A Consultation Paper for the Proposed Corporate Finance Adviser Code of Conduct

Introduction

The Securities and Futures Commission (the "SFC") releases for public consultation the attached Corporate Finance Adviser Code of Conduct (the "CFA Code").

Background

The International Organization of Securities Commissions (IOSCO) stated in its document titled "Objectives and Principles of Securities Regulation" released in September 1998 that " market intermediaries should conduct themselves in a way that protects the interests of their clients and helps to preserve the integrity of the market . 1 "

1  Section 12.5 on "the Conduct of Business Rules and Other Prudential Requirements" of the document.

As professionals providing corporate finance advice to listed issuers and market participants, corporate finance advisers play a major role in contributing to the success of an equity market. There is no doubt that the provision of quality advice is of paramount importance to the market. The same is true for the quality of the corporate finance advisers themselves.

Under section 4(1) of the Securities and Futures Commission Ordinance, the SFC is charged with the responsibility to promote and maintain the integrity of registered persons in the securities and futures market. In this regard, the SFC has produced a number of codes and guidelines which provide guidance to the market on the expectations of the SFC in discharge of its responsibility.

The SFC released policy statements on Fit and Proper Criteria and Code of Conduct for persons registered with the SFC (the " Registered Persons Code ") in 1990 and 1994 respectively. These statements were last updated in July and November 1999 respectively. The Fit and Proper Criteria sets out the SFC's general expectation of the fitness and properness of registrants. The Registered Persons Code introduces the general principles fundamental to the undertaking of a registered person's business, and further indicates the manner in which the SFC performs its function of ensuring that all registered persons are fit and proper. Since they are intended to apply to all registered entities, the above guidelines are not prepared in an industry specific manner.

In 1997, the SFC issued the Management, Supervision and Internal Control Guidelines which are applicable to all licensed intermediaries. In late 1997, the SFC further released a Fund Manager Code of Conduct . This was the first time that the SFC provided guidance to a specific industry as to how the licensed entities should conduct themselves in meeting the licensing requirements.

During recent years, the numbers of licensed investment advisers and investment adviser representatives have been increasing steadily. At 31 March 2000, a total of 24,535 entities in the securities and commodities field were licensed by the SFC. Of this, 12,876 were licensed as securities dealers or representatives, 6,739 were licensed as investment advisers or representatives. They represent about 52.5% and 27.5% respectively of the total number of licensed entities. Currently, the SFC allows securities dealers also to perform the functions undertaken by investment advisers.

In June 1999, the SFC put forward a consultation paper on a review of the licensing regime. The SFC proposed a new "single licence" concept which permits existing registrants to provide a range of specified services. These activities, as reflected in Composite Securities and Futures Bill, which relate to securities include dealing in securities; advising on securities; and advising on corporate finance . Comments received during the public consultation, which ended in September 1999, had been carefully considered. General acceptance for the proposed regime was obtained from the industry. On 2 April, 2000, the Government and the SFC jointly announced the consultation of the Composite Bill in the form of a White Bill. This consultation will close on 30 June 2000.

The SFC has drawn up this CFA Code specifically for practitioners engaging in advising in corporate finance. It provides guidance of the standard of conduct expected of corporate finance advisers. Once adopted, it will be used as a benchmark, along with other SFC codes and guidelines, against which a licensed corporate finance adviser's fitness and properness will be measured. Therefore, a corporate finance adviser's ability to discharge its responsibilities in a satisfactory manner will be taken into account in assessing its registration status.

The CFA Code aims to supplement related laws, legislation, codes, regulations or guidelines applicable to corporate finance advisers, and does not replace any existing codes, rules and regulations.

The guidance set out in the CFA Code has been developed from practices adopted in the internal compliance manuals of a number of investment banks, together with the existing practices of the SFC and the Stock Exchange of Hong Kong Limited ("SEHK"). A private consultation with 17 corporate finance advisers active in the market was carried out in February 2000. Seven responses were received which provided useful and valuable comments. As a result, the proposed CFA Code has been modified to take into account the comments received.

Your attention is drawn to a concurrent market consultation in relation to a new chapter for Sponsors in the SEHK Listing Rules. Copies of that consultation paper may be obtained directly from the SEHK or downloaded from its website (http://www.sehk.com.hk).

