assets of the corporation which issued the securities or by the profits (including anticipated profits) of the corporation;

  • (b) any act which has the effect of preventing or inhibiting the free negotiation of market prices for the purchase or sale of the securities; or

  • (c) the employment of any fictitious transaction or device or any other form of deception or contrivance.

(3) A person shall not with the intention of depressing, raising, or causing fluctuations in the market price of any securities effect any purchase or sale of any such securities which involves no change in the beneficial ownership of those securities.

(4) A purchase or sale of securities involves no change in beneficial ownership within the meaning of subsection (3) if a person who held an interest in the securities before the purchase or sale, or a person associated with him in relation to those securities, holds an interest in the securities after the purchase or sale.

(5) A person shall not circulate or disseminate, or authorize or be concerned in the circulation or dissemination of, any statement or information to the effect that the price of any securities will or is likely to rise or fall because of the market operations of one or more persons which, to his knowledge, are conducted in contravention of subsection (1).

Employment of fraudulent or deceptive devices, etc.

136. A person shall not, directly or indirectly, in connexion with any transaction with any other person involving the purchase, sale, or exchange of securities—

  • (a) employ any device, scheme, or artifice to defraud that other person; or

  • (b) engage in any act, practice, or course of business which operates as a fraud or deception, or is likely to operate as a fraud or deception, of that other person.

Restrictions on fixing, etc. prices for securities.

137. A person shall not, either alone or with one or more other persons, effect any series of transactions for the purchase or sale of securities, or the purchase and sale, of any securities for the purpose of pegging or stabilizing the price of securities of that class in contravention of any regulations made for the purposes of this section.

False or misleading statements about securities.

138. A person shall not, directly or indirectly, for the purposes of inducing the sale of the securities of any corporation, make with respect to those securities, or with respect to the operations or the past or future performance of the corporation—

  • (a) any statement which is, at the time and in the light of the circumstances in which it is made, false or misleading with respect to any material fact and which he knows or has reasonable ground to believe to be false or misleading; or

  • (b) any statement which is, by reason of the omission of a material fact, rendered false or misleading and which he knows or has reasonable grounds for knowing is rendered false or misleading by reason of the omission of that fact.

Offences and penalty in relation to sections 135 to 138.

139. Any person who contravenes any of the provisions of section 135, section 136, section 137, or section 138 shall be guilty of an offence and shall be liable on conviction on indictment to a fine of $50,000 and to imprisonment for 2 years.

140. {Repealed, 8 of 1978, s.7}

action in tort

Liability to pay compensation.

141. (1) A person who contravenes section 135, section 136, section 137, or section 138 shall, in addition to any liability under section 139, be liable to pay compensation by way of damages to any person who has sustained pecuniary loss as a result of having purchased or sold securities at a price affected by the act or transaction which comprises or is the subject of the contravention.

(2) An action may be brought under subsection (1) in respect of a contravention referred to in that subsection notwithstanding that no person has been charged or convicted under section 139 in respect of the contravention.

(3) Nothing in this section limits or diminishes any liability which any person may incur under the common law.

Part XIIA. Insider Dealing

Application of this Part.

141A. (1) This Part applies to the securities of a corporation only if they are listed on a stock exchange or have been so listed at any time within five years immediately preceding any dealing in relation to those securities within the meaning of section 141B(1).

(2) No transaction shall be void or voidable by reason only that it is an insider dealing within the meaning of this Part.

definition of insider dealing

When insider dealing takes place.

141B. (1) Insider dealing in relation to the securities of a corporation takes place and, pursuant to section 141C, may be culpable for the purposes of this Part—

  • (a) when a dealing in the securities is made, procured or occasioned by a person connected with that corporation who is in possession of relevant information concerning the securities;

  • (b) when relevant information concerning the securities is disclosed by a person connected with that corporation, directly or indirectly, to another person and the first-mentioned person knows or has reasonable grounds for believing that the other person will make use of the information for the purpose of dealing, or procuring another to deal, in those securities.

(2) A dealing in the securities of a corporation is occasioned by a person connected with that corporation for the purposes of subsection (1) (a) when a person who has obtained relevant information in the circumstances described in subsection (1)(b) actually makes use of that information for the purpose of dealing, or procuring another to deal, in those securities.

Culpability of insider dealing.

141C. (1) A person who enters into a transaction which is an insider dealing within section 141B(1)(a) is not culpable for the purposes of this Part—

  • (a) if his sole purpose in entering into the transaction is the acquisition of qualification shares required by him as a director or intending director of any corporation; or

  • (b) if he enters into the transaction—

    • (i) in the bona fide performance of an underwriting agreement with respect to the securities to which the transaction relates; or

    • (ii) in the bona fide exercise of his functions as a personal representative, liquidator, receiver or trustee in bankruptcy.

(2) A corporation which enters into a transaction which is an insider dealing within section 141B(1) (a) is not culpable for the purposes of this Part if, although relevant information concerning the securities is in the possession of a director or employee of the corporation—

  • (a) the decision to enter into the transaction was taken on its behalf by a person other than that director or employee; and

  • (b) arrangements were then in existence for securing that the information was not communicated to that person and that no advice with respect to the transaction was given to him by a person in possession of the information; and

  • (c) the information was not in fact so communicated and advice was not in fact so given.

(3) A person who enters into a transaction which is an insider dealing within section 141B(1) (a) may be held not culpable for the purposes of this Part if his purpose is not, or is not primarily, the making of a profit or the avoiding of a loss (whether for himself or another) by the use of relevant information.

(4) A person who, as agent for another, enters into a transaction which is an insider dealing within section 141B(1) (a) may be held not culpable for the purposes of this Part if he did not select or advise on the selection of the securities to which the transaction relates.

(5) In arriving at its determination under section 141H(3) as to the culpability of a person in relation to an insider dealing within section 141B, the Tribunal shall have regard, as the case may be—

  • (a) to the fact that such person of his own initiative disclosed the dealing to the Commissioner and, where the disclosure was made after the dealing took place, to the promptness with which the disclosure was made; or

  • (b) to the fact that such person did not of his own initiative disclose the dealing to the Commissioner and to the reasonableness of any explanation offered by such person for the fact that the dealing was not so disclosed.

(6) Subject to this section, the culpability of any person in relation to an insider dealing within section 141B is a matter for the Tribunal to determine under section 141H(3).

Definitions applicable to this Part.

141D. (1) For the purposes of this Part—

“related corporation” in relation to a corporation means a corporation which is deemed by section 4 to be related to it;

“relevant information” in relation to securities means information which is not generally available but, if it were, would be likely to bring about a material change in the price of those securities.

(2) Without limiting the meaning of the phrase “dealing in relation to securities” in section 141B(1) and notwithstanding sections 2 and 3, a person deals in securities for the purposes of this Part if (whether as principal or agent) he buys, sells, exchanges or subscribes for, or agrees to buy, sell, exchange or subscribe for, any securities or acquires or disposes of, or agrees to acquire to dispose of, the right to buy, sell, exchange or subscribe for, any securities.

Definition of person connected with a corporation.

141E. (1) A person is connected with a corporation for the purposes of section 141B if, being an individual—

  • (a) he is a director or employee of that corporation or a related corporation; or

  • (b) he is a substantial shareholder in the corporation or a related corporation; or

  • (c) he occupies a position which may reasonably be expected to give him access to relevant information concerning the securities of the corporation by virtue of—

    • (i) any professional or business relationship existing between himself (or his employer or a corporation of which he is a director or a firm of which he is a partner) and that corporation, a related corporation or a substantial share-holder in either of such corporations; or

    • (ii) his being a director, employee or partner of a substantial shareholder in the corporation or a related corporation; or

  • (d) he has access to relevant information concerning the securities of the corporation by virtue of his being connected (within the meaning in paragraph (a), (b) or (c)) with another corporation being information which relates to any transaction (actual or expected) involving both those corporations or involving one of them and the securities of the other; or

  • (e) he was at any time within the 6 months preceding any dealing in relation to securities within the meaning of section 141B(1) a person connected with the corporation within the meaning in paragraph (a), (b), (c) or (d).

