How to distinguish between finance companies, banks and financial intermediaries in the lending business? What is the difference in obtaining a licence?

If you are looking for lending services, there are many options available to you, including the most ‘secure’ banks, finance companies with dazzling advertisements, and even some ‘intermediary’ lenders. How do you differentiate between them if you are not familiar with the relevant regulations? What licences do these companies need? This article will take you through the process.

All finance companies established in Hong Kong to carry on lending business are subject to the Money Lenders Ordinance. The most familiar restrictions include an express prohibition on finance companies charging more than 60% of the effective annual interest rate on loans, which is illegal.

In addition, in order to apply for a finance company, the applicant must meet the requirements of the Money Lenders Licence, including background checks, site checks, etc., and be vetted and approved by three government departments (the Licensing Tribunal, the Money Lenders Registry and the Police Force) before a licence can be issued.

The Money Lenders Registry is responsible for renewing, signing and applying for licences, and generally keeping records in the Money Lenders Register, which the public has the right to inspect.

(2.) “Financial intermediaries” – also regulated under the Money Lenders Ordinance
To combat the grey area of unscrupulous financial intermediaries, the Government has tightened the regulation under the Money Lenders Ordinance since 1 December 2016: if a loan involves the appointment of a third party that is not listed in the Money Lenders Register (which can be confirmed by the public in the “List of Third Parties Appointed by Licensed Money Lenders for Granting Loans” on the Companies Registry’s website), it is considered an unscrupulous intermediary. Licensed money lenders should not grant loans to them.

Subsequently, if loan advertisements from finance companies also contain the phrase “Give the money to the intermediary if you want to repay the loan”, you should check and confirm the identity of the intermediary first, do not trust any caller claiming to be an employee of a bank, finance company or government department, and strictly prohibit any payment or fee received by the intermediary.

(3.) “Bank Loans” – regulated by the Banking Ordinance and the Code of Banking Practice
Unlike the above two scenarios, bank loans are regulated by the HKMA. In contrast, Hong Kong banks that are able to provide personal loans are essentially “licensed banks” – due to the three-tier licensing system, there are three categories of banks in Hong Kong.

“licensed banks”.
“restricted licence banks”.
“Deposit-taking companies”.
Similarly, the list of “licensed banks” authorised by the HKMA (including virtual banks) can be identified on the authority’s website. These banks with lending facilities are required to comply with both the Banking Ordinance and the Code of Banking Practice.

In short, banks do not involve intermediaries in the processing of loans, but any intermediary who “can” provide bank loans is basically a fraud. In addition, the Code of Banking Practice has a number of provisions that limit the effective APR of loan products, require transparent disclosure of product details, calculation of expense formulas, etc., and impose certain requirements on the handling of customer information and loan recovery procedures.

The above information is provided for reference. If you have any questions about taxation or accounting, it is always wise to seek advice from a professional accountant and we welcome your enquiries.