The SFC now puts forward the proposed CFA Code for consultation, and wishes to highlight the following requirements of the CFA Code.

Scope

The CFA Code proposes to govern the conduct of licensed or exempt persons who are engaged in " advising on corporate finance " in Hong Kong. For this purpose, " advising on corporate finance " has been defined using the definition in the latest draft of the Securities and Futures Bill. The SFC will consider any necessary amendments to this definition during the legislative and consultation process (in the form of a White Bill) so that the final wording will mirror the definition appearing in the Securities and Futures Ordinance when enacted.

The CFA Code does not replace any existing codes, rules or regulations. The SFC will use the CFA Code as a benchmark against which a licensed corporate finance adviser's fitness and properness will be measured.

Conduct of business (paragraph 2)

A corporate finance adviser should be fit and proper to conduct its business. The CFA Code stresses that the responsibility for compliance with rules and regulations rests with the Senior Management, which has been defined to include the board of directors, the managing director or the chief executive officer of a licensed corporation. The CFA Code also proposes that an effective Compliance function should be maintained to monitor compliance with internal procedures and all applicable legal and regulatory requirements. A Designated Compliance Officer, independent of all business functions, should head the Compliance function.

The SFC notes that most major firms of corporate finance advisers belonging to international investment banks have established compliance functions and most have developed compliance manuals for internal use. The CFA Code recommends that for the smaller adviser firms where manpower resources are limited, the function of the Designated Compliance Officer should be directly undertaken by the Senior Management .

Competence (paragraph 3)

A corporate finance adviser should act with competence in the performance of its duties. The CFA Code requires that a corporate finance adviser should be honest, of good repute and character, and maintain a high standard of integrity and fair dealing in the conduct of its business.

The CFA Code further states that in addition to being suitably licensed for the various types of businesses, the regulators may require licensed persons, who are new to the market, to demonstrate their resources, competence and suitability prior to being allowed to undertake an assignment. This would entail a submission to the regulators of the list of the directors' or representatives' qualifications, together with details of their relevant corporate finance experience. This procedure represents a codification of the existing practices of the regulators.

It is envisaged that the relevant corporate finance experience is not only limited to experience gained in the local market. In the administration of this requirement, the SFC would consider favourably experience from overseas market where the standard of regulation commensurates with that in Hong Kong.

Conflicts of interest (paragraph 4)

The CFA Code states that a corporate finance adviser should avoid engaging in work that may give rise to any concern regarding conflicts of interest. A licensed person should take all reasonable efforts to avoid situations that may give rise to a conflict of interest, and should not unfairly place its interests above those of its clients. Where the conflict of interest concern cannot be removed, it should decline to act.

Specifically, where the matter concerned relates to the issue of independence of a financial adviser in a transaction involving the Listing Rules or the Takeovers/Share Repurchase Code, such matter should be dealt with in accordance with the respective regulations or codes. The CFA Code does not attempt to lay down any guidance under such circumstances as they fall under the respective jurisdictions of the SEHK Listing Committee and the Takeovers Panel, as appropriate.

Chinese Walls, serving as an effective functional barrier preventing the flow of information, should be set up between the corporate finance adviser and other group companies or division engaging in other financial activities. There should also be segregation of key duties and functions between staff members of the corporate finance adviser.

Standard of work (paragraph 5)

A corporate finance adviser should aim to deliver a high standard of work at all times. The CFA Code expects that a corporate finance adviser should act with integrity, due skill, care and diligence in the execution of its duties and responsibilities.

In particular, the CFA Code lays down a requirement that a corporate finance adviser should issue and agree its terms of engagement in a letter. The CFA Code also lays down the verification standard for confirmation of financial resources of an offeror under the Takeovers Code, and the role of sponsors in an initial public offering.

The CFA Code recognises that a corporate finance adviser may, from time to time, rely on the work of independent experts or professionals before arriving at its opinion. A corporate finance adviser should only rely on an expert's opinion after due and careful consideration.

Duties to client (paragraph 6)

A corporate finance adviser should act in the best interests of its client at all times. Unless the circumstances do not require, a corporate finance adviser should have a thorough understanding of the business of its client, and should make reference to the SFC's Client Identity Rule Policy . A corporate finance adviser should ensure the safeguarding of the confidentiality of information provided to it by its client, and as far as possible, ensure that all other persons who receive the confidential information from the corporate finance adviser take the greatest care to prevent a leak to the market.

