SFC proposes major overhaul of Financial Resources Rules

The SFC has released a comprehensive consultation paper proposing significant amendments to the Financial Resources Rules (FRRs), specifically focusing on licensed corporations (LCs) engaged in over-the-counter derivatives (OTCD) activities. The consultation, which closes on 13 October 2025, introduces refined capital requirements, enhanced risk calculation methodologies, and measures to support market development.  

The proposed amendments build upon the capital requirements framework for LCs engaged in OTCD activities, initially consulted on in 2015 and further refined in 2017. 

These updates reflect evolving international regulatory standards, including the introduction of capital requirements for OTCD dealers by U.S. regulators in 2021 and the finalisation of the Basel III reform package. 

The proposals are also aligned with the 2025 revisions to Hong Kong’s Banking (Capital) Rules, which were updated to conform with the Basel Framework.

What are the key changes proposed?

Refined minimum capital requirements


The SFC proposes a more nuanced approach to minimum capital requirements that better reflects different business models and risk profiles:

Asset management group central OTCD dealers:

• Floor required liquid capital (RLC): HK$15 million.
• Minimum paid-up share capital: HK$30 million.
• Expanded eligibility criteria to include affiliates regulated in recognised jurisdictions beyond those previously specified.

OTCD inter-dealer brokers:

• Floor RLC: HK$30 million.
• Minimum paid-up share capital: HK$60 million.
• Recognition of lower risk profile for brokers who intermediate between institutional clients without taking principal positions and hence reducing their minimum capital requirements (Minimum paid-up share capital: HK$60 million and floor RLC:HK$30 million).

General OTCD dealers:

• Qualifying for reduced requirements: HK$500 million tangible capital, HK$78 million floor RLC.
• Standard requirements: HK$1 billion tangible capital, HK$156 million floor RLC.

Enhanced risk calculation approaches

The consultation proposes a tiered market and counterparty credit risk capital requirements framework for LCs engaged in OTCD activities. The framework aims to ensure proportionality and flexibility while aligning with international standards and local regulatory developments. It includes:

• Basic and standardised approaches: These are designed for LCs conducting OTCD activities either outside the scope of regulated activities, or within regulated activities subject to specific restrictions. LCs may also opt into these approaches if they meet certain eligibility criteria.
• Advanced approach: This permits LCs to use internal models or apply the latest Basel capital standards for calculating market risk and counterparty credit risk capital requirements, subject to approval by the SFC.

Market development initiatives

The SFC aims to modernise FRR treatments to support business diversification and market development across various asset classes.  

Mainland China market integration:

• FTSE China A50 Index and MSCI China A 50 Connect Index constituents: haircut percentage reduced from 30% to 15%.
• CSI 300 Index constituents: haircut percentage reduced from 30% to 20%.

Emerging markets recognition:

• Classification of Saudi Exchange, Hochiminh Stock Exchange, and Indonesia Stock Exchange as specified exchanges.
• Lower risk charges for products listed or traded on these exchanges.

Virtual asset derivatives:

• Extension of existing FRR treatments to VA futures and options traded on licensed VA exchanges.

Commodity trading enhancement

• Expanded definition of tradable commodities to include energy products, carbon trading products, and freight rates.

How can Ocorian help you remain compliant with the new requirements?

The proposed FRR changes and the new OTCD licensing regime require LCs to carefully assess their activities, capital, and operations. We have the expertise to navigate these complexities, avoid pitfalls, and turn regulatory compliance into a competitive advantage.

We support our clients by:

• Conducting business activity assessments: We analyse your business activities to determine whether you need a new Type 11 or Type 12 licence, or an expansion of your Type 9 licence.  
• Calculating capital requirements: We advise on the revised FRR capital requirements which vary based on your business activity.
• Supporting on applications: We prepare and review all required documentation, including financial projections and standard forms, and provide full quality assurance prior to submission to the SFC.
• Developing policies and procedures: While your application is under review, we can draft or refine tailored policies, procedures, and a compliance monitoring plan.
• Training staff: We offer training to ensure your team understands their regulatory responsibilities.
• Advising on your ongoing compliance commitments: Our experienced consultants assist with all aspects of your compliance obligations and help you prepare for upcoming regulatory changes.
• Providing regulatory health checks: We regularly support LCs with policy reviews, compliance assessments, and SFC inspection readiness.

Reach out to our team to explore how we can assist you.