Financial resources rules and financial return
Types of financial assets:
– Margin business
– Bonds
– Futures and options
– Leveraged foreign exchange trading
– Initial public offering (IPO)
The SFC uses FRR to check whether a company has sufficient liquid capital to maintain its operations, including payments to customers and salaries to employees. We will calculate if your assets can cover your liabilities in accordance with the SFC rules, and assist in compiling the FRR to demonstrate that your company can operate properly.
Q & A
A: Very important. If the SFC finds a miscalculation in the FRR, they may consider that the company has inflated its liquid capital, and hence fine and publicly reprimand the company.
Q: When do we have to submit an FRR?
A: Different companies have different timeframes for submitting FRR, depending on the type of licence they hold. According to the SFO, companies may be required to submit FRR on a monthly to six-monthly basis. However, it is the responsibility of the licensed companies to ensure the requirements are met at all times. We therefore advise our clients to set up internal control to recalculate their liquid capital when an upcoming transaction exceeds a certain amount to ensure compliance with the SFC requirements.
Q: When do we need your services?
A: You will need an auditor’s signature when you are applying for / have just received an SFC license;
– When a newly-established company prepares to submit the FRR;
– Pay attention to the expiry date of your license and contact us 1 month beforehand
Q: What are the benefits of outsourcing work related to FRR?
A: Reducing manpower costs: Hiring an in-house accountant who can handle FRR independently can be costly; by outsourcing the work, you can enjoy professional services and avoid the cost of hiring additional staff.
– Increasing the consistency and accuracy of your FRRs: We have extensive experience in handling FRR and are able to provide you with a comprehensive range of services. Besides, we are well aware of the submission time of FRR, thus we can prepare for you in advance.
Q: Could you please give some success stories?
A: In the cases that we handle, there are no failed cases. Each and every case is completed on time with 100% accuracy. Please contact us for more details.
Q: What information do we need to provide?
A: All clients need to do is provide us with the accounting documents and we will take care of the rest for you. The whole process takes about two weeks.
Q: What would be the consequences of not maintaining the financial resources required by the rules?
A: Pursuant to section 146(1) of the Securities and Futures Ordinance (SFO), if a licensed corporation becomes aware of its inability to maintain, or to ascertain whether it maintains, the financial resources required of it, it shall, as soon as practicable, notify the SFC by notice in writing of that fact, and immediately cease carrying on any regulated activity for which it is licensed, otherwise than for the purpose of completing such transactions as the SFC may permit. However, the SFC may permit the licensed corporation to carry on business, subject to such conditions as may be imposed by the SFC. If the licensed corporation fails to comply with the above requirements, it will be fined or imprisoned.
Source of information – SFC website
Q: What is the impact of IFRS 16 Leases on the requirements of liquid capital
A: For accounting years beginning after 1 January 2019, rents can no longer be recorded as monthly expenses. The new standard requires the present value of rent for the entire lease term to be accounted for as a right-of-use asset and as a payment of lease liabilities. There are also changes to the Securities and Futures (Financial Resources) Rules as a result.