Duties to the market (paragraph 7)

A corporate finance adviser owes a duty of care to the market. The CFA Code expects that a corporate finance adviser should take every precaution to avoid misleading public shareholders, and the creation or continuance of a false market in securities.

Communication with regulators (paragraph 8)

The CFA Code asks that a corporate finance adviser should endeavour to develop a good working relationship with the regulators (the SEHK and the SFC), and should always cooperate to the fullest extent. The SFC believes that effective communication between the regulators and the corporate finance adviser is important in facilitating frank and open exchanges of views.

Personal account dealings (paragraph 9)

A corporate finance adviser should ensure that all personal account dealings are properly conducted and monitored. The CFA Code stresses that a corporate finance adviser should avoid conflicts of interest when dealing in securities on its own account while discharging its duties as adviser to its client.

Consultation period

The SFC invites comments from the public on the proposed CFA Code set out in this consultation paper. Comments in writing should be addressed to:

Corporate Finance Division
Securities and Futures Commission
12 th floor
Edinburgh Tower
15 Queen's Road Central
Hong Kong

Comments may also be faxed to (852) 2810 5385 or sent by email to cfdconsult@sfc.hk. In all cases, comments should be submitted by 31 May 2000.

Further copies of the consultation paper may be obtained from the above address of the SFC. A copy of this paper can be also found on the SFC website at http://www.sfc.hk .

[For consultation]

Corporate Finance Adviser

Code of Conduct

Securities and Futures Commission

Hong Kong

May 2000

TABLE OF CONTENTS

  1.    Introduction
  2.    Conduct of business
  3.    Competence
  4.    Conflicts of interest
  5.    Standard of work
  6.    Duties to client
  7.    Duties to the market
  8.    Communication with Regulators
  9.    Personal account dealings

DEFINITION

Advising on corporate finance

See paragraph 1.2 of the Code

Code

Corporate Finance Adviser Code of Conduct

Corporate Finance Adviser

Persons or entities who are registered as dealers, investment advisers, investment representatives, dealer representatives, or are exempted from registration as such which carry on the business of advising on corporate finance

Listing Rules

The Rules governing the listing of securities on the Stock Exchange of Hong Kong Limited and the Rules governing the listing of securities on the Growth Enterprise Market of the Stock Exchange of Hong Kong Limited

Regulators

The SFC and/or the Stock Exchange as appropriate

Senior Management

Managing director, the board of directors or the chief executive officer of a corporation

SFC

Securities and Futures Commission

Share Repurchase Code

The Hong Kong Code on Share Repurchases

Staff Members

Any employees or directors of a Corporate Finance Adviser or any person over whom they exercise control and influence

Stock Exchange

The Stock Exchange of Hong Kong Limited

Takeovers Code

The Hong Kong Code on Takeovers and Mergers

Takeovers Executive

Takeovers Executive means the Executive Director of the Corporate Finance Division of the SFC or any delegate of the Executive Director

Corporate Finance Adviser Code of Conduct

(the "Code")

  1. Introduction
Entities to which this Code applies
  1. This Code sets out the conduct requirements for all persons or entities who are registered as dealers, investment advisers, investment representatives, dealer representatives, or are exempted from registration as such, which carry on the business of advising on corporate finance (collectively the "Corporate Finance Advisers").

Corporate Finance Advice

  • " Advising on corporate finance " means giving advice:

(a) concerning compliance with or in respect of regulations including the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited and the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange of Hong Kong Limited (together the "Listing Rules"), and the Hong Kong Codes on Takeovers and Mergers and Share Repurchases (the "Takeovers Code" and the "Share Repurchase Code" respectively);

(b) concerning:

(i) any offer to dispose of securities to the public;

(ii) any offer to acquire securities from the public; and

(iii) acceptance of any offer referred to in sub-paragraph (i) or (ii) or

(c) to a listed corporation or public company, or a subsidiary thereof, or to the officers or shareholders thereof, concerning the restructuring of any corporation or any of its assets or liabilities,

but does not include advice given by:

