How Must Hong Kong SVF Licensees Protect and Manage the Float?

Key takeaways

• Float is the money users pay to a stored value facility issuer for value stored on the facility; section 7 of Part 2 of Schedule 3 to the Payment Systems and Stored Value Facilities Ordinance sets the minimum criteria for protecting and managing it.
• The HKMA's Guideline on Supervision of SVF Licensees expects a trust arrangement, with a bank guarantee or insurance as an alternative or supplement if justified.
• Funds must cover refunds to all users at all times plus distribution costs, and users' aggregate balances must match total float and SVF deposit at all times.
• Holding assets other than cash or bank deposits needs the HKMA's prior written consent, and currency mismatches are generally not allowed apart from Hong Kong dollar and US dollar.
• Material non-compliance and material unresolved reconciliation discrepancies must be reported to the HKMA immediately.

What are the key facts on SVF float?

SVF float is the customer money behind e-wallets, prepaid cards and other stored value facilities licensed by the HKMA.

What is SVF float?

The total money users have paid to the issuer for value stored on the facility, and not yet spent or redeemed. It is customer money in all but name, and the rules treat it that way.

The Legislative Council brief on the regime describes float as the total sum of money paid by users to an issuer, including other sums received on users' accounts for storage on the facility. It also notes that float falls outside the statutory meaning of a deposit under the Banking Ordinance and the Deposit Protection Scheme Ordinance, so it is not covered by deposit protection. The HKMA's guideline uses the pair float and SVF deposit for the funds the licensee must protect, and treats money in transit from direct debit or credit card top-ups as float.

Where do the float rules come from?

From the minimum licensing criteria in the Ordinance, explained in the HKMA's supervisory guideline.

The HKMA guideline, issued under section 54(1A)(b) of the Ordinance in September 2016, cites section 7 of Part 2 of Schedule 3 as the minimum criteria for the protection and management of float and SVF deposit. Section 6.2.1 sets three principles: use of the funds must be limited to prescribed purposes, the funds must be protected from other creditors' claims in all circumstances, and they must be protected from operational and other risks. The HKMA's regime page explains that a licence is granted only if the HKMA is satisfied every minimum criterion is met, and that supervision combines on-site examination, off-site review, independent assessments and auditors' reports.

How must the float be protected?

Normally by a trust, kept separate from the licensee's own money and sufficient to refund every user.

How may the float be managed and invested?

Mainly for liquidity, with the HKMA's prior written consent needed for anything beyond cash and bank deposits, and with investment income kept incidental.

Section 6.4.1 of the guideline expects float to be managed mainly for liquidity, so that redemption money is always available. Section 6.4.2 says investment returns from float must not be a significant source of income, and that holding low-risk financial assets other than cash or bank deposits needs the HKMA's prior written consent, with investment policies and controls against investment, market, concentration and liquidity risk. Section 6.4.3 generally prohibits currency mismatches between float and the assets held, unless effective currency risk controls exist; a Hong Kong dollar and US dollar mismatch is the stated exception. Separately, section 8.2.4 bars interest or interest-like incentives based on float volume, and section 8.5.3 requires business exit plans to provide for redeeming the float.

Managing for liquidity means sizing cash and deposits to the redemption pattern, not to the average balance. A wallet whose users cash out heavily at month end, or before holidays, needs more same-day liquidity on those days than its average suggests. The licensee's liquidity policy should be built from its own daily redemption history, reviewed when the product or user base changes, and tested against a stressed day in which many users redeem at once. Australia's draft regime takes a similar trust-based approach; see our guide to Australian stored value facilities.

What must be reported to the HKMA?

Material non-compliance and material unresolved reconciliation discrepancies, immediately.

Section 6.6.1 requires both to be reported through established channels as soon as they arise. A licensee can only meet this if it reconciles user balances to float holdings often enough to find discrepancies quickly. Daily reconciliation is the practical standard, because the guideline requires the aggregate of user balances to match total float at all times.

How should top-ups in transit be handled?

They count as float from the moment the user tops up, even before the money reaches the licensee's trust account.

The guideline treats money in transit from direct debit or credit card top-ups as float. A user who tops up HK$1,000 by card sees the balance at once, but the acquirer may settle a day or more later. During that gap the licensee owes the user HK$1,000 while the trust account has not yet received it. The practical control is to track the in-transit amount by acquirer and settlement date, reconcile it daily, and treat any settlement that misses its expected date as a break that could become a shortfall.

How does the HKMA supervise float management?

Through on-site examinations, off-site reviews, independent assessments, auditors' reports and meetings with management.