(2) A corporation is a person connected with a corporation for the purposes of section 141B so long as any of its directors or employees is a person connected with that other corporation within the meaning in subsection (1).

(3) In subsection (1) “substantial shareholder” in relation to a corporation means a person who has an interest in securities comprised in the equity share capital of that corporation being securities which—

  • (a) have a nominal value equal to more than 10 per cent of that share capital; or

  • (b) entitle the holder to exercise or control the exercise of more than 10 per cent of the voting power at any general meeting of that corporation.

Possession of relevant information by public officers.

141F. (1) A public officer who in his capacity as such obtains relevant information concerning the securities of a corporation shall be deemed to be a person connected with that corporation for the purposes of section 141B.

(2) In subsection (1) “public officer” means a member or employee, whether temporary or permanent or paid or unpaid, of any of the following—

  • (a) the Government;

  • (b) the Executive Council;

  • (c) the Legislative Council;

  • (d) the Urban Council;

  • (e) any board, commission, committee or other body appointed by or on behalf of the Governor or the Governor in Council; and

  • (f) any body corporate that is an organ or agency of the Crown.

insider dealing tribunal

Insider Dealing Tribunal established.

141G. (1) There is hereby established a Tribunal to be known as the Insider Dealing Tribunal (in this Part referred to as “the Tribunal”).

(2) The Tribunal shall consist of a chairman and 2 other members all of whom shall be appointed by the Governor.

(3) The chairman of the Tribunal shall be a judge of the Supreme Court and the other 2 members shall not be public officers (within the meaning of that term in section 3 of the Interpretation and General Clauses Ordinance).

(4) A member of the Tribunal other than the chairman may be paid, as a fee for his services, such amount as the Financial Secretary thinks fit, and that amount may be paid out of the general revenue of Hong Kong without further appropriation than this subsection.

Third Schedule.

(5) The provisions in the Third Schedule shall have effect in relation to the appointment of members and temporary members of the Tribunal, and the procedural and other matters concerning the Tribunal and its sittings for which provision is made therein.

inquiries by tribunal

Inquiries into insider dealings.

141H. (1) If it appears to the Financial Secretary, whether following representations by the Commission or otherwise, that insider dealing in relation to the securities of a corporation has taken place or may have taken place, he may in accordance with this section require the Tribunal to inquire into the matter (in this Part referred to as “an inquiry”).

(2) An inquiry shall be instituted by notice in writing from the Financial Secretary to the chairman of the Tribunal containing such particulars as are sufficient to define the terms of reference of the inquiry.

(3) The object of an inquiry shall be to determine, within the Tribunal’s terms of reference—

  • (a) whether culpable insider dealing in relation to the securities of a corporation has taken place; and

  • (b) the identity of the persons involved therein and the extent of their culpability.

(4) In making a determination under subsection (3) (b), the Tribunal shall not be limited to the identity and culpability of an immediate party to an insider dealing but may, subject to section 141C—

  • (a) include any other person connected with the dealing;

  • (b) in the case of a body corporate, include the individuals who exercised control in the management thereof.

Report of Tribunal following inquiry. Third Schedule.

141I. (1) Upon receipt of a notice under section 141H(2) the Tribunal shall conduct an inquiry in accordance with the provisions of this Part and the Third Schedule, and prepare a written report thereon.

(2) No person shall publish any material received by the Tribunal for the purposes of an inquiry and which comes to his knowledge by virtue of being so received.

(3) Any person who contravenes subsection (2) commits an offence and is liable on conviction on indictment to a fine of $10,000 and to imprisonment for 1 year.

(4) The Tribunal shall issue its report in the following manner—

  • (a) by first furnishing a copy to the Financial Secretary; and

  • (b) thereafter, subject to subsection (5), by—

    • (i) causing the report to be published in such manner that copies thereof are available to the public; and

    • (ii) furnishing a copy, so far as is reasonably practicable, to any person whose conduct was directly in question in the inquiry.

(5) Where the Tribunal intends to cause a report to be published which contains a finding that a person is not culpable in respect of a dealing which has been the subject of an inquiry, the following provisions shall apply—

  • (a) if that person has supplied to the Tribunal an address for service for the purposes of this subsection, the Tribunal shall cause a copy of the proposed report, so far as it relates to the dealing in question, to be delivered to or left for him at that address;

  • (b) if within 7 days after such delivery the Tribunal has received notice in writing that the person objects to being named in relation to the dealing in question, the Tribunal shall not name the person in the report in respect of that dealing;

  • (c) if the Tribunal has not, within the said 7 days, received notice in accordance with paragraph (b), or if the person has not supplied an address for service under paragraph (a), the Tribunal shall name the person in the report in respect of the said dealing.

(6) No person shall be liable to any civil or criminal proceedings by reason of the publication by him of a true and accurate account or a fair and accurate summary of any report of the Tribunal which has been published under subsection (4) (b).

powers of tribunal

Application to Tribunal of Commissions of Inquiry Ordinance.

141J. (1) Sections 4(1) (other than paragraphs (i), (j), and (ma)), 5, 7, 8 (other than subsections (1)(ca), (2)(d), (2)(e) and (3)) and 9 to 14 of the Commissions of Inquiry Ordinance shall, subject to this Ordinance, apply for the purposes of an inquiry as if—

  • (a) the inquiry were an inquiry to which that Ordinance applies;

  • (b) references therein to a Commission, the Chairman and a Commissioner were respectively references to the Tribunal, the chairman and a member thereof;

  • (c) paragraph (h) of the said section 4(1) authorized payment to a person appearing before the Tribunal of expenses as well as sums for loss of time;

  • (d) the Tribunal were a Commission with full powers to deal with contempts under the said section 9;

  • (e) all necessary changes were made to Form 2 in the Schedule of the said Ordinance.

(2) The Tribunal may order that any document or article which comes into its possession or the possession of the Commissioner for the purposes of an inquiry shall be dealt with in such manner as the justice of the case requires.

Further powers of Tribunal to obtain information.

141K. (1) Where it appears to the Tribunal that it would assist the conduct of an inquiry to do so, the Tribunal may in writing authorize the Commissioner to exercise all or any of the powers set out in subsection (2) and to report to the Tribunal the information so obtained which is relevant to the inquiry.

(2) The powers referred to in subsection (1) are—

  • (a) to inspect the books and documents of any person where the Tribunal has reasonable grounds to believe or suspect that those books or documents may contain information relevant to the inquiry;

  • (b) to make copies of and take extracts from books and documents referred to in paragraph (a) and, subject to subsection (3), to take possession of the same for such period (not exceeding 2 days) as is necessary for the purpose of doing so;

  • (c) to require any person to give any explanation or particulars concerning books and documents referred to in paragraph (a);

  • (d) in writing to require from any person information as to whether or not there is at any premises any book or document which may contain information relevant to the inquiry, and particulars as to such premises, book or document;

  • (e) to require that any information or particulars furnished pursuant to this section be verified by statutory declaration and to take any such declaration.

(3) Where the Commissioner takes possession of any book or document under subsection (2)(b) he shall permit a person who would be entitled to inspect it if it were not in the possession of the Commissioner to inspect it, and to make copies and take extracts, at all reasonable times.

(4) A person shall produce all books and documents in his custody or under his control, the inspection whereof is sought by the Commissioner under the authority of this section.

(5) Any person who is required under this section to disclose any information or particulars or give any explanation shall comply with that requirement so far as lies within his power to do so and shall, if requested, verify the information, particulars or explanation by statutory declaration.