  1. a corporation solely to any of its wholly owned subsidiaries, its holding company which holds all its issued shares, or other wholly owned subsidiaries of that holding company;
  1. a solicitor who gives such advice wholly incidental to his practice as such in a Hong Kong firm or foreign firm within the meaning of the Legal Practitioners Ordinance (Cap. 159);
  1. a counsel who gives such advice wholly incidental to his practice as such;
  1. a professional accountant who gives such advice wholly incidental to his practice as such in a practice unit within the meaning of the Professional Accountants Ordinance (Cap.50);
  1. a trust company registered under Part VIII of the Trustee Ordinance (Cap. 29) which gives such advice wholly incidental to the discharge of its duty as such; or
  1. a person through -
  1. a newspaper, magazine, book or other publication which is made generally available to the public; or
  2. television broadcast, radio broadcast for reception by the public or a section of the public, whether on subscription or otherwise.
Purpose of the Code1.3    Under section 4(1) of the Securities and Futures Commission Ordinance, the Securities and Futures Commission ("SFC") is charged with the responsibility to promote and maintain the integrity of registered and exempt persons in the securities and futures market. This Code provides guidance on the standard of conduct of Corporate Finance Advisers expected by the SFC.

1.4     This Code aims to supplement, and should be applied in conjunction with, related laws, legislation, codes, regulations or guidelines applicable to Corporate Finance Advisers. It does not replace any existing codes, rules and regulations. A Corporate Finance Adviser should not interpret this Code as if it were a statute but rather have regard to the spirit, as well as the letter, of the Code. Further reference should however be made to the related codes, regulations, guidelines and legislation. In the case of any inconsistency, the provision requiring a higher standard of conduct will apply. This Code does not have the force of law and should not be interpreted in a way that it would override the provisions of any law.

Enforcement

1.5    The SFC will use the Code as a benchmark, along with other SFC's codes and guidelines, against which a Corporate Finance Adviser's fitness and properness will be measured. Breaches by Corporate Finance Adviser of any of the requirements of this Code will, in the absence of extenuating circumstances, reflect adversely on its fitness and properness, and may result in disciplinary or other actions by the SFC.

General

1.6    For the purpose of this Code, references to Corporate Finance Advisers are made in relation to the registered corporations, directors or representatives of the corporations. Where it is necessary to refer only to the staff engaged in corporate finance advisory work, they are referred to as the registered directors, representatives or Staff Members as appropriate.

1.7     Corporate Finance Advisers engaging in corporate finance advisory work under the Takeovers Code, the Share Repurchase Code and the Listing Rules are required to observe any specific requirements under the respective codes and rules as regards their conduct. Persons who are found in breach of the Takeovers Code, the Share Repurchase Code and the Listing Rules will be subject to the respective disciplinary measures contained in these codes and rules. Certain of the specific provisions of the Takeovers Code, the Share Repurchase Code and the Listing Rules are highlighted in this Code for easy reference. In general, any breaches of the above codes and rules will prima facie cast doubts on the fitness and properness of the Corporate Finance Adviser concerned.

1. Conduct of business

A Corporate Finance Adviser should ensure that it is fit and proper to conduct its business.

Licensing2.1    A Corporate Finance Adviser should ensure that its business is properly established and conducted, and that it and its registered directors and representatives are fit and proper, and are properly registered in accordance with all applicable statutory and regulatory requirements.
Management of the business2.2 A Corporate Finance Adviser should:
  1. organise and control the internal affairs of its corporation in a prudent and responsible manner;

  2. maintain satisfactory financial and operational controls;

  3. maintain satisfactory risk management procedures commensurate with its business; and

  4. ensure that it has adequate competence, professional expertise and adequate resources (manpower or otherwise) to perform its responsibilities and duties as a Corporate Finance Adviser, and to carry out its corporate finance assignments.

Financial resources

2.3    A Corporate Finance Adviser should ensure that it has adequate financial resources to meet its commitments in relation to its day-to-day working capital requirements and to withstand the risks to which its business is subject.
Books and records2.4    A Corporate Finance Adviser should maintain proper books and records, and be able to provide a proper trail of work done upon request by the SFC.

