FUNDING AND LEVIES

Government Grant

The HKSAR Government has granted a seed capital of HK$400 million to facilitate the smooth migration of the FRC to the new auditor regulatory regime, to cushion the FRC against short-term fluctuations in the levy income, to fund one-off capital and non-recurrent expenses, to allow the FRC to gradually expand its staff complement taking into account its actual operational needs, and to provide a buffer for other exigencies of circumstances.  Starting from 1 January 2022​, the FRC will be self-financing with funding from levies payable by sellers and purchasers of securities, PIEs and PIE auditors.

Levies with effect from 1 January 2022
Under the Part 4A (sections 50A to 50G) - Levies​ and Schedule 7 of the Financial Reporting Council Ordinance (FRCO)1, with effect from 1 January 20222, levies will be payable by the following groups of persons:
  1. Sellers and purchasers of securities;​
  2. Public Interest Entities (PIEs); and
  3. PIE auditors.


Levies payable by sellers and purchasers of securities

A levy, calculated as set out below, is payable by the seller and purchaser in a sale and purchase of securities that is recorded on a recognized stock market or notified to a recognized exchange company under its rules.

The levy should be paid to the Hong Kong Exchanges and Clearing Limited (HKEC) in the way and within the time specified by the HKEC.

The levy payable for a sale and purchase of securities is for the seller at a rate of 0.00015% of the consideration for the sale and for the purchaser at a rate of 0.00015% of the consideration for the purchase.

No levy is payable for a sale and purchase of a stock option.

No levy is payable for a sale and purchase of securities by an exchange participant3, if the exchange participant holds a securities market maker permit4 in relation to the securities that is in force at the time of the sale or purchase and makes the sale or purchase in the course of making a market for the securities.

3 has the meaning given by section 1 of Part 1 of Schedule 1 to the Securities and Futures Ordinance (Cap. 571)
4 has the meaning given by section 2 of the Securities and Futures (Levy) Order (Cap. 571 sub leg. Z)

Levies payable by PIEs

A levy, calculated as set out below, is payable by a PIE for a calendar year.

A PIE must pay the levy to the Hong Kong Exchanges and Clearing Limited (HKEC) in the way and within the time specified by the HKEC.

The levy payable by a PIE for a calendar year is at a rate of 4.2% of the prepaid annual listing fee. ​For this purpose, the prepaid annual listing fee is the annual listing fee that is payable by the PIE to the HKEC in advance in one instalment for the calendar year under the Listing Rules.

The levy payable by a PIE for a calendar year, calculated as set out above, is not to be adjusted even if the annual listing fee payable by the PIE to the HKEC for the year is subsequently adjusted under the Listing Rules.


Levies payable by PIE auditors

A levy, calculated as set out below, is payable by a PIE auditor for a calendar year.

A registered PIE auditor must pay the levy to the HKICPA in the way and within the time specified by the HKICPA. A recognized PIE auditor must pay the levy to the FRC in the way and within the time specified by the FRC.

The levy payable by a PIE auditor for a calendar year is the sum of (i) HK$6,155 x N and (ii) 0.147% of TR. However, if N is zero, the levy payable by the PIE auditor for the calendar year is HK​$2,000.

N is the number of PIEs for which the auditor is carrying out, as at 31 December of the preceding calendar year, an engagement specified in item 1 of Part 1 of Schedule 1A of the FRCO (specified engagement).

TR is the total remuneration paid to the auditor, in the preceding calendar year, by the PIEs for which the auditor carried out specified engagements.

For the purposes of determination of the levy, a PIE auditor is carrying out an engagement for a PIE on a day if
  1. the auditor undertakes the engagement on that day; or
  2. the auditor has undertaken the engagement before that day and the engagement has not been completed by that day.

For ascertaining N and TR, the HKICPA or the FRC (as the case requires) may refer to the annual financial statements of the PIEs submitted to the HKEC under the Listing Rules; or any information or document provided by the PIE auditor to the HKICPA or the FRC under section 50C(2) of the FRCO.

A PIE auditor must provide the Hong Kong Institute of Certified Public Accountants (HKICPA) or the FRC, as the case requires, with the information or document that the HKICPA or the FRC reasonably requires for ascertaining the levy payable by the auditor.