(6) A person commits an offence who—

  • (a) contravenes subsection (4) or (5);

  • (b) in purported compliance with subsection (4) or (5), makes any statement which he knows to be false or misleading or recklessly makes any statement which is false or misleading in a material particular;

  • (c) obstructs the Commissioner in the exercise of his powers under this section;

  • (d) conceals, destroys, mutilates or alters any book or document which contains information which is relevant to an inquiry or sends any such book or document out of Hong Kong or causes the same to be so sent,

and is liable on conviction to a fine of $5,000 and to imprisonment for 3 months.

(7) An offence specified in subsection (6) shall be deemed to be a contempt of the Tribunal and the Tribunal may deal with any such offence in accordance with the powers referred to in section 141J(1) (d) to deal with contempts committed otherwise than in the presence of the Tribunal and may impose the punishments provided for by the said subsection (6).

(8) It shall be a defence to a prosecution under subsection (6)(d) if the person charged proves that he did not act with intent to defeat the discovery of a dealing in relation to securities within section 141B(1) or to delay or obstruct the carrying out of an inquiry.

(9) In this section “books” includes bankers’ books.

No privilege allowed except to legal advisers.

141L. (1) Except as provided in subsection (2), a person shall not be excused on account of privilege from complying with any requirement under section 141K or, on appearing before the Tribunal, from answering any question or disclosing any information or particulars or producing any book or document.

(2) Nothing in this Part shall require the disclosure by a solicitor or counsel of any privileged communication, whether oral or written, made to or by him in that capacity, except as regards the name and address of his client.

(3) Nothing in subsection (1) shall be construed as affecting section 4 of the Inland Revenue Ordinance.

Part XIII. Miscellaneous Provisions

Restriction on use of title “stockbroker”, “underwriter”, etc

142. (1) A person who is not a stockbroker shall not—

  • (a) take or use the title “stockbroker”; or

  • (b) take or use, or have attached to or exhibited at any place, any title that resembles the title “stockbroker” or so closely resembles that title as to be calculated to deceive.

(2) A person who is not an underwriter shall not—

  • (a) take or use the title “underwriter”; or

  • (b) take or use, or have attached to or exhibited at any place, any title that resembles the title “underwriter” or so closely resembles that title as to be calculated to deceive.

(3) Any person who contravenes subsection (1) or subsection (2) shall be guilty of an offence and shall be liable on conviction to a fine of $5,000.

(4) A person who is a member of a stock exchange outside Hong Kong does not contravene subsection (1) by reason only of—

  • (a) taking or using the title “stockbroker”; or

  • (b) taking or using, or having attached to or exhibited at any place in Hong Kong, any title that resembles the title “stockbroker”,

if in any such case the name of the stock exchange and the place at which it is located is quoted in conjunction with the title “stockbroker”.

(5) A person who carries on a business as an insurance underwriter does not contravene subsection (2) by reason only that he takes or uses the title “underwriter” in circumstances that make it clear that he is not holding himself out as being an underwriter within the meaning of section 2.

Investment advisory contracts.

143. (1) No investment adviser shall enter into an investment advisory contract with any person in Hong Kong (in this section referred to as his client), or extend or renew any such contract, or in any way perform any such investment advisory contract entered into, extended, or renewed after the commencement of this section, if the contract—

  • (a) provides for remuneration to be paid by the client to the investment adviser on the basis of a share of capital gains of the funds or any part of the funds of the client;

  • (b) does not include a provision to the effect that an assignment of the contract by the investment adviser shall be made only with the consent of the client; or

  • (c) does not include a provision to the effect that the investment adviser—

    • (i) if a firm, will notify the client of any change in the partner of the firm; or

    • (ii) if a corporation, will notify the client of any change in the directors of the corporation,

    within a reasonable time after the change.

(2) Subsection (1) (a) does not—

  • (a) prohibit an investment advisory contract which provides for remuneration based on the total value of a fund averaged over a definite period, or on definite dates, or taken on a definite date; or

  • (b) apply to an investment advisory contract with the manager or other representative of a unit trust or mutual fund corporation authorized by the Commission for the purposes of this Ordinance, or a company carrying on business as an investment company and registered under the Companies Ordinance, which contract provides for remuneration based on the asset value of the trust, corporation, or company under management averaged over a specified period and increasing and decreasing proportionately in accordance with the performance of the trust, corporation, or company over a specified period in relation either to—

    • (i) the investment record of an appropriate index of securities; or

    • (ii) such other measure of investment performance as the Commission may specify in writing on the application of either party to a contract or intended contract.

(3) For the purposes of subsection (1) (b) and (c), “investment advisory contract” means a contract or agreement whereby a person agrees to act as investment adviser or to manage any investment or trading account of a client, not being a unit trust or mutual fund corporation authorized by the Commission for the purposes of this Ordinance, or a company carrying on business as an investment company and registered under the Companies Ordinance.

(4) Any investment adviser who knowingly enters into any contract in contravention of any of the provisions of subsection (1) shall be guilty of an offence and shall be liable on conviction to a fine of $2,000.

(5) Any contract entered into in contravention of any of the provisions of subsection (1) shall, notwithstanding anything in the contract, be voidable at the option of the client.

Court may make certain orders.

144. (1) Where, on the application of the Commissioner, it appears to the Court that a person has contravened this Ordinance or any conditions of registration thereunder, or is about to do an act with respect to dealing in securities that, if done, would be such a contravention, the Court may, without prejudice to any orders it would be entitled to make otherwise than pursuant to this section, make one or more of the following orders—

  • (a) an order restraining a person from acquiring, disposing of, or otherwise dealing with any securities specified in the order;

  • (b) in relation to a registered dealer, an order appointing a person to administer the property of the dealer;

  • (c) an order declaring a contract relating to securities to be void or voidable;

  • (d) for the purpose of securing compliance with any other order under this section, an order directing a person to do or refrain from doing a specified act; or

  • (e) any ancillary order which it considers necessary in consequence of the making of an order under paragraphs (a) to (d).

(2) The Court shall, before making an order under subsection (1), satisfy itself, so far as it can reasonably do so, that the order would not unfairly prejudice any person.

(3) The Court may, before making an order under subsection (1), direct that notice of the application be given to such persons as it thinks fit or direct that notice of the application be published in such manner as it thinks fit, or both.

(4) The Court may reverse, vary, or discharge an order made by it under this section or suspend the operation of such an order.

Miscellaneous offences.

145. Any person who—

  • (a) obstructs the Commissioner or any other public officer or any person in the exercise or performance of any power, authority, duty, or function under this Ordinance; or

  • (b) fails to produce any document that the Commissioner or a person authorized by the Commissioner has, pursuant to any provision of this Ordinance, required that person to produce for inspection by the Commissioner or the person so authorized,

shall be guilty of an offence and shall be liable on conviction to a fine of $5,000 and to imprisonment for 3 months.

Regulations.