Staff Supervision

2.5    A Corporate Finance Adviser should ensure that:
  1. all its staff members are suitable and appropriately qualified;
  1. its less experienced staff are properly supervised; and

  2. there are clear reporting lines with supervisory and reporting responsibilities assigned to the more experienced staff members.
Compliance2.6    A Corporate Finance Adviser should:
  1. maintain an effective compliance function, which should be headed up by a Designated Compliance Officer to monitor compliance with its own internal policies and procedures, and all applicable legal and regulatory requirements, including this Code;
  1. ensure that the corporation's compliance function possesses the technical competence, adequate resources and experience necessary for the performance of its functions;
  1. ensure that the compliance function is independent of other business functions and reports directly to the Senior Management (see notes below). Compliance activities may be delegated to an appropriately qualified professional, although the responsibilities and obligations may not be delegated;
Notes: For small firms where manpower resources are limited, Senior Management should assume the role of Designated Compliance Officer.

"Senior Management" means the managing director, the board of directors or the chief executive officer of a corporation.
  1. ensure that provisions in this Code are complied with by the registered directors and representatives of the corporation, e.g. by establishing a comprehensive internal code of conduct for its staff;
  1. require that the registered directors and representatives confirm annually in writing to the Designated Compliance Officer that they are familiar with and in compliance with the corporation's policies and procedures laid down in its code of conduct and compliance manual.
2.7    A Corporate Finance Adviser is encouraged to establish clear and comprehensive compliance procedures in the form of a manual, covering its corporate finance business and addressing all applicable regulatory requirements. The manual should give senior management reasonable assurance that the corporation complies with all applicable requirements at all times.
Training2.8    A Corporate Finance Adviser should offer continuous professional training to its staff.
Money Laundering2.9    A Corporate Finance Adviser should comply with the Guidance Notes on Money Launderzing issued by the SFC .
  1. Competence

A Corporate Finance Adviser should act with competence.

Integrity3.1    A Corporate Finance Adviser should be honest, of good repute and character, and maintain a high standard of integrity and fair dealing.
Demonstration of competence3.2    To ensure that a Corporate Finance Adviser who has not been actively involved in corporate finance advisory work is suitably qualified before advising on a transaction, the SFC and the Stock Exchange may require such registered directors or representatives of the corporation to demonstrate their resources, competence and suitability. Upon request by the Regulators, such persons should submit a list of their qualifications and previous experience in handling relevant corporate finance work for consideration.
Professional advice3.3    Where appce to ensure its compliance with the regulations and the laws.
  1. Conflicts of interest

A Corporate Finance Adviser should avoid engaging in work which may give rise to any conflict of interest .

Conflicts of interest4.1    A Corporate Finance Adviser should:
  1. take all reasonable steps to avoid situations that may give rise to a conflict of interest; and

  2. not unfairly place its interests above those of its clients.
4.2    Where a Corporate Finance Adviser takes the view that it cannot undertake a client's mandate because of a conflict of interest, or in the case of acting as an independent financial adviser, a representative of the client seeks to influence its objectivity (e.g. by way of opinion-shopping), it should decline to act in the transaction.

Note: It would not be possible to set out the circumstances which would amount to situations giving rise to conflicts of interest. Issues of conflict of interest relating to the independence of a financial adviser should be dealt with in accordance with the Listing Rules, the Takeovers Code or the Share Repurchase Code as appropriate.

Maintaining independence4.3    A Corporate Finance Adviser, acting in the capacity of independent financial adviser to the independent shareholders in a transaction relating to a public or listed company, should represent the best interests of the independent shareholders of the listed or public company and should not have regard to any personal interests of individual directors. The Corporate Finance Adviser should:
  1. be independent of the public or listed company, its directors and chief executive and the controlling shareholders;
  2. disclose to the SFC and/or the Stock Exchange any material relationship between itself (or any subsidiaries/associates of the same group) and its client or any other party to the relevant transactions (including any associates of its client and/or such party) which existed in the two years prior to accepting any engagement.
Chinese Walls4.4    Where a Corporate Finance Adviser is part of a professional firm or group of companies undertaking other activities, e.g. auditing, banking, research, stockbroking and fund management, the Corporate Finance Adviser should ensure that there is an effective system of functional barriers (Chinese Walls) to prevent the flow of information that may be confidential and/or price sensitive between the different areas of operations. There should be physical separation between the activities and different staff employed.
Segregation of duties4.5    A Corporate Finance Adviser should ensure that its key duties and functions are properly segregated. For example, employees who have access to confidential information and who perform the corporation's compliance and audit functions should be segregated from other employees, and be able to perform their duties and functions independently.
Sponsors4.6    A Corporate Finance Adviser acting as a sponsor to a listing applicant should satisfy the requirements for sponsors set out in the Listing Rules. It should ensure that, when giving a view as to whether an issuer is suitable for listing, it is capable of giving " impartial advice " before accepting the sponsorship role and that such view is given independently .
Contingency fees4.7    A Corporate Finance Adviser should disclose, upon request by the SFC or the Stock Exchange, if in their view there is a conflict of interest concern, any fees or other benefits-in-kind that are offered contingent upon the success of a transaction.
No secret profit rule4.8    Subject to other relevant laws and regulations, a Corporate Finance Adviser must not make any secret profit from its position without first obtaining the consent of its client and disclosing the size of the profit to the client, and if it involves interests of public shareholders, to the public.
Receipt or provision of benefits4.9    A Corporate Finance Adviser should:
  1. not offer or accept any inducements in connection with the business of, or a transaction involving, the client without disclosing the particulars of the inducements to the client. If the client is a corporation, such disclosure should be made to the board of directors of the corporation;

