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Regulation of Sponsors & Independent Financial Advisers HKEx briefings 7, 8 & 13 December 2004. In October HKEx & SFC announced: Consultation conclusions Rule amendments (commence 1 January 2005 - subject to transitional arrangements). Agenda:. Process Key Objectives Key Aspects

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regulation of sponsors independent financial advisers hkex briefings 7 8 13 december 2004
Regulation of Sponsors &

Independent Financial Advisers

HKEx briefings

7, 8 & 13 December 2004

slide2
In October HKEx & SFC announced:

Consultation conclusions

Rule amendments (commence 1 January 2005 - subject to transitional arrangements)

process key objectives key aspects 2 phases rule changes

Agenda:

Process

Key Objectives

Key Aspects

2 Phases

Rule Changes

  • sponsors & CAs
  • IFAs
  • transitional
  • Enforcement
  • Questions
slide4

Process:

Conclusions informed by extensive market consultation

In conjunction with May 2003 consultation paper

Conclusions & rule amendments approved by SEHK & Commission

process key objectives key aspects 2 phases rule changes5

Agenda:

Process

Key Objectives

Key Aspects

2 Phases

Rule Changes

  • sponsors & CAs
  • IFAs
  • transitional
  • Enforcement
  • Questions
sponsors play an important role in hk variance of expectations to address expectation gap

Key Objectives:

Sponsors play an important role in HK. Variance of expectations

To address expectation gap:

  • clear framework for role of sponsors, compliance advisers & IFAs
  • make it abundantly clear what is expected of them & issuers that appoint them
process key objectives key aspects 2 phases rule changes7

Agenda:

Process

Key Objectives

Key Aspects

2 Phases

Rule Changes

  • sponsors & CAs
  • IFAs
  • transitional
  • Enforcement
  • Questions
will codify current expectations will clearly set out

Key Aspects:

Conclusions & amended rules:

WILL codify current expectations

WILL clearly set out:

  • when sponsors, CAs & IFAs must be appointed
  • when sponsors, CAs & IFAs must be independent & what is independence
slide9

role of sponsors, CAs & IFAs including due diligence

  • role of issuers in assisting sponsors & CAs
slide10

WILL make it clear that sponsors, CAs & IFAs can only do what is reasonable & appropriate

WILL NOT expect sponsors to verify expert reports/ be experts

WILL allow engaging of 3rd party professionals (but sponsor must ensure work not substandard)

WILL NOT shift obligations from directors/experts to sponsors

process key objectives key aspects 2 phases rule changes11

Agenda:

Process

Key Objectives

Key Aspects

2 Phases

Rule Changes

  • sponsors & CAs
  • IFAs
  • transitional
  • Enforcement
  • Questions
slide12
2. How?

1 January 2005: most amendments

late 2005: new SFC regime & further consequential amendments

2 Phases:

1. Why?

Initial & continuing eligibility to be solely in SFC’s licensing regime

process key objectives key aspects 2 phases rule changes13

Agenda:

Process

Key Objectives

Key Aspects

2 Phases

Rule Changes

  • sponsors & CAs
  • IFAs
  • transitional
  • Enforcement
  • Questions
slide14

Rule Changes:

On 1 January, rules amended to:

include new chapter re sponsors & CAs

(MB Ch.3A; GEM Ch.6A)

include new rules re IFAs

(MB 13.80 to 13.87; GEM 17.92 to 17.99)

include new PN re due diligence by sponsors

(MB PN21; GEM PN2)

address incidental amendments

slide15

New MB & GEM rules largely identical

Differences include e.g.:

6A.02 re eligibility (MB: sponsor to be acceptable to SEHK; GEM: sponsor to be admitted to list of acceptable sponsors)

6A.19 re length of appointment of CA (MB: 1+ years; GEM: 2+ years)

different incidental amendments

process key objectives key aspects 2 phases rule changes16

Agenda:

Process

Key Objectives

Key Aspects

2 Phases

Rule Changes

  • sponsors & CAs
  • IFAs
  • transitional
  • Enforcement
  • Questions
slide17
Sponsors & compliance advisers:

1. Appointment

  • 3 scenarios:
  • pre-listing (& deemed new listings)
  • immediately post-listing
  • other time as directed (3A.20)
slide18

Pre-listing & deemed new listings:

  • sponsor to assist with IPO (3A.02)
  • no co-sponsorship BUT can engage more than

1 sponsor

  • if more than 1 (3A.10):
  • advise primary communication channel
  • all equally responsible
  • all must act impartially (3A.06)
  • only 1 need be independent

(come back to independence)

slide19
Post-listing:
  • CA for 1 year+ (3A.19); (GEM - 2 years+)
  • can be different to sponsor
  • need not be independent but must act impartially
slide20
2. Eligibility
  • Until 2005:
  • sponsors: status quo i.e.:

MB: acceptable to SEHK

GEM: on eligible list

  • CAs: adopt sponsor regime
  • After 2005: determined by SFC
slide21
3. Independence
  • all sponsors & CAs must perform duties with impartiality
  • sponsors must be independent; if more than 1, then only 1 need be
  • listing document must disclose each sponsor’s independence & if not independent, how
slide22
all sponsors must give SEHK statement re independence addressing criteria (3A.08)
  • independence test: bright line test to be applied by sponsor / issuer (3A.07)
slide23
“sponsor group” is defined at 3A.01(9) as:
  • a sponsor
  • any holding company of the sponsor
  • any subsidiary of any holding company of the sponsor