146. (1) The Governor in Council may, after consultation with the Commission, make regulations for all or any of the following matters—

  • (a) the conduct of business by registered dealers, registered investment advisers, registered dealers’ representatives, and registered investment representatives;

  • (b) matters incidental to the registration of dealers, investment advisers, dealers’ representatives, and investment representatives under this Ordinance;

  • (c) the class of persons in relation to whom, and the manner and circumstances in which, registered dealers and registered dealers’ representatives may deal in securities;

  • (d) the class of persons in relation to whom, and the manner and circumstances in which, registered investment advisers and registered investment representatives may carry on business as investment advisers or as investment representatives, as the case may be;

  • (e) prescribing the amount of deposit required to be made for the purposes of section 52, and providing for the application of deposits under subsections (3) and (4) of that section;

  • (f) requiring dealers and registered investment advisers to exhibit their certificates of registration at their places of business;

  • (g) prescribing the information to be notified for the purposes of section 63(1) (b);

  • (h) prescribing the particulars to be recorded in relation to registered dealers, registered investment advisers, registered dealers’ representatives, and registered investment representatives, under section 64;

  • (i) empowering the Commissioner to correct any errors in any register kept under this Ordinance;

  • (j) empowering the Commissioner, on payment of the prescribed fee (if any), to issue duplicate certificates of registration in the event of loss or destruction of the original certificate or of any duplicate certificate;

  • (k) prescribing the manner, time, or circumstances for retaining copies of circulars for the purposes of section 79(5);

  • (l) prescribing the particulars to be recorded in relation to accounts kept under section 84;

  • (m) prescribing the particulars to be recorded in relation to the profit and loss account and balance sheet and the information to be contained in the auditor’s report required to be lodged under section 88;

  • (n) {Deleted, 62 of 1976, s. 34}

  • (o) prescribing forms for the purposes of this Ordinance, and prescribing the manner in which applications are to be made for registration under Part VI;

  • (p) prescribing fees and charges to be paid in respect of any matter or thing required for the purposes of this Ordinance;

  • (q) prescribing public offices for the purposes of sections 19 and 122;

  • (r) prescribing the procedure for the holding of investigations under Part XI, and providing for the reception of evidence, whether written or oral, and for the summoning and examination of witnesses, during the course of such an investigation;

  • (s) prescribing anything which is to be or may be prescribed by regulations.

(2) Regulations made under this section may provide that a contravention of specified provisions thereof shall be an offence and may provide penalties therefor not exceeding a fine of $2,000 and imprisonment for 3 months.

(3) Except as otherwise provided in this Ordinance, regulations made under this section may be of general or special application.

(4) Regulations made under this section may provide that, subject to such terms and conditions as may be prescribed thereby, the provisions of Parts VI to IX, or such of them as are specified in the regulations—

  • (a) shall not have effect in relation to any specified person or to any person who is a member of a specified class of persons—

    • (i) who is or may be a dealer or investment adviser by reason only of his doing anything that is incidental to another business;

    • (ii) who does not deal in securities for or on behalf of any other person; or

    • (iii) who is a dealer or investment adviser by reason only of his entering into any specified transaction or class of transactions;

  • (b) shall not have effect in relation to a representative of any such person, or a member of any such class of persons, as is referred to in paragraph (a);

  • (c) shall have effect in relation to any such person or member, or a representative of any such person or member, to such extent as is prescribed; or

  • (d) shall not have effect in relation to a specified transaction or class of transactions entered into by a specified person or class of persons.

Liability of directors, etc.

147. (1) Where an offence under this Ordinance committed by a corporation is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any director, manager, secretary, or other similar officer of the corporation, or any person who was purporting to act in any such capacity, he, as well as the corporation, shall be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

(2) Subject to subsection (3), for the purposes of this section, a person is deemed to be a director of a corporation if he occupies the position of a director by whatever name he may be called or is a person in accordance with whose directions or instructions the directors of the corporation or any of them act.

(3) A person shall not, by reason only that the directors of a corporation act on advice given by him in a professional capacity, be taken to be a person in accordance with whose directions or instructions those directors act.

Commissioner may prosecute certain offences against this Ordinance.

148. Without prejudice to the provisions of any other enactment relating to the prosecution of criminal offences and without prejudice to the powers of the Attorney General in relation to the prosecution of such offences, the Commissioner may institute proceedings in respect of any offence against this Ordinance that is punishable on summary conviction.

Amendment of Schedules and certain specified amounts.

149. The Governor in Council may, by order published in the Gazette, amend—

  • (a) the First and Second Schedules; and

  • (b) any amount or sum specified in Part X.

First Schedule

[ss. 72 & 149.]

requirements to be satisfied in relation to offers to acquire securities

1. If the securities to be acquired are currently listed or quoted on a stock exchange (including a foreign stock exchange), the offer shall, subject to paragraph 2—

  • (a) state this fact and specify the exchange or exchanges on which the securities are currently listed or quoted;

  • (b) specify the last recorded price paid in respect of the securities at a stock exchange where they are listed, or, in the case of a foreign stock exchange, listed or quoted, on the latest practicable date during the period of 3 months immediately preceding the date of the offer;

  • (c) specify the last price paid in respect of the securities on the last trading day of each of the 6 months immediately preceding the date of the offer;

  • (d) specify the highest and the lowest prices paid in respect of the securities during the period of 6 months immediately preceding the date of the offer;

  • (e) where the offer has been the subject of a public announcement, whether in a newspaper or in any other form of news medium or otherwise, specify the last price paid in respect of the securities on the last trading day during the period of 3 months immediately preceding the public announcement, or, if the securities were not dealt in during that period, this should be stated.

2. If the securities proposed to be acquired are not listed or quoted on a stock exchange (including a foreign stock exchange), the offer shall contain—

  • (a) any information that the offeror may have as to the number and nominal value of those securities that have been sold in Hong Kong during the period of 6 months immediately preceding the date of the offer and the prices yielded by those sales, or, where the offeror has no such information, a statement to that effect; and

  • (b) particulars of any restriction in the constitution of the corporation which issued the securities on the right to transfer the securities which has the effect of requiring the offerees, before transferring securities held by them in the corporation, to offer those securities for purchase to members of the corporation or to any other person, and, where there is any such restriction, the arrangements (if any) being made to enable the securities to be transferred in pursuance of the offer.

3. Where the securities proposed to be acquired are those of a corporation incorporated outside Hong Kong and any holders of those securities reside in Hong Kong, and those securities are listed or quoted on a stock exchange of the country or territory in which the corporation is incorporated, the offer shall state this fact and specify the stock exchange on which they are listed or quoted.

4. The offer shall contain, in a prominent position in printing not smaller than eight point Times, a notice in the following form—

“IMPORTANT

If you are in doubt as to any aspect of this offer, you should consult a stockbroker or other registered dealer in securities, a bank manager, solicitor, professional accountant, or other professional adviser.”.

Second Schedule

[ss. 72 & 149.]

requirements to be satisfied in relation to offers to dispose of securities

1. If the securities offered are currently listed or quoted on a stock exchange (including a foreign stock exchange) and will be uniform in all respects with the securities so currently listed or quoted, the offer shall—

  • (a) state that fact and specify the exchange on which those securities, or the securities with which they will be uniform, are currently listed or quoted;

  • (b) specify the last recorded price paid in respect of the securities at a stock exchange where they are listed, or, in the case of a foreign stock exchange, listed or quoted, on the latest practicable date during the period of 3 months immediately preceding the date of the offer;

  • (c) specify the last price paid in respect of the securities on the last trading day of each of the 6 months immediately preceding the date of the offer;

  • (d) specify the highest and the lowest prices paid in respect of the securities during the period of 6 months immediately preceding the date of the offer;

  • (e) where the offer has been the subject of a public announcement, whether in a newspaper or in any other form of news medium or otherwise, specify the last price paid on the last trading day during the period of 3 months immediately preceding the public announcement, or, if the securities were not dealt in during that period, this should be stated.

2. Where the securities offered are those of a corporation incorporated outside Hong Kong and—

  • (a) are listed or quoted on a stock exchange in the country or territory where the corporation was incorporated; or

  • (b) are yet to be issued but will be in all respects uniform with the securities already so listed or quoted,

the offer shall specify that fact and the name of the stock exchange on which those securities, or the securities with which they will be uniform, are so listed or quoted.

3. The offer shall, in the case of securities of a corporation which are not listed or quoted on a stock exchange (including a foreign stock exchange), or which are not uniform in all respects with securities so listed or quoted—

  • (a) give particulars of any restriction in the corporation’s constitution which has the effect of requiring a holder of the corporation’s securities to offer them for purchase to members of the corporation or any other person before transferring them in pursuance of the offer;

  • (b) except where the offer is accompanied by a document which conforms with Part II or Part XII of the Companies Ordinance in relation to the corporation whose securities are the subject of the offer, contain the particulars specified in paragraph 4 of this Schedule or be accompanied by a statement in writing containing those particulars.

