Hong Kong, known as a global financial hub, offers a conducive environment for e-commerce businesses. However, operating an e-commerce platform, particularly those dealing with monetary transactions, comes with significant regulatory responsibilities. Especially after the pandemic, consumers have changed their shopping habits by adopting contactless payments, online shopping and home delivery. In order to meet the new demand of the consumers, we have seen an increased number of companies or enterprises expanding and developing their business to online platforms in recent years. In such course, these companies will have to be cautious as to the relevant licensing requirements and the potential pitfall in the e-commerce industry in Hong Kong.
This article will explore the licensing requirements for e-commerce platforms in Hong Kong, specifically focusing on the Money Service Operator (MSO) License under the Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap 615) and the Stored Value Facilities (SVF) License under the Payment Systems and Stored Value Facilities Ordinance (Cap 584).
Money Service Operator Licence
The Money Service Operator (“MSO”) Licence is essential for businesses engaged in money service activities. The Anti-Money Laundering and Counter-Terrorist Financing Ordinance (Cap. 615) requires that any person operating (a) a money changing service or (b) a remittance service shall acquire the MSO Licence granted by the Hong Kong Customs and Excise Department (“Customs”). Under Cap 615, businesses must comply with Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) regulations to ensure that their operations do not facilitate illegal activities.
The business operator must apply for a licence from the Customs before they operate a money service, regardless of whether the customers are residing within the jurisdiction or situating in different jurisdictions or that the company may need to remit money to third parties (either directly or on behalf of customers).
However, under the case law 香港特別行政區 訴 葉偉昌 [2016] 137 HKCU 137, if the money changing or remittance services are ancillary to the principal business of the company, the business operator is not required to acquire the MSO Licence. The grant of licensing exemption depends on the structure of the business.
Stored Value Facilities Licenses
Payment Systems and Stored Value Facilities Ordinance (Cap. 584) (“SVFO”) governs the stored value facilities (“SVF”) in Hong Kong and the Hong Kong Monetary Authority is the regulatory institution. SVF is a facility used for storing the value of an amount of money that is paid into the facility from time to time and stored on the facility according to the rules.
The SVF could be used for means of making payments for goods or services or payments to another person under which the issuer undertakes that the payments would be accepted or made to the recipient, up to the amount of the stored value that is available for use.
SVFs are usually relevant to online platforms or businesses that allow customers to create or maintain an account with the function of storing money. Such accounts that provide storing functions and making of payments for goods and services or to a third party, would trigger the licensing requirement.
It is under the law of Hong Kong to apply for a licence to issue SVF, unless the SVF is a single-purpose SVF or is exempt from SVFO.
Single-purpose SVF that could only be used for the purpose of making payments for goods or services to the issuer (with no undertaking given by the issuer) are exempt from licensing requirement. Examples such as cash coupons and shop vouchers which would not fall under the scope of licensing.
Some examples of multi-purposes SVF that are exempt from licensing requirements including loyalty schemes for cash rewards provided by shops and supermarkets, airline mileage programmes or the purchase of digital contents such as ringtones, music, video and all kinds of digital applications etc.
In addition, if such SVF is used within only the “premises” occupied by the issuer as a means of making payment for the goods or services provided by the issuer under an agreement with the issuer, then the issuer does not need to apply for a licence. However, “premises” is not defined under the SVFO, further scrutiny as to whether the online platforms operating by the e-commerce businesses amounts to “premises” as stipulated under the SVFO. Furthermore, if the aggregate amount of the float of the facility exceeds $1,000,000 or its equivalent, the exemption does not apply.
Summary
In summary, as e-commerce continues to expand, the importance of robust payment solutions such as stored value facilities become increasingly apparent. Licensing under the Payment Systems and Stored Value Facilities Ordinance (Cap 584) is essential not only for compliance with the law but also for instilling confidence among consumers and encouraging the growth of a secure and efficient digital economy. E-commerce businesses looking to implement SVFs should meticulously navigate the application process and adhere to all regulatory requirements to ensure a successful and compliant operation.
As currently there is no specific legislation in Hong Kong governing e-commerce, potential operators should seek legal advice to better understand the complexities of the licensing requirements under money changing service or remittance service and stored valued facilities, and are advised to carefully plan and structure its operation, and ensure all necessary measures are taken to maintain compliance in a rapidly changing landscape.