  2. ensure that it develops and maintains written guidelines on the disclosure of the value of gifts given to, or provided by, the staff members above a certain monetary limit, and the circumstances in which they were offered or received.
  1. Standard of work

A Corporate Finance Adviser should aim to deliver a high standard of work at all times.

Due skill and care5.1    A Corporate Finance Adviser must act with integrity, due skill, care and diligence.

Engagement letter

5.2    A Corporate Finance Adviser should ensure that the service performed for a client is in accordance with the provisions of an engagement letter, which should be issued by the Corporate Finance Adviser, and agreed and signed by its client.
Confirmation of financial resources5.3    A Corporate Finance Adviser, in discharging its duty to confirm financial resources of an offeror under the Takeovers Code, should observe the highest standard and duty of care to satisfy itself, including performing any necessary due diligence. In most cases, it will be appropriate to obtain an irrevocable commitment from a party upon whom reliance can be placed, e.g. a bank, at the time of the announcement of the offer, that the requisite funds will be available for the purposes of the offer throughout the offer period. A Corporate Finance Adviser should exercise exceptional care if it accepts a standard lower than the above approach and is encouraged to discuss this with the Takeovers Executive. The justifications and reasons for accepting a lower standard should be properly documented.
Role of sponsor in a public offer5.4    Where a Corporate Finance Adviser acts as a sponsor in relation to an initial public offering which involves the offer for subscription or an offer for sale to the public (the "public offer"), the Adviser should be responsible for :
  1. providing competent advice to the issuer on all aspects relating to the conduct of the public offer;
  2. the overall management of the public offer;
  3. assessing the likely interest on or the reception of the offer by the public; and
  4. putting in place sufficient arrangements and resources to ensure that the public offer is conducted in a fair, timely and orderly manner.

5.5    In discharging its obligations under paragraph 5.4 above, the Corporate Finance Adviser should have regard to at least the following matters:

  1. whether there are sufficient prospectuses and application forms for the securities offered for distribution to the public during the offer period;
  2. without derogating from the Corporate Finance Adviser's obligation to act as the overall manager of the public offer as sponsor, whether specific responsibilities in relation to the public offer should be carved out for handling by other professionals or advisers; and if so, whether such professionals or advisers are competent and have sufficient capacity and resources to handle the relevant responsibilities;
  3. whether sufficient measures have been put in place to ensure that (i) the distribution of prospectuses and application forms to the public; (ii) the collection of completed application forms from the public; and (iii) the despatch of unsuccessful applications, refund cheques and share certificates after the public offer period closes, can be made in a timely and orderly fashion;
  4. whether appropriate contingency plans have been drawn up to deal with events of disorder or failure which may arise during the public offer period and before the trading of securities commences; and
  5. where balloting is required to determine the successful applications under a public offer, whether appropriate arrangements have been put in place to ensure that balloting would be conducted fairly and independently of the issuer and parties associated with it.
Reliance on work by experts or other professionals5.6    Where reliance on the work of independent experts or other professionals is planned, a Corporate Finance Adviser should, inter alia:
  1. undertake reasonableness checks in order to assess the credibility and integrity of the firm of experts or professionals to satisfy itself that reliance could be placed on the work performed by them; and
  2. review the bases and principles adopted by the experts or the other professionals and assess the work performed by them to satisfy itself that the opinion has been prepared on a reasonable basis.