4. (1) The particulars referred to in paragraph 3 (b) are as follows—

  • (a) (i) the year in which, and the country or territory in which, the issuing corporation was incorporated;

    • (ii) the address of its registered or principal office in Hong Kong; and

    • (iii) where the issuing corporation is incorporated outside Hong Kong, the address of its registered or principal office in the country or territory in which it was incorporated or is resident;

  • (b) (i) the authorized capital of the issuing corporation;

    • (ii) the amount of the authorized capital of the corporation that has been issued and is outstanding at the date specified as being the close of the 5 financial years of the corporation immediately preceding the date of the offer;

    • (iii) the classes of shares into which that capital is divided;

    • (iv) the rights of each class of shareholder in respect of capital, dividends and voting; and

    • (v) the number and total nominal value respectively of shares issued for cash and shares issued as fully or partly paid up for a consideration other than cash;

  • (c) (i) the number and total nominal value of shares issued since the close of the last financial year of the issuing corporation;

    • (ii) the classes (if any) into which the shares are divided and the rights of each class of shareholder in respect of capital, dividends and voting;

    • (iii) the number and total nominal value respectively of shares issued as fully or partly paid up for cash or as fully or partly paid up for a consideration other than cash, or both;

    • (iv) the number of redeemable preference shares (if any) redeemed and the amounts repaid in respect of the shares so redeemed; and

    • (v) particulars of any reduction of capital lawfully authorized in respect of the corporation;

  • (d) particulars of any reorganization of the capital of the issuing corporation during each of its 2 financial years preceding the date of the offer;

  • (e) (i) the amount of the net profit or loss of the issuing corporation (before taking into account any form of tax calculated by reference to the amount of profits of the corporation);

    • (ii) the rate per cent of dividends paid by the issuing corporation and the amount distributed by way of dividends on each class of shares during each of the 5 financial years immediately preceding the offer; and

    • (iii) where no dividend has been paid in respect of shares of any particular class during any of those years, a statement to that effect;

  • (f) the total amount of any debentures issued by the issuing corporation and outstanding not more than 28 days before the date of the offer, and the total amount of mortgage debts, loans, or charges due from the corporation not more than 28 days before that date, together with the rate of interest payable in respect of them;

  • (g) the names and addresses of the directors of the issuing corporation;

  • (h) the number, description, and nominal value of the securities of the issuing corporation held by or on behalf of each of its directors or, if a director does not hold any such securities and no securities are held on his behalf, a statement to that effect; and

  • (i) whether or not the securities offered are, or, in the case of securities to be issued, will be, fully paid up, and, if not, to what extent they are or will be paid up, and, if the issuing corporation has fixed a date and amount for payment of outstanding calls, the date and amount of each such call.

(2) If any of the particulars required by sub-paragraph (1) are not available by reason of the issuing corporation not having carried on business for a sufficient length of time, or for any other reason, the offer shall state that fact; and if the issuing corporation is one incorporated in Hong Kong in respect of which those particulars are not available in the returns of the corporation filed with the Registrar of Companies, the offer shall also state that fact.

5. If the securities offered are yet to be issued, the offer shall—

  • (a) state—

    • (i) whether or not the issue requires the authority of a resolution of the issuing corporation;

    • (ii) the first dividend in which the securities will participate; and

    • (iii) whether or not there has been, to the knowledge of the offeror, any material change in the financial position of the issuing corporation since the date of the balance sheet and profit and loss account of the corporation for the financial year preceding the date of the offer and, if so, particulars of the change;

  • (b) be accompanied by copies of the balance sheet and profit and loss account of the corporation (if any) made up to the end of the last financial year of the corporation preceding the date of the offer;

  • (c) be accompanied by copies of the memorandum and articles of association or other document constituting or defining the constitution of the issuing corporation unless the offer specifies—

    • (i) a place in Hong Kong at which copies of those documents may be inspected by offerees; and

    • (ii) the times at which they may be inspected;

  • (d) in the case of securities which will be uniform in all respects with previously issued securities of the issuing corporation that are not currently listed on a stock exchange, give any information that the offeror may have as to the number and nominal value of those securities which have been sold during the period of 6 months preceding the date of the offer, and the prices yielded from the sales or, if the offeror has no such information, state that fart;

  • (e) in the case of securities which will not be uniform in all respects with securities previously issued by the issuing corporation, state—

    • (i) the respects in which the securities will differ from the previously issued securities;

    • (ii) whether or not any voting rights will attach to the securities and, if so, the limitations (if any) on those rights; and

    • (iii) whether or not application for permission to have the securities listed or quoted has been or will be made to a stock exchange (including a foreign stock exchange) and, if such an application has been made, the name of the stock exchange applied to.

6. The offer shall contain in a prominent position, in printing not smaller than eight point Times, a notice in the following form—

“IMPORTANT

If you are in doubt as to any aspect of this offer, you should consult a stockbroker or other registered dealer in securities, a bank manager, solicitor, professional accountant, or other professional adviser.”.

Third Schedule

[ss. 141G & 141I.]

insider dealing tribunal

1. In this Schedule, unless the context otherwise requires—

“chairman” means the chairman of the Tribunal;

“inquiry” means an inquiry under section 141H;

“member” means a member of the Tribunal;

“Tribunal” means the Tribunal established by section 141G.

Appointment of members

2. Subject to paragraphs 4 and 5, the chairman shall be appointed for a term of 3 years but may from time to time, so long as he remains qualified under section 141G(3), be reappointed.

3. The other 2 members shall be appointed to act in relation to any specified inquiry or inquiries and any such member may be so appointed more than once.

4. A member may at any time resign his office by notice in writing to the Governor.

5. The chairman shall vacate his office if at any time he ceases to hold office as a judge of the Supreme Court.

6. A member other than the chairman may be removed from office by the Governor for disability, bankruptcy, neglect of duty or misconduct proved to the satisfaction of the Governor.

7. If an inquiry has been commenced by the Tribunal but not completed before the expiry of the chairman’s term of office or before the resignation from or vacation of office by a member takes effect, the Governor may authorize the chairman or member to continue as chairman or a member of the Tribunal for the purpose of completing that inquiry.

8. An inquiry may be continued, notwithstanding any change in the membership of the Tribunal, as if the change had not occurred; and in particular evidence taken by the Tribunal need not be taken again on account of the change.

Temporary members

9. The Governor may appoint a temporary member of the Tribunal to act in place of any member who is precluded by illness, absence from Hong Kong or any other cause from exercising his functions or who considers it improper or undesirable that he should exercise his functions in relation to any specified matter.

10. A temporary member who is appointed to act in place of the chairman shall be a person who holds office as a judge of the Supreme Court and a temporary member who is appointed to act for an ordinary member shall not be a person who would be disqualified under section 141G(3) from appointment as a member.

11. A temporary member who acts in place of the chairman or other member shall be deemed for all purposes to be the chairman or other member of the Tribunal as the case may be.

Sittings and representation

12. The chairman shall convene such sittings of the Tribunal as he thinks necessary for the efficient performance of its functions.

13. The chairman shall preside at all sittings of the Tribunal and no sitting shall be held unless the other 2 members are also present.

14. Every question before the Tribunal shall be determined by the opinion of the majority of the members except a question of law which shall be determined by the chairman.

15. Every sitting of the Tribunal shall be held in camera and, subject to paragraph 16, the Tribunal shall determine which persons may be present.

16. A person whose conduct is the subject of an inquiry or who is implicated, or concerned in the subject matter of an inquiry shall be entitled to be present in person at any sitting of the Tribunal relating to that inquiry and to be represented by a barrister or solicitor.

17. For the purposes of paragraph 16 the Tribunal shall determine whether the conduct of any person is the subject of the inquiry or whether a person is in any way implicated or concerned in the subject matter of the inquiry.

