Snowed under? SFC Expresses Concerns about Substandard Sponsor Conduct and Declining Quality in Draft Listing Documents

Introduction

On 30 January 2026, the Securities and Futures Commission (“SFC”) issued a circular addressing concerns over declining quality in drafting listing documents and substandard conduct of licensed corporations carrying out sponsor work (“Sponsors”) for initial public offerings (“IPOs”) in Hong Kong.

With a sharp increase in listing applications during 2025 and ongoing submissions into 2026, numerous deficiencies in sponsor conduct and regulatory compliance have been noted. This article summarises the SFC's key concerns and regulatory requirements.

From 2012-2019, the SFC imposed a number of heavy sanctions (suspension and revocation of licence) against Sponsors for non-compliance: starting from the full revocation of Mega Capital’s licence (which arose from the IPO of Hontex), to eventually the HKD 375 million fine and one-year suspension against UBS (relating to the IPOs of China Forestry and Tianhe). We believe that in the foreseeable future there will be another wave of regulatory scrutiny against Sponsors.

Key Concerns

The SFC and the Stock Exchange of Hong Kong Limited ("SEHK") have identified several points of concern:

  1. Serious deficiencies when preparing listing documents, responding to regulatory comments, and handling key offer-stage regulatory procedures;
  2. Over-reliance on external experts, such as lawyers, accountants and valuers, without adequate oversight;
  3. Insufficient capacity of those individuals appointed by Sponsors ("Principals") to supervise transaction teams and engage in listing work;
  4. Appointment of unsuitably qualified Principals;
  5. Sponsors lacking sufficient staff with appropriate knowledge, skills and experience.

The above gives rise to the SFC’s view that certain Sponsors have failed to develop a thorough understanding of listing applicants, some of whom lack listing readiness or an understanding of the implications of being listed. This implies that Sponsors are adopting a process-driven approach to listing applications, rather than one driven by substantive due diligence and advisory services to the applicants.

Sponsors have a responsibility to uphold the quality of new listings and will be held accountable by the SFC. If draft listing documents are seriously deficient, applications may be returned, or vetting may be suspended. For major failures, the SFC may impose regulatory actions, including restricting a Sponsor’s business scope or the number of active listing mandates.

Key Regulatory Requirements

Reporting to the SFC

The SFC required all Sponsors to submit to their case officers:

  1. the names and number of their Principals and each Principal’s active listing engagements. The SFC generally considers any Principal handling six or more active engagements (“Strained Principals”) to indicate inadequate resources, unless exceptional, well‑justified circumstances are provided; and
  2. a list of all individuals involved in IPO sponsor work who have not passed Paper 16 of The Licensing Examination for Securities and Futures Intermediaries (the “LE”) administered by the Hong Kong Securities and Investment Institution (the “HKSI”) within three years before, or six months after, their first engagement.

These requests show that the SFC is now taking a more intervening approach in monitoring the quality of Sponsors’ work.

SFC On-site Thematic Inspections

In December 2025, the SFC and SEHK issued a joint letter (the “Joint Letter”) to 13 Sponsors with specific cases of concerns cited from recent listing applications (“Concerned Sponsors”).

Concerned Sponsors and Sponsors with Strained Principals should expect the SFC to conduct on-site inspections of their sponsor work and resources in the near future. These thematic inspections aim to:

  1. identify Sponsors’ non-compliance with applicable laws and regulatory requirements;
  2. ascertain the resource allocation of Sponsors, focused on Principals’ involvement in due diligence for listing engagements;
  3. assess Sponsor’s Board of Directors, Managing Director, Chief Executive Officer, Responsible Officers (“RO”)/Executive Officers and other senior management (collectively “Management”) on their supervision and governance of sponsor work and the efficacy of reporting lines on critical matters.

Intermediate Internal Review by Select Sponsors

In the meantime, all Concerned Sponsors, and Sponsors later contacted by the SFC or SEHK about specific issues must complete a full review consisting of (a) and (c) below within three months.

Sponsors with Strained Principals must also complete their review consisting of (b) and (c) below within three months and submit a rectification and resource plan.

Review Scope:

  1. a retrospective review of issues raised in the Joint Letter or other regulator communications, identifying internal control weaknesses and corresponding remedial actions, and documenting accountability measures for Principals and Management oversight;
  2. a full review of Sponsor’s resources and current listing workloads, with a corresponding rectification and resource plan submitted to the SFC; and
  3. for group-company-structured Sponsors, identify key group-level personnel responsible for overseeing sponsor activities, noting that the SFC may engage directly with these individuals regarding future concerns and expectations.

The above review should be signed off by the Managers-In-Charge of the Overall Management Oversight (“OMOs”) of the Sponsors. The SFC may inspect results of the review as part of its thematic inspections.

Sponsor and Management Responsibilities

Sponsors are responsible for ensuring that listing applicants meet all applicable requirements, maintaining sufficient resources and internal controls to properly oversee sponsor work, and confirming that engaged experts and third parties have adequate expertise and resources to fulfil their responsibilities.

Sponsors must maintain records of all sponsor work to show compliance under paragraph 17.10(c) of the Code of Conduct for Persons Licensed by or Registered with the SFC. These records should support their choice of transaction team and demonstrate sufficient resources allocated to each listing engagement.

Sponsor Management is ultimately responsible for supervising sponsor work and ensuring compliance with relevant legal and regulatory requirements. Whilst Management may delegate operational functions, they cannot abrogate responsibility.

Further Guidance

The SFC will scrutinise a listing document for length, drafting quality, responses from Sponsors to regulators’ comments. Deficiencies in these factors may result in the SFC taking measures including but not limited to imposing a page limit on the listing documents, or suspension of the vetting process. As at 31 December 2025, vetting of 16 listing applications were suspended.

Principal submissions which are incomplete and/or have fundamental issues will be returned. This includes submissions:

  1. lacking supporting documents demonstrating the Principal’s actual role in listing engagements;
  2. with incomplete information regarding the Principal’s relevant corporate finance experience over a continuous five-year period; or
  3. which suggest that arrangements were made for other individuals to claim experience from the same IPO transaction following the return of the first individual’s Principal submission, thus passing off the first Principal’s experience as their own.

Going forward, license applications of individuals advising on corporate finance must be accompanied by a document signed off by Sponsor’s OMOs that demonstrates (i) no Principal is simultaneously participating in six or more active listing engagements without exceptional justification; and (ii) sufficient Principal capacity.

Conclusion

The circular is the result of regulatory frustration accumulated over a sustained period of time. It highlights the SFC’s increased scrutiny towards the quality of the Hong Kong IPO market and emphasis on fairness and transparency for the protection of investors. Sponsors should appropriately allocate resources to ensure the quality of the listing documents and that the issuers are ready and properly advised for the listing.

Howse Williams is exceptionally well-placed to support sponsors navigating the SFC’s latest circular on sponsor work. Our strong corporate finance practice, combined with deep expertise in contentious regulatory enforcement, equips us to deliver pragmatic compliance advice and handle regulatory investigations.