Potential Civil and Criminal Penalties under Consideration

Against a background where Hong Kong has been the world’s leading IPO center for the third year in a row, the Hong Kong Securities and Futures Commission (SFC) has published its much-anticipated consultation paper on the regulation of sponsors. In an effort to improve the quality of listings in Hong Kong, the SFC’s proposals concern the conduct of sponsors in meeting their responsibilities in connection with new listings and aim to provide a regulatory basis for defining the expected quality of sponsor work.

One of the key proposals in the consultation paper, prospectus liability of sponsors, was first discussed in an SFC consultation in 2005 but subsequently it was considered premature to proceed at that time as the new non-statutory sponsor regime had yet to be fully implemented.1 In recent years, the SFC has noted in a number of cases that sponsors failed to address issues that were fundamental to the listing applications. This culminated in a HK$42 million fine and the revocation of the sponsor license for Mega Capital in April 2012. For a summary of the case and other key SFC enforcement actions to date, please click here.

The first part of the consultation paper relates to the SFC’s licensing regime for sponsors, with the SFC proposing to consolidate all key sponsor obligations in a new paragraph 17 in the Code of Conduct for Persons Licensed by or Registered with the SFC (Code of Conduct). The second part of the consultation paper relates to the legal liability of sponsors under the Companies Ordinance.  

We set out a summary of the key proposals in the consultation paper below.

Click here to view the table.

The consultation period ends on July 6, 2012, and interested parties are encouraged to submit their comments in writing to the SFC. The SFC has stated that there is no definite timetable in place for implementing the proposed regulatory changes should they be adopted. In addition, any revisions to the prospectus liability provisions of the Companies Ordinance would be subject to further consultation with the Hong Kong government and would need to go through the normal legislative process, and accordingly would be on a slower timetable than potential revisions to the Code of Conduct and the Listing Rules.

For a copy of the consultation paper, please click here.  

For a copy of our Sponsors’ Milestones guide, please click here.