18. The Tribunal may appoint a legal officer nominated by the Attorney General, a barrister or a solicitor to act as counsel for the Tribunal.

19. In paragraph 16 “sitting” does not include any meeting of the Tribunal which is held for the purpose of deliberating on any question before the Tribunal.

Protection of Investors Ordinance1

To provide for the protection of investors in securities and other property.

[29th March, 1974]

Short title.

1. This Ordinance may be cited as the Protection of Investors Ordinance.

Interpretation.

2. (1) In this Ordinance, unless the context otherwise requires—

“Commission” means the Securities Commission established under the Securities Ordinance;

“Commissioner” means the Commissioner for Securities appointed under the Securities Ordinance;

“corporation” has the same meaning as in the Securities Ordinance;

“credit union” means a credit union registered under the Credit Unions Ordinance;

“issue”, in relation to an advertisement, invitation, or document, includes publish, circulate, distribute, or disseminate the advertisement, invitation, or document; and also includes causing the advertisement, invitation, or document to be issued;

“investment arrangements”, in relation to property other than securities, means arrangements the purpose or effect, or pretended purpose or effect, of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or otherwise) to participate in or receive—

  • (a) profits or income alleged to arise or to be likely to arise from the acquisition, holding, management, or disposal of the property or any part of the property; or

  • (b) sums to be paid or alleged to be likely to be paid out of any such profits or income;

“invitation” includes an offer, and also includes an invitation made by means of a telephone call or personal visit;

“securities” has the same meaning as in the Securities Ordinance.

(2) For the purposes of this Ordinance—

  • (a) “advertisement” includes every form of advertising, whether notified or published—

    • (i) in a newspaper, magazine, journal, or other periodical publication;

    • (ii) by the display of posters or notices;

    • (iii) by means of circulars, brochures, pamphlets, or handbills;

    • (iv) by an exhibition of photographs or cinematograph films; or

    • (v) by way of sound broadcasting or television,

    and references to the issue of an advertisement shall be construed accordingly;

  • (b) “document” includes a circular, brochure, pamphlet, poster, handbill, prospectus, and any other document which is directed at or likely to be read by the public; and also includes any newspaper, magazine, journal, or other periodical publication;

  • (c) an advertisement issued by any person by way of display or exhibition in a public place shall be treated as being issued by him on every day on which he causes or authorizes it to be displayed or exhibited;

  • (d) an advertisement, invitation, or document which consists of or contains information likely to lead, directly or indirectly, to the doing by members of the public of any act mentioned in paragraphs (a) and (b) of section 3(1) shall be treated as being an advertisement, invitation, or document which is or contains an advertisement or invitation to the public to do that act;

  • (e) an advertisement, invitation, or document issued by one person on behalf of another shall be treated as an advertisement, invitation, or a document, as the case may be, issued by that other person.

Offences

Offence fraudulently or recklessly to induce persons to invest money.

3. (1) Any person who, by any fraudulent or reckless misrepresentation, induces another person—

  • (a) to enter into or offer to enter into any agreement—

    • (i) for or with a view to acquiring, disposing of, subscribing for or underwriting securities; or

    • (ii) the purpose or effect, or pretended purpose or effect, of which is to secure to any of the parties to the agreement a profit from the yield of securities or by reference to fluctuations in the value of securities or property other than securities; or

  • (b) to take part in or offer to take part in any investment arrangements in respect of property other than securities,

shall be guilty of an offence.

(2) For the purposes of subsection (1) “fraudulent or reckless misrepresentation” means—

  • (a) any statement—

    • (i) which to the knowledge of its maker was false, misleading, or deceptive; or

    • (ii) which is false, misleading, or deceptive and was made recklessly;

  • (b) any promise—

    • (i) which the maker of the promise had no intention of fulfilling;

    • (ii) which, to the knowledge of the maker of the promise, was not capable of being fulfilled; or

    • (iii) which was made recklessly;

  • (c) any forecast—

    • (i) which, to the knowledge of the maker of the forecast, was not justified on the facts known to him at the time when he made it; or

    • (ii) which was not justified on the facts known to the maker of the forecast at the time when he made it and was made recklessly; or

  • (d) any statement or forecast from which the maker of the statement intentionally or recklessly omitted a material fact, with the result that the statement was thereby rendered untrue, misleading, or deceptive, or, as the case may be, the forecast was thereby not capable of being justified or was thereby rendered misleading or deceptive.

(3) Any person who is guilty of an offence against this section shall be liable on conviction on indictment to a fine of $1,000,000 and to imprisonment for 7 years.

Offence to issue advertisements and documents relating to investments in certain cases.

4. (1) Subject to subsections (2) and (3), no person shall—

  • (a) issue, or have in his possession for the purposes of issue, any advertisement or invitation which to his knowledge is or contains an invitation to the public to do any of the acts referred in to in paragraphs (a) and (b) of section 3(1); or

  • (b) issue, or have in his possession for the purposes of issue, any document which to his knowledge contains an advertisement or invitation to the public to do any of those acts.

(2) Subsection (1) does not apply in relation to—

  • (a) the issue of a prospectus which complies with or is exempt from compliance with Part II of the Companies Ordinance or, in the case of a company incorporated outside Hong Kong, complies with or is exempt from compliance with Part XII of that Ordinance;

  • (b) the issue of a document relating to securities of a body corporate incorporated in Hong Kong that is not a company registered under the Companies Ordinance, being a document which—

    • (i) would, if the body corporate were a registered company, be a prospectus to which section 38 of the Companies Ordinance applies, or would apply if not excluded by subsection (5) (b) of that section or by section 38A of that Ordinance; and

    • (ii) contains all the matters which, by virtue of Part XII of that Ordinance, it would be required to contain if the body corporate were a company incorporated outside Hong Kong and the document were a prospectus issued by that company;

  • (c) the issue of a form of application for shares or debentures of a company, together with—

    • (i) a prospectus which complies with or is exempt from compliance with Part II of the Companies Ordinance or, in the case of a company incorporated outside Hong Kong, complies with or is exempt from compliance with Part XII of that Ordinance; or

    • (ii) in the case of a body corporate incorporated in Hong Kong which is not a registered company, a document containing the matters specified in paragraph (b) (ii);

  • (d) the issue of a form of application for the securities of a company in connexion with an invitation made in good faith to a person to enter into an underwriting agreement with respect to those securities;

  • (e) the issue of a prospectus which has been approved by the Commissioner in relation to a mutual fund corporation or unit trust authorized by the Commission under the Securities Ordinance;

  • (f) the issue of a form of application for the shares of a mutual fund corporation or the units of a unit trust, being a mutual fund corporation or unit trust which has been authorized by the Commission, together with a prospectus approved by the Commissioner; or

  • (g) the issue of any advertisements, invitations, or documents (being advertisements, invitations, or documents to which this section relates) which is required or authorized by or under any other Ordinance, or has been authorized by the Commission before issue.

(3) This section does not prohibit the issue or possession of any advertisement, invitation, or document by reason only—

  • (a) that it is or contains an advertisement or invitation to which this section relates made—

    • (i) with respect to securities, by or on behalf of a dealer or investment adviser who is registered under the Securities Ordinance or who is a dealer exempted from registration under that Ordinance;

    • (ii) by or on behalf of a corporation to holders of securities or creditors of, or servants or agents employed by, that corporation, or a corporation which is deemed to be related to that corporation by virtue of section 4 of the Securities Ordinance, in respect of securities of that corporation or that related corporation;

    • (iii) by or on behalf of the manager or trustee of a unit trust authorized by the Commission pursuant to the Securities Ordinance to holders of units, or creditors, of the trust, or to servants or agents employed by that manager or trustee;

    • (iv) by or on behalf of the Government in respect of securities issued by it;

    • (v) by or on behalf of a credit union in respect of shares in the union;

    • (vi) by or on behalf of a person acting as trustee of a trust (not being a unit trust) to beneficiaries under the trust; or

    • (vii) with respect to securities intended to be disposed of to persons outside Hong Kong or to be disposed of in Hong Kong only to persons whose business involves the acquisition, disposal, or holding of securities, whether as principal or as agent; or

  • (b) that it is or contains an advertisement or invitation which a person who is engaged in the business of buying and selling property other than securities (either as principal or as agent) may make or give in the ordinary course of that business; but nothing in this paragraph authorizes any person to do anything pursuant to or for the purpose of any investment arrangements in respect of any such property.

