SFC proposes to enhance sponsors regulatory regime

9 May 2012

The Securities and Futures Commission (SFC) has launched today a two-month consultation on proposals to enhance the regulatory regime of sponsors.

The proposals combining new and existing sponsor requirements will become part of the Code of Conduct (Note 1). The key elements of the proposed regime include:

• When submitting a listing application:
  -　a sponsor should have completed the vast majority of due diligence;
  -　the first draft of the prospectus should be published on the website of Hong Kong Exchanges and Clearing Ltd; and
  -　a sponsor should have resolved key issues concerning the operation, governance and structure of the company, and issues affecting the suitability for listing.
• Due diligence – a sponsor should:
  -　gain thorough knowledge and understanding of a company;
  -　adopt an open and questioning approach and should not accept statements at face value; and
  -　collaborate and discuss with auditors, lawyers, directors and other experts to assess all information available to it about the company.
• Responsibility for disclosure – a sponsor should:
  -　be reasonably satisfied through due diligence on the company that information in the prospectus is true, accurate and complete;
  -　be able to demonstrate that it is reasonable for it to rely on accountants’, valuers’ and other experts’ reports in the prospectus – this does not involve repeating the work done by experts but involves testing the information provided in the reports to ensure that the totality of disclosure in the prospectus is credible and coherent; and
  -　be closely involved in the preparation of the Management Discussion and Analysis section of a prospectus to ensure that sufficient qualitative information explaining the company’s track record is communicated clearly to potential investors.
• Resources and management – a sponsor’s Management should:
  -　ensure sufficient resources are allocated to an initial public offering (IPO);
  -　oversee the progress and the standard of due diligence; and
  -　be closely involved in resolving difficult issues.
• Restrict the number of independent sponsors for each listing to one only or a limited number.
• Make clear in sections 40 and 40A of the Companies Ordinance that sponsors have civil and criminal liability for untrue statements (including material omissions) in a prospectus.

"Sponsors play a lead role in coordinating an IPO. They advise and guide directors and are centrally involved in ensuring that prospectuses contain reliable and relevant information for potential investors,” said Mr Ashley Alder, the SFC's Chief Executive Officer. “Our proposals are aimed at encouraging best practice across all sponsor firms whom investors rely on as key gatekeepers of market quality.”

The public is invited to submit their comments to the SFC on or before 6 July 2012. Written comments may be submitted on line via the SFC website (www.sfc.hk), by email to sponsors@sfc.hk, by post or by fax to 2810 5385.

End

Note:
1. The Code of Conduct for Persons Licensed by or Registered with the SFC. The SFC plans to implement as soon as practicable the proposed changes to the Code of Conduct.

Page last updated : 1 Aug 2012