SFC prepares to inspect Hong Kong IPO listing sponsors amid quality concerns

Hong Kong’s market regulator will soon begin inspection of investment banks to assess their roles as sponsors of listing candidates, in its latest effort to uphold the quality of new listings amid a booming market.

The Securities and Futures Commission (SFC) said the inspection would focus on whether banks had complied with its January circular, which outlined expectations on staffing and quality controls when handling initial public offerings (IPOs) in Hong Kong. For example, the SFC expected that one staff member should not oversee more than six deals at once.

“To gatekeep listing applications and further solidify Hong Kong’s position as a trusted fundraising hub, the SFC issued a circular to IPO sponsors in January to raise concerns about deficiencies in listing documents and sponsor misconduct,” the commission said in its quarterly report released on Thursday.

“It is now reviewing the sponsors’ submissions as required by the circular and will commence thematic inspections of sponsors in the near term.”

The move followed findings by the SFC and bourse operator Hong Kong Exchanges and Clearing in the fourth quarter that the quality of sponsors’ work had declined, with some listing application documents deemed substandard.

Some sponsors are too focused on chasing deals and do not ensure they have adequate manpower and resources to maintain the quality of their due diligence and paperwork, according to Julia Leung. Photo: Jonathan Wong

The SFC told investment banks that it “may take potential regulatory actions to uphold market quality and protect the investing public if substandard behaviours persist or worsen”.

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SFC prepares to inspect Hong Kong IPO listing sponsors amid quality concerns

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