(4) Subject to the provisions of this section, any person who contravenes subsection (1) shall be guilty of an offence and shall be liable on conviction on indictment to a fine of $500,000 and to imprisonment for 3 years.

(5) A person shall not be taken to contravene this section by reason only that he—

  • (a) issues, or has in his possession for the purposes of issue, to purchasers copies of any newspaper, journal, magazine, or other periodical publication of general and regular circulation, which contain an invitation to which this section relates; or

  • (b) issues advertisements which are or contain, or issues or has in his possession for the purposes of issue documents which contain, invitations to which this section relates to persons who are dealers or investment advisers registered under the Securities Ordinance or who are exempted from registration under that Ordinance.

(6) For the purposes of any proceedings under this section, an advertisement, invitation, or document which is or contains an advertisement or invitation to enter into or offer to enter into any agreement referred to in section 3(1) with a person specified in the advertisement, invitation, or document shall, subject to subsection (5), be presumed, unless he proves to the contrary, to have been issued by him.

(7) For the purposes of subsection (2)(g), the Commission may in authorizing the issue of any advertisement, invitation, or document impose such conditions as it thinks fit.

Offence to issue advertisement relating to an investment management business unless registered.

5. (1) A person shall not—

  • (a) issue, or have in his possession for the purposes of issue, any advertisement in which to his knowledge a person other than an investment adviser registered under the Securities Ordinance holds himself out as being prepared—

    • (i) to give investment advice in return for remuneration; or

    • (ii) to undertake for remuneration the management of investors’ portfolios of securities; or

  • (b) issue or have in his possession for the purposes of issue any document which to his knowledge contains such an advertisement.

(2) Any person who contravenes subsection (1) shall be guilty of an offence, and shall be liable on conviction to a fine of $10,000.

(3) A person shall not be taken to contravene this section by reason only that he—

  • (a) issues, or has in his possession for the purposes of issue, to purchasers copies of any newspaper, journal, magazine, or other periodical publication of general and regular circulation, which contain an advertisement to which this section relates; or

  • (b) issues advertisements which are or contain, or issues or has in his possession for the purposes of issue documents which contain, invitations to which this section relates to persons who are dealers or investment advisers registered under the Securities Ordinance or who are exempted from registration under that Ordinance.

(4) For the purposes of any proceedings under this section, an advertisement or document in which a person named in the advertisement or document holds himself out as being prepared—

  • (a) to give investment advice in return for remuneration; or

  • (b) to undertake for remuneration the management of investors’ portfolios of securities,

shall, subject to subsection (3), be presumed, unless he proves to the contrary, to have been issued by him.

Seizure etc. of documents.

6. (1) If a magistrate is satisfied by information on oath that there is reasonable ground for suspecting that, at premises that are specified in the information, a person is in possession of any document which relates to an offence alleged to have been committed against this Ordinance, the magistrate may grant a warrant empowering the Commissioner or any police officer—

  • (a) to enter the premises, if necessary by force, at any time within 1 month from the date of the warrant; and

  • (b) to search for, seize and remove, any document found on the premises which the Commissioner or, as the case may be, the police officer has reasonable grounds for believing to have been involved in or connected with the alleged offence.

(2) Any document seized under subsection (1) may be retained for a period of 6 months or, if within that period any proceedings in respect of an offence against this Ordinance are commenced and the document is relevant to those proceedings, until the conclusion of those proceedings.

(3) Notwithstanding subsection (2), a document seized under subsection (1) may be retained for a period longer than 6 months if the person entitled to it is not in Hong Kong or his whereabouts are unknown; and if—

  • (a) that person subsequently returns to Hong Kong or his whereabouts subsequently become known; and

  • (b) within 14 days of his return or the discovery of his whereabouts, any proceedings in respect of an offence against this Ordinance are commenced, and the document is relevant to those proceedings,

the document may be retained until the conclusion of those proceedings.

(4) The person to whom a document seized under subsection (1) belongs shall, unless the document is the subject of an order under subsection (5), be entitled at all reasonable times to take copies of or extracts from it.

(5) Where any person is convicted of an offence against this Ordinance, the court dealing with the case may make an order authorizing the destruction, or the disposal in any other specified manner, of any documents produced to the court which are shown to its satisfaction to be involved in or connected with the commission of the offence; but an order under this subsection may not authorize the destruction or disposal of a document before the conclusion of the proceedings to which the order relates.

(6) Subject to subsections (2), (3), (4), and (5), section 102 of the Criminal Procedure Ordinance (which makes provision for the disposal of property connected with offences) shall apply to property which has come into the possession of the Commissioner or the police under this section in the same way as it applies to property which has come into the possession of the police in the circumstances mentioned in that section.

(7) Any person who—

  • (a) obstructs the exercise of any right of entry or search conferred by virtue of a warrant under this section; or

  • (b) obstructs the exercise of any right so conferred to seize any document,

shall be guilty of an offence and liable on conviction to a fine of $5,000 and to imprisonment for 6 months.

Liability of directors, etc.

7. (1) Where an offence against this Ordinance committed by a company or other body corporate is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any director, manager, secretary, or other similar officer of the company or body corporate or any person who was purporting to act in any such capacity, he, as well as the company or body, shall be guilty of the offence and shall be liable to be proceeded against and punished accordingly.

(2) Subject to subsection (3), for the purposes of this section, a person is deemed to be a director of a company or other body corporate if he occupies the position of a director by whatever name called, or is a person in accordance with whose directions or instructions the directors of the company or other body corporate or any of them act.

(3) A person shall not, by reason only that the directors of a company or other body corporate act on advice given by him in a professional capacity, be taken to be a person in accordance with whose directions or instructions those directors act.

Action in Tort

Liability in tort for inducing persons to invest money in certain cases.

8. (1) Any person who, by any fraudulent, reckless, or negligent misrepresentation, induces another person—

  • (a) to enter into any agreement—

    • (i) for or with a view to acquiring, disposing of, subscribing for, or underwriting securities; or

    • (ii) the purpose or effect, or pretended purpose or effect, of which is to secure to any of the parties to the agreement a profit from the yield or securities or by reference to fluctuations in the value of securities or property other than securities; or

  • (b) to take part in any investment arrangements in respect of property other than securities,

shall be liable to pay compensation to that other person for any pecuniary loss that he has sustained by reason of his reliance on the misrepresentation.

(2) For the purposes of subsection (1) “fraudulent, reckless, or negligent misrepresentation” means—

  • (a) any statement—

    • (i) which to the knowledge of its maker was false, misleading, or deceptive;

    • (ii) which is false, misleading, or deceptive and was made recklessly; or

    • (iii) which is false, misleading, or deceptive and was made without reasonable care having been taken to ensure its accuracy;

  • (b) any promise—

    • (i) which the maker of the promise had no intention of fulfilling;

    • (ii) which, to the knowledge of the maker of the promise, was not capable of being fulfilled; or

    • (iii) which was made recklessly or without reasonable care having been taken to ensure that it could be fulfilled;

  • (c) any forecast—

    • (i) which, to the knowledge of the maker of the forecast, was not justified on the facts known to him at the time when he made it; or

    • (ii) which was not justified on the facts known to the maker of the forecast at the time when he made it and was made recklessly or without reasonable care having been taken to ascertain the accuracy of those facts; or

  • (d) any statement or forecast from which the maker of the statement intentionally, recklessly, or negligently omitted a material fact of which he had knowledge or ought to have had knowledge, with the result that the statement was thereby rendered untrue, misleading, or deceptive, or, as the case may be, the forecast was thereby not capable of being justified or was thereby rendered misleading or deceptive.

