SFC inspection reveals deficiencies in work of IPO sponsors

In the Report on Sponsor Theme Inspection Findings released on 29 March 2011, the Securities and Futures Commission (SFC) notes shortcomings in the work of some licensed corporations sponsoring initial public offerings (IPOs).

The SFC has conducted a theme inspection on sponsors so as to assess the level of their compliance with the existing regulatory requirements. Reviewing 17 sponsors of different sizes, the SFC has identified certain deficiencies in the work performed by some sponsors as well as some inadequacies in their internal systems and controls, including:

- unsatisfactory due diligence on listing applicant’s business;
- questionable disclosure to The Stock Exchange of Hong Kong Ltd during the listing application process;
- failure to maintain proper documentation of due diligence; and
- inadequate internal systems and controls over sponsor work.

“We expect sponsors to be closely involved in the preparation of the listing documents in IPO activities and their role is vital,” said Mr. Martin Wheatley, the SFC’s Chief Executive Officer. “Their work is important for providing investors with true, accurate and complete information on listing applicants to make informed investment decisions.”

“We will continue to oversee the work of sponsors,” Mr. Wheatley added, “and we also may review shortly the responsibilities relating to a sponsor’s work.”

The SFC has been conducting routine inspections on sponsors from time to time. Following the establishment of a specialised sponsor review team, this was the first round of theme inspections conducted by the SFC since the SFC guidelines governing IPO sponsorship took effect in January 2007. Details of the theme inspection findings are discussed in the Report, which is available on the SFC website.

The above information was extracted from SFC website - Press Releases 2011. For more information, please visit to website www.sfc.hk.

Comment

Under the current rules and regulations, sponsors should be appointed to assist with initial application for listing and be closely involved in preparing the listing documents.  As a result, sponsors play a very important role in the IPO process.

In order to safeguard the status of Hong Kong as an international financial centre and the major IPO centre in the world, it is important to maintain the integrity and transparency of the market for the IPO activities.  We are looking forward to the SFC continues overseeing of the work of sponsors can provide a better investor protection and market quality.

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