Hong Kong stored value facility licence: requirements, exemptions and application process

Hong Kong Stored Value Facility Licence: Requirements and Process

The hong kong stored value facility licence is a regulatory authorisation issued by the Hong Kong Monetary Authority (HKMA) under the Payment Systems and Stored Value Facilities Ordinance (Cap. 584). Any person who issues a stored value facility in Hong Kong must hold a licence unless an exemption applies.

What Is a Stored Value Facility?

A stored value facility (SVF) is a payment instrument that stores monetary value that can be used to pay for goods or services. The key feature that engages the regime is holding a customer balance that can be spent later. Taking card payments for a company's own goods or services does not make the company a stored value facility issuer. The Ordinance defines a stored value facility as one where the value is stored electronically, can be increased or decreased, and is redeemable for cash or goods.

SVF Licence Hong Kong Requirements

The Monetary Authority grants a licence only if it is satisfied that the applicable minimum criteria under Cap. 584 are fulfilled and will continue to be fulfilled by the licensee. These criteria cover financial resources, fitness and propriety of directors and controllers, adequate systems and controls, business plan and viability, and safeguarding of customer funds.

A non-bank applicant must hold paid-up share capital of at least HK$25 million, or equivalent other financial resources acceptable to the HKMA. This financial resources criterion does not apply to a bank that is an authorised institution under the Banking Ordinance. The HKMA expects the applicant to demonstrate that it can maintain this capital level throughout its operations.

Stored Value Facility Licence HKMA: The Application Process

The HKMA administers the licensing regime. An applicant must submit a formal application to the Monetary Authority. The application requires detailed information about the corporate structure and ownership, the proposed stored value facility and its features, the business model and target market, risk management policies and procedures, anti-money laundering and counter-terrorist financing controls, and safeguarding arrangements for the customer float.

The HKMA reviews the application against the minimum criteria. The process includes a fit and proper assessment of directors, controllers and key personnel. The Monetary Authority may impose conditions on the licence. Restrictions on the maximum stored value per facility and limits on the types of transactions permitted are common conditions.

Hong Kong SVF Licence Exemptions

Not every stored value facility requires a licence. The Ordinance provides several exemptions.

Single-purpose facility - A facility that can only be used to pay for goods or services from a single merchant or a group of related merchants falls outside the Ordinance's definition of a stored value facility. A coffee shop loyalty card that can only be used at that coffee shop chain is a single-purpose facility.

Schedule 8 exempt facilities - Specified facilities are exempt from licensing under Schedule 8 of Cap. 584. These include facilities issued by a bank that is an authorised institution, facilities where the stored value does not exceed HK$1,000 per facility, facilities that are used only within a closed-loop system such as a campus card, and facilities issued by a public body or government department.

The Monetary Authority may grant further exemptions on a case-by-case basis. An exempt facility must still comply with any conditions the HKMA imposes.

Safeguarding the Customer Float

The core prudential duty for a licensed SVF issuer is that the customer float is safeguarded. The float is the total value stored on the facility that has not yet been spent or redeemed. The issuer must ensure that the float remains available to redeem the value still stored on the facility. The HKMA requires the float to be held in a segregated account or covered by an insurance policy or guarantee.

Minimum Criteria for a Licence

The minimum criteria under Cap. 584 include the requirement that the applicant must be a company incorporated in Hong Kong or a branch of a foreign company. The applicant must have adequate financial resources, including the HK$25 million paid-up share capital for non-bank applicants. The directors and controllers must be fit and proper persons. The applicant must have adequate systems and controls for risk management, AML/CFT compliance and data security. The business plan must be viable and sustainable.

The Monetary Authority may refuse an application if it is not satisfied that the applicant will continue to meet these criteria after licensing.

Designation of Retail Payment Systems

A related but separate HKMA regime is the designation of retail payment systems. Retail payment systems, which include larger card schemes, merchant acquirers and payment gateways, are designated, not licensed. Designation is not a licence. A business that merely accepts cards applies for neither. The designation regime focuses on systemically important payment systems that pose risks to the financial system.

Redemption and Issuer Obligations

A licensed SVF issuer must allow the holder to redeem the stored value in cash or by transfer to a bank account. The redemption must be available on demand or within a reasonable period. The issuer must also provide clear terms and conditions, including any fees, expiry dates and redemption procedures.

Practical Steps for Applicants

1. Determine whether your proposed facility is a stored value facility under Cap. 584.
2. Check if an exemption applies, such as a single-purpose facility or a Schedule 8 exempt facility.
3. If a licence is required, prepare the application with the HKMA.
4. Ensure the applicant company has at least HK$25 million paid-up share capital (for non-bank applicants).
5. Develop robust safeguarding arrangements for the customer float.
6. Implement AML/CFT controls and risk management systems.
7. Submit the application with all required supporting documents.

The HKMA publishes guidance notes on the licensing process, including the application form and checklist of required documents. Consult the HKMA's website for the latest requirements and contact the Monetary Authority for pre-application discussions.

Summary of Key Points

• The SVF licence is administered by the HKMA under Cap. 584.
• Non-bank applicants need at least HK$25 million paid-up share capital.
• Banks are exempt from the financial resources criterion.
• Single-purpose facilities and Schedule 8 exempt facilities do not require a licence.
• The customer float must be safeguarded.
• Designation of retail payment systems is not a licence.

For further information, refer to the Payment Systems and Stored Value Facilities Ordinance (Cap. 584) and the HKMA's published guidance.