The HKMA's regime page lists these tools and notes that sanctions fall under section 33Q of the Ordinance, with a separate guideline on the power to order a pecuniary penalty. Because a licence depends on meeting every minimum criterion on an ongoing basis, a weakness in float protection is a licensing issue, not only a compliance finding. Section 6.5.1 of the guideline also lets the HKMA impose additional requirements where a licensee's circumstances, such as a weak control environment, call for them.

Capital is a separate criterion. The Legislative Council brief on the regime described a minimum on-going requirement of aggregate paid-up capital of not less than HK$25 million, in line with the earlier regime for non-bank multi-purpose card issuers. Capital supports the business; it is not a substitute for float, which must be protected in full. A licensee that dips into capital to cover a float gap should treat that as a reportable discrepancy and fix its cause, not as a routine top-up.

How does a float check work?

It compares the user ledger with float holdings, including money in transit, and adds a buffer for distribution costs.

Worked example. An e-wallet operator's records at the end of a day show the following.

Float of HK$506.0 million exceeds user balances by HK$1.0 million but not by the HK$2.5 million needed for distribution costs under section 6.3.3, so the operator adds HK$1.5 million of its own money to the trust. The HK$84.0 million in transit counts as float, but it must be tracked until it lands in a trust account; a delayed settlement turns into a real shortfall the next day.

What goes wrong with float in practice?

Gaps usually come from timing and from the edges of the user ledger, not from the main trust account.

• Card top-up settlements that arrive late, leaving the trust account short of the ledger.
• Promotional credits or cashback recorded in user balances without matching funds placed in trust.
• Merchant settlements paid out before user balances are reduced, or the reverse.
• Foreign currency balances held against Hong Kong dollar float without currency controls.
• Investments in assets other than cash or deposits made without the HKMA's written consent.
• Discrepancies left unresolved for days instead of being reported as section 6.6.1 requires.

What should an SVF licensee check?

These checks follow section 6 of the HKMA guideline, in order.

• Confirm the trust deed, and any guarantee or insurance, protects users on insolvency and allows smooth refunds.
• Reconcile aggregate user balances to float and SVF deposit every day.
• Hold a buffer for distribution costs on top of user balances.
• Keep float assets separate from the licensee's own funds and other business.
• Hold only cash and bank deposits unless the HKMA has consented in writing to other assets.
• Avoid currency mismatches other than Hong Kong dollar and US dollar.
• Report material discrepancies to the HKMA immediately.

Our guides to MAS safeguarding of relevant money, Hong Kong stablecoin reserve assets and the Hong Kong Stablecoins Ordinance cover related rules.

How does Safeheld help?

Safeheld reconciles user balances to trust accounts and in-transit top-ups every day for each entity and currency, and raises any gap as a break.

It produces the report pack for the HKMA SVF float return, which the licensee reviews and completes. See daily reconciliation.

Frequently asked questions

What is an SVF float?

The total money users have paid to a stored value facility issuer for value stored on the facility, including money in transit from direct debit or card top-ups.

How must the SVF float be protected?

Normally by a trust arrangement that secures users' priority claim on insolvency, with a bank guarantee or insurance as an alternative or supplement if justified, under section 6.3 of the HKMA guideline.

Can SVF float be invested?

Holding low-risk assets other than cash or bank deposits needs the HKMA's prior written consent, and investment income must not be a significant source of income.

Is SVF float covered by deposit protection?

No. Float falls outside the statutory meaning of a deposit under the Banking Ordinance and the Deposit Protection Scheme Ordinance.

How much float must be held?

Enough to refund all users at all times, plus funds for distribution costs, with users' aggregate balances matching total float and SVF deposit at all times.

Can SVF licensees pay interest on balances?

Section 8.2.4 of the HKMA guideline bars interest or interest-like incentives based on float volume.

Does capital count towards the float?

No. Paid-up capital is a separate licensing criterion; float must be protected in full and kept separate from the licensee's own funds.

What must be reported to the HKMA about float?

Material non-compliance and material unresolved reconciliation discrepancies, immediately, under section 6.6.1.

References

• HKMA, Guideline on Supervision of Stored Value Facility Licensees (September 2016, PDF)
• HKMA, Regulatory regime for stored value facilities
• Payment Systems and Stored Value Facilities Ordinance (Cap. 584)
• Legislative Council Brief on the stored value facilities regime (21 January 2015, PDF)

About Safeheld

Safeheld is reconciliation and regulatory financial control software for regulated firms that hold client money. For Hong Kong SVF licensees it reconciles user balances to float held in trust every day and keeps the evidence the HKMA's float requirements call for. To discuss your safeguarding operations, contact us at safeheld.com/contact.

This article is general information on Hong Kong stored value facility rules and is not legal or regulatory advice.