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Largest-ever enforcement action by Hong Kong’s SFC confirms that IPO sponsors remain in regulator’s crosshairs

Hong Kong’s Securities and Futures Commission (SFC) has fined and reprimanded several international financial institutions for their work as joint sponsors in a number of past Hong Kong IPOs.  These cases follow two other cases last year, and form the SFC’s largest sponsor enforcement outcomes to date.  Given the SFC’s indication last October that it had investigated 30 cases of suspected sponsor misconduct involving 28 sponsor firms and 39 listing applications, further similar actions can be expected over the course of next 12 to 18 months.

“For many years, there has been a gap between the SFC’s expectations of IPO sponsors and the Hong Kong sponsor community’s general understanding of what regulators expect of them. These recent enforcement actions, taken together with past actions, provide the market with more colour on what the SFC expects.  Over time, the learning from these cases should help to narrow that expectation gap,” said Tim Mak, regulatory partner at Freshfields.

Mak added: “Sponsors do not have the luxury of hindsight – their work is prospective, and they must make real-time judgments about how far their due diligence should extend.  There is no bright-line test of how much effort is sufficient.  In those circumstances, recalibrating mindset to further err on the side of caution, particularly in all of the areas that the SFC has highlighted through enforcement action, should help to narrow the expectation gap and reduce the risks.”

For more details, download a copy of Freshfields’ briefing, “Reasonable due diligence”: Time for IPO sponsors to reassess their mindset?


Notes for editors

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