5.7    A Corporate Finance Adviser should only rely on the opinion given by independent experts or other professionals after due and careful consideration, and after making appropriate enquiries. The due process in arriving at the decision to place reliance should be documented.

Reliance on information from the client5.8    Before reliance can be placed on information and facts supplied by the client, a Corporate Finance Adviser should obtain confirmation from the client that the information and representations provided are true, accurate, complete and not misleading, and that no material information or facts have been omitted or withheld.
Opinion of an independent financial adviser5.9    Where an opinion is provided by a Corporate Finance Adviser acting as an independent financial adviser under the Takeovers Code, the Share Repurchase Code or the Listing Rules, its letter of advice must set out the matters considered by it before arriving at its final opinion. The letter to be included in a circular to shareholders should set out, inter-alia:
  1. the assumptions made and the relevant factors taken into consideration leading to its final opinion; and
  2. whether the terms of the transaction which require approval of independent shareholders are fair and reasonable, so far as the independent shareholders are concerned.

5.10    A Corporate Finance Adviser is expected to discuss the factors identified and make suitable comparisons with published market and statistical data. It is accepted that while certain terms of the transactions are fair and reasonable, some may not be so. A Corporate Finance Adviser is expected to identify all such relevant terms, analyse them as comprehensively as possible, and draw its final conclusion.

Standard of documents5.11    Where a circular is prepared for shareholders' consideration, a Corporate Finance Adviser should ensure that:
  1. the shareholders have been provided with sufficient information, suitable advice and adequate time for making an informed decision;
  2. any information and opinion obtained from an independent expert which is material to an understanding of a transaction should be included and discussed;
  3. no relevant information is withheld or omitted.
Use of plain language5.12    A Corporate Finance Adviser is encouraged to use plain language in the preparation of documents. Reference should be made to the Guides on the preparation of announcements and documents issued by the SFC and the Stock Exchange.
  1. Duties to client

A Corporate Finance Adviser should ensure that it acts in the best interests of its client at all times.

Know your client6.1    Unless the circumstances do not require, a Corporate Finance Adviser should have a thorough understanding of the business of its client. A Corporate Finance Adviser should:
  1. obtain from its client at the outset, information regarding its background, the identity of its controlling shareholder(s), the nature of its business and the shareholding structure; and
  2. understand the financial circumstances and investment or corporate objectives in relation to the transaction under consideration.

Note: Reference should be made to the guidelines set out in the Client Identity Rule Policy issued by the SFC

Confidentiality6.2    A Corporate Finance Adviser should ensure:
  1. the safeguarding of the confidentiality of information provided to it by its client;
  2. as far as possible, that all other persons who receive the confidential information from the Corporate Finance Adviser take the greatest care to prevent a leak.
Client's behaviour6.3    A Corporate Finance Adviser should ensure that its client fully understands the relevant regulatory requirements and their implications at all stages of a transaction. Where a Corporate Finance Adviser becomes aware that its client is not complying with the regulatory requirements, it should advise its client to bring the matter to the attention of the Regulators at the earliest opportunity. If this is declined by the client without valid reasons, it should consider the need to cease to act. When asked by the Regulators about a possible breach of a relevant regulation (whether by itself or by its client), a Corporate Finance Adviser should be co-operative and honest in providing the truth (to the best of its knowledge) to the Regulators.
Conduct towards a client6.4    When acting for a client, a Corporate Finance Adviser should:
  1. ensure that all representations made and information provided to its client are true, accurate, complete and not misleading;
  2. take all reasonable steps to give its client, in a comprehensive and timely manner, any information required (including advice on the Takeovers Code, the Share Repurchase Code and the Listing Rules) to enable it to make a balanced and informed decision;
  3. be ready to provide a full and fair account of the fulfilment of its responsibilities towards the client; and
  4. ensure that it makes adequate disclosure of all relevant and material information in its dealings with the client.
  1. Duties to the market

A Corporate Finance Adviser should note that it owes a duty of care to the market.

