【Understanding Secretarial Company Service】2 Regulations and The Latest Legislation for Com Sec Virtual Office Companies —— Trust or Company Service Providers License (TCSP), Significant Controllers Register

Secretarial company

There are more and more secretarial companies in the market, providing secretarial service and virtual office address rental service for other companies. So, how can one establish a secretarial company? Can everyone operate and manage it? What are their responsibilities?

Before 2018, it was true that everyone could operate and manage a secretarial company. Setting up a secretarial company was as simple as knowing how to fill in Annual Return and some forms of Companies Registry.

Previously, due to working needs, I went to the Companies Court in Court of First Instance of the High Court for trial. The Hon. Mr. Justice Jonathan Harris asked the witness, who was operating secretarial company business, for the reason filling in company address for the director’s residential address. The witness answered that this was the usual practice of the industry and mainly out of convenience. He was then punished by Mr. Justice Harris repeatedly. It can be seen that the company secretarial industry in the past was indeed out of control.

The global money laundering issue is getting serious. Foreigners could set up Hong Kong companies through secretarial companies without identity verification. Terrorists and financial criminals could launder money by exploiting the loophole. The drug lords from Colombia and Mexico a few years ago were great examples. 

The Hong Kong Government is a member of the intergovernmental Financial Action Task Force. In order to reduce Hong Kong’s risks in money laundering and terrorist financing, and to maintain the reputation of Hong Kong as an international financial centre, the Government decided to implement the Trust and Company Service Providers licensing system from March 1st 2018 to regulate the situation. The Registrar of Companies Registry is responsible for reviewing the license applications. Hong Kong people can no longer set up secretarial company freely.

Since then, companies that help others set up limited companies, become company secretary and provide virtual office address need to apply for the Trust or Company Service Providers License (TCSP License). The initial application fee is HK$3,440 and the license granted is valid for 3 years.

According to Anti-Money Laundering and Counter-Terrorist Financing Ordinance   (Cap.615), a person commits an offence if the person operates company secretarial service business in Hong Kong without a licence, and is liable to a fine of HK$100,000 and to imprisonment for six months. 

The licensing threshold is not low. Except for sole proprietors with accounting or legal professional qualifications, applicants need to pay Registry for Trust and Company Service Providers to assess whether they are suitable candidates for providing licensed business. According to statistics, there were 570 license applications being rejected or withdrawn as at September 30th 2019.

What are the responsibilities of secretarial and virtual office companies?

Licensed secretarial and virtual office companies have to continuously comply with provisions of Anti-Money Laundering Ordinance and guidelines issued by Companies Registry, including reviewing customers’ identities and keeping relevant records with due diligence, otherwise they will be subject to disciplinary action or even license cancellation. 

The law enforcement department of Companies Registry and its efficiency should not be ignored. They even make surprise checks. Once a counterpart was issued a fine ticket on the spot as it was discovered that there was no directory board during the surprise check. There was also company that failed to take measures to identify customers and verify their identities. As a result, the company was fined HK$90,000 and ordered to correct the violations. There were reasons to believe that the company was exposed by others.

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What is Significant Controllers Register?

重要控制人登記冊

Keeping Significant Controllers Register is another new measure published at the same period as TSCP License to raise the transparency of beneficial ownership of Hong Kong companies and facilitate law enforcement officers’ supervision.

The Company (Amendment) Ordinance 2018 came into effect on March 1st 2018 simultaneously, requiring companies incorporated in Hong Kong (except listed companies) to identify people with significant control over the company and record their names in the Significant Controllers Register. 

The law specifies that the Significant Controllers Register can be kept at the company’s registered office, the place where the Members Register is kept, or anywhere in Hong Kong (notify Registrar the relevant place). In other words, regarding benefits of patronising a secretarial company, not only can it help companies to fill in and submit Annual Returns and Forms of Notice of Changes etc, it can also compile and keep Significant Controllers Register. This is especially important for foreigners who set up companies in Hong Kong but do not have place to store the Significant Controllers Register. 

Many secretarial companies in the market charge clients an additional fee ranging from one thousand to few thousands to prepare and keep the Significant Controllers Register. Therefore, you are advised to ask carefully before entrusting a secretarial company to set up a limited company.

Some secretarial companies aiming higher profits use the gimmick of setting up companies for free and then inform clients that the Government requires every company to compile the Significant Controllers Register once clients have set up companies, patronised the company secretarial service, or even rented virtual office. The secretarial companies charge clients expensive fee. In fact, Significant Controllers Register is just a piece of simple and standardised document which is not worth such a high fee at all.

A more annoying thing is that some secretarial companies even ask clients to pay few hundreds to few thousands dollars additionally to make more beautiful directory boards without informing clients that making directory boards is one of the regulations under the licensed secretarial company business and they will be fined as mentioned above if they do not follow strictly. Therefore, the companies may be enticing clients to pay unnecessary fees.

As for those who patronise some cheaper package services or secretarial and virtual office companies with single service, they generally need to handle the Significant Controllers Register by themselves. It is more convenient if you can find a secretarial company that helps compiling and keeping Significant Controllers Register (may refer to CountAudit Virtual Office Rental Service) to avoid declaring to Registrar about the relevant storing place.

Once it is discovered that Significant Controllers Register is not kept during the inspection by law enforcement officers, the company and its person-in-charge can be fined HK$25,000. Although secretarial company is hired to handle the above matters, the company itself and its person-in-charge should still pay attention as they have the possibility to share the responsibility. 

Useful links

Registry for Trust and Company Service Providers Official Website

https://www.tcsp.cr.gov.hk/tcspls/index?lang=en

Company (Amendment) Ordinance 2018 English Version

https://www.cr.gov.hk/en/publications/docs/es1201822053-e.pdf

Presentation on ‘New Initiatives on Anti-Money Laundering & Counter Terrorist Financing’ by the Registrar of Companies at the seminar on October 15th 2019 organised by the Hong Kong Business Accountants Association

https://www.cr.gov.hk/en/publications/docs/speech_ROC_20191015.pdf

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