(3) For the purposes of this section—

  • (a) where any statement, forecast, or promise to which this section relates was made by a company or other body corporate, every person who was a director of the company or body corporate at the time when the statement, forecast, or promise was made shall, in the absence of evidence to the contrary, be taken to have caused or authorized it to be made; and

  • (b) a person is deemed to be a director of a company or other body corporate if he occupies the position of director by whatever name he may be called, or is a person in accordance with whose directions or instructions the directors of the company or other body or any of them act; but a person shall not, by reason only that the directors of a company or other body corporate act on advice given by him in a professional capacity, be taken to be a person in accordance with whose directions or instructions those directors act.

(4) Nothing in this section limits or diminishes any liability which any person may incur under the common law.

(5) This section does not confer a right of action in any case to which section 40 of the Companies Ordinance applies.

(6) An action may be brought under this section whether or not a person has been charged with or convicted of an offence under this Ordinance.

Mr. McCarthy, formerly an economist in the Central Banking Service and now in the African Department of the International Monetary Fund, holds degrees from the London School of Economics. He has previously written on offshore banking and deposit insurance.

Much of the data in this introduction has been derived from various issues of Hong Kong, a publication of the Government Publications Centre, Hong Kong.

In 1972, the Legislative Council established the limit of HK$7 billion. This was increased in 1981 to HK$30 billion.

Barclays was restricted to one branch until 1976. The exception was granted in order to introduce a London clearing bank.

“The Top 500 in World Banking: Annual Review,” The Banker, June 1981. (This figure included subsidiaries besides the two banks in Hong Kong and, therefore, may somewhat overstate the importance of the Hong kong and Shanghai Bank group within Hong Kong.)

The provision now reads:

“‘banking business’ means the business of either—

  • “(a) receiving from the general public money on current, deposit, savings or other similar account repayable on demand or within less than 3 months or at call or notice of less than 3 months; or

  • “(b) paying or collecting cheques drawn by or paid in by customers, or both.”

Laws of Hong Kong, Cap. 65 (1978). Originally Nos. 2 of 1895; 54 of 1935; and 21 of 1939 (Cap. 65, 1950). Relevant citations: Nos. 50 of 1911; 51 of 1911; 1 of 1912; 2 of 1912; 43 of 1912; 5 of 1924; 21 of 1939; 2 of 1946; 20 of 1948; 22 of 1950; 54 of 1956; 14 of 1958; 21 of 1969; 7 of 1978; and 21 of 1978.

Laws of Hong Kong, Cap. 68 (1978). Originally No. 13 of 1913 (Cap. 68, 1950). Relevant citations: Nos. 5 of 1924; 33 of 1939; 54 of 1956; and 14 of 1958.

Laws of Hong Kong, Cap. 66 (1979). Originally No. 54 of 1935 (Cap. 66, 1950). Relevant citations: Nos. 44 of 1936; 57 of 1936; 9 of 1937; 21 of 1939; 12 of 1946; 20 of 1948; 4 of 1951; 54 of 1956; 14 of 1958; 6 of 1964; 31 of 1968; 47 of 1968; 57 of 1970; 90 of 1970; 25 of 1971; L.N. 150/71; L.N. 125/72; Nos. 8 of 1975; 7 of 1978; 17 of 1979; and L.N. 388/81.

Laws of Hong Kong, Cap. 67 (1969). Originally No. 11 of 1969. Relevant citation: L.N. 16/77.

Laws of Hong Kong, Cap. 70 (1974). Originally No. 6 of 1929 (Cap. 70, 1950). Relevant citations: Nos. 33 of 1939; 8 of 1946; 20 of 1948; 37 of 1950; 27 of 1953; 36 of 1957; 25 of 1961; G.N. 761165; L.N. 60/69; L.N. 127/73; Nos. 6 of 1978; and 21 of 1978.

Laws of Hong Kong, Cap. 364 (1980). Originally No. 76 of 1980. Relevant citation: L.N. 9/81.

The original law, No. 30 of 1964, has been amended on a number of occasions. This version, Cap. 155, is based on the version in Laws of Hong Kong (Government Printer), reprinted October 1, 1981. Relevant citations: Nos. 26 of 1967; 36 of 1967; 27 of 1969; 65 of 1971; 72 of 1973; L.N. 167/74; No. 80 of 1974; L.N. 86/75; L.N. 94/75; Nos. 30 of 1975; 84 of 1975; 92 of 1975; L.N. 223/76; L.N. 16/77; Nos. 75 of 1978; 18 of 1979; 74 of 1979; 4 of 1980; 25 of 1981; 27 of 1981; L.S. No. 3 of 1982; and No. 8 of 1982. Additional citation: L.N. 168/74.

Editor’s note: subsecs. 2 and 3 have been deleted by sec. 3 of The Banking (Amendment) Ordinance, 1982.

Laws of Hong Kong, Cap. 328. Originally No.3 of 1976. Relevant citations: L.N. 16/77; No. 74 of 1978; L.N. 272/78; L.N. 289/78; Nos. 19 of 1979; 75 of 1979; 17 of 1981; 26 of 1981; 28 of 1981; and 9 of 1982. Additional citation: L.N. 54/76.

The Second Schedule is omitted from this volume.

The Second Schedule is omitted from this volume.

The Second Schedule is omitted from this volume.

Laws of Hong Kong, Cap. 163 (1980). Originally No. 29 of 1980. Relevant citations: L.N. 347/80; and L.N. 231/81.

Editor’s query: “than.”

Laws of Hong Kong, Cap. 166 (1970). Originally No. 16 of 1930 (Cap 166, 1950). Relevant citations: Nos. 33 of 1939; 23 of 1946; 23 of 1947; G.N. 733/47; Nos. 57 of 1948; 22 of 1950; 24 of 1950; 1 of 1963; 13 of 1966; 2 of 1970; 21 of 1970; and 51 of 1970.

Laws of Hong Kong, Cap. 119 (1968). Originally No. 39 of 1968. Relevant citations: L.N. 30/70; and No. 39 of 1976.

The Schedule is omitted from this volume.

Laws of Hong Kong, Cap. 262 (1972). Originally No. 29 of 1972.

The Schedule is omitted from this volume.

Laws of Hong Kong, Cap 333 (1978). Originally No. 12 of 1974. Relevant citations: L.N. 56/74; L.N. 140/74; Nos. 62 of 1976; 8 of 1978; and 47 of 1981. Additional citations: L.N. 39/74; L.N. 93/74; L.N. 107/74; L.N. 166/74; L.N. 197/74; L.N. 209/74; L.N. 247/74; L.N. 296/76; L.N. 8/78; and L.N. 92/80.

Parts I and II, March 1, 1974; Parts III and IV, June 1, 1974; Part V, October 11, 1974; Parts VI and VII, October 1, 1974; Part VIII, November 29, 1974; Part IX (except sec. 88), January 1, 1977; Part IX, sec. 88, December 30, 1977; Part X, August 19, 1974; Part XI, October 1, 1974; Part XII, secs. 135–139 and 141, March 6, 1974; Part XIIA, February 17, 1978; Part XIII, August 19, 1974.

The editor notes a difference in wording between section 33(1) and section 33(4).

Editor’s query: “a.”

Laws of Hong Kong, Cap. 335 (1974). Originally No. 13 of 1974. Relevant citations: L.N. 38/74; and L.N. 56/74. Additional citation: L.N. 72/74.

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