Standard of care7.1    A Corporate Finance Adviser owes a duty of care to the market and should take reasonable precautions to avoid the creation or continuance of a false market. It should:
  1. observe high standards of market conduct at all times and should not engage in any act or course of conduct which may mislead public shareholders or the market.
  2. take reasonable steps to ensure that its clients do not issue statements to the market which may mislead public shareholders or the market, or create uncertainty; and
  3. use its best endeavours to ensure that its clients make full and prompt disclosure of all relevant information to the market if (i) there is a leakage, (ii) there is undue movement in the price/volume which suggests that there may be a false market.
  1. Communication with Regulators

A Corporate Finance Adviser should develop a good working relationship with the Regulators.

Dealing with the Regulators8.1    A Corporate Finance Adviser should ensure that day-to-day communication with the Regulators is only conducted by staff who are competent and conversant with the regulatory requirements. A Corporate Finance Adviser should inform the Regulators at the outset of a transaction as to whom they propose to nominate as their authorised staff for this purpose.
Co-operation with the Regulators8.2    A Corporate Finance Adviser should:
  1. deal with the Regulators in an open, co-operative and courteous manner at all times;
  2. keep the Regulators properly informed of material changes and developments of a transaction for a reassessment of their position.
8.3    A Corporate Finance Adviser should use its reasonable endeavours to procure its client to co-operate to the fullest extent with the Regulators, and to provide all relevant information and explanations upon request.
8.4    A Corporate Finance Adviser should take reasonable steps to ensure that the information provided to the Regulators is true, accurate, complete and not misleading.
Consultation8.5    A Corporate Finance Adviser is encouraged to consult the Regulators at an early stage in a transaction with a view to seeking guidance on the transaction under consideration.
Documents8.6    A Corporate Finance Adviser should ensure that all draft documents, including circulars to shareholders and announcements submitted to the Regulators for vetting, must be in a sufficiently advanced form in order for a meaningful vetting to be carried out. The Regulators may return any submitted draft documents which are substantially incomplete and are not suitable for a meaningful vetting.
Relevant fee8.7    A Corporate Finance Adviser should have regard to the requirement for the filing of the appropriate document or application fee, and ensure that the appropriate fee is submitted on a timely basis and in accordance with the relevant rules and regulations.
  1. Personal account dealings

A Corporate Finance Adviser should ensure that all personal account dealings are properly conducted.

The following guidelines are intended to address the basic principle that a Corporate Finance Adviser should avoid conflicts of interest when dealing in securities on its own account while discharging its duties as adviser to its client.

Personal account dealings

9.1    A Corporate Finance Adviser should ensure that it has developed a staff manual or included provisions in the contracts of employment between the corporation and its Staff Members governing personal account dealings. Such rules or provisions should include terms to the effect that:
  1. Staff Members should disclose all their listed securities and derivatives holdings (in Hong Kong or otherwise) upon joining the Corporate Finance Adviser and at least annually thereafter;
  2. Staff Members are required to obtain prior written approval for personal account dealings in listed securities or derivatives from the Designated Compliance Officer or other person designated by Senior Management;
  3. Staff Members should not use their position to gain access to initial public offers for themselves or any other persons;
  4. Staff Members should hold their securities accounts with the broking arm of the Corporate Finance Adviser if such an entity exists. Prior approval of the Designated Compliance Officer must be obtained if a staff member wishes to maintain securities accounts at other brokers. Where this is the case, the Staff Members must make available all records of personal dealing accounts to the corporation's compliance function.

Note: "Staff Members" mean any employees or directors of a Corporate Finance Adviser or any persons over whom they exercise control and influence.

Prohibition of dealings

9.2    For the purpose of proper monitoring of personal account dealings and proprietary trading, a Corporate Finance Adviser should ensure that such dealings in securities and derivatives are properly monitored by way of a system comprising a properly maintained watchlist and restricted list. The restricted list shall contain companies that are involved in transactions handled by the Corporate Finance Adviser which have been announced. This list should be circulated to all Staff Members including those outside the corporate finance team. The watchlist shall contain companies that are involved in transactions or proposed transactions handled by the Corporate Finance Adviser which have not been announced. This list is confidential and should only be kept by the Designated Compliance Officer or a designated person for granting approval of dealings under paragraph 9.1(b) above.

Proper monitoring

9.3    A Corporate Finance Adviser should ensure that all personal account dealings in securities and derivatives by registered directors or representatives are properly monitored by the compliance function of the corporation.

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Page last updated : 1 Aug 2012