(d) any controlling shareholder of:

  • the sponsor or
  • any holding company of the sponsor

which controlling shareholder is not, itself, a holding company of the sponsor &

(e) any associate of any controlling shareholder referred to in paragraph (d) above

slide24

This chart does not form part of the Listing Rules

Definition of “sponsor group”

(: Main Board rule 3A.01 and GEM rule 6A.01)

Associates of controlling shareholder (CS)

Associates of CS

Associates of CS

Associates of CS

CS of Co A that is not, itself, a holding company of sponsor

CS of sponsor that is not, itself, a holding company of sponsor

Holding company of sponsor (Co A)

Subsidiary of Co A

Sponsor

slide25

This chart does not form part of the Listing Rules

Definition of “sponsor group”

(incorporating effect of definition of “holding company” in s2(7) Companies Ordinance)

Associates of controlling shareholder (CS)

Associates of CS

Associates of CS

Associates of CS

CS of Co A that is not, itself, a holding company of sponsor

CS of sponsor that is not, itself, a holding company of sponsor

Holding company of sponsor (Co A)

Subsidiary of Co A

Sponsor

Subsidiary of subsidiary of Co A

Subsidiary of subsidiary of Co A

Subsidiary of sponsor

Subsidiary of sponsor

Subsidiary of

subsidiary of sponsor

Subsidiary of

subsidiary of sponsor

Subsidiary of

subsidiary of sponsor

Subsidiary of

subsidiary of sponsor

slide26
3A.07 provides sponsor is not independent if:

(1) the sponsor group & any director or associate of a director of the sponsor collectively holds or will hold,

  • directly or indirectly
  • more than 5% of the issued share capital of the new applicant
  • save & except where that holding arises as a result of an underwriting obligation
slide27
(2) the fair value of the direct or indirect current or prospective shareholding of the sponsor group in the new applicant
  • exceeds or will exceed 15% of the net equity shown in the latest consolidated financial statements of
  • the sponsor’s ultimate holding company or
  • where there is no ultimate holding company, the sponsor
slide28
(3) any member of the sponsor group or any director or associate of a director of the sponsor is
  • an associate or connected person of the new applicant
slide29
(4) 15% or more of the proceeds raised from the initial public offering of the new applicant
  • are to be applied directly or indirectly to settle debts due to the sponsor group
  • save & except where those debts are on account of fees payable to the sponsor group for subject sponsorship services
slide30
(5) the aggregate of:
  • amounts due to the sponsor group from the new applicant & its subsidiaries; &
  • (b) all guarantees given by the sponsor group on behalf of the new applicant & its subsidiaries

exceeds 30% of the total assets of the new applicant

slide31
(6) the aggregate of:

(a) amounts due to the sponsor group from:

(i) the new applicant

(ii) the new applicant’s subsidiaries

(iii) any controlling shareholder of the new applicant; &

(iv) any associates of any controlling shareholder of the new applicant; &

slide32

(b) all guarantees given by the sponsor group on behalf of:

(i) the new applicant

(ii) the new applicant’s subsidiaries

(iii) any controlling shareholder of the new applicant; &

(iv) any associates of any controlling shareholder of the new applicant

exceeds 10% of the total assets shown in the latest consolidated financial statements of the sponsor’s ultimate holding company (or the sponsor)

slide33
(7) the fair value of the direct or indirect shareholding of:
  • (a) a director of the sponsor
  • (b) a director of any holding company of the sponsor
  • (c) an associate of a director of the sponsor; or
  • an associate of a director of any holding company of the sponsor
  • in the new applicant exceeds HKD 5 million;
slide34
(8) an employee or director of the sponsor who is directly engaged in providing the subject sponsorship services to the new applicant, or
  • an associate of such an employee or director
  • holds or will hold shares in the new applicant or
  • has or will have a beneficial interest in shares in the new applicant
slide35
(9) any of the following has a current business relationship with the new applicant or
  • a director, subsidiary, holding company or substantial shareholder of the new applicant
  • which would be reasonably considered to affect the sponsor’s independence, or
  • might reasonably give rise to a perception that the sponsor’s independence would be so affected
  • except where relationship arises pursuant to subject sponsorship services:
slide36

(a) any member of the sponsor group

  • (b) an employee of the sponsor who is directly engaged in providing the subject sponsorship services to the new applicant
  • an associate of an employee of the sponsor who is directly engaged in providing the subject sponsorship services to the new applicant
  • (d) a director of any member of the sponsor group; or
  • (e) an associate of a director of any member of the sponsor group
slide37

(10) the sponsor or a member of the sponsor group is the auditor or reporting accountant of the new applicant.

slide38
4. Roles

sponsors: proactive

CAs: reactive

slide39

must give undertakings:

  • sponsors (3A.04):
    • comply LRs
    • use reasonable endeavours to ensure info to SEHK is true & complete
    • promptly advise if that changes
    • cooperate in Division / Listing Committee investigation
  • CAs (3A.22):
    • comply LRs
    • cooperate in Division / Listing Committee investigation
slide40
sponsors’ role set out in 3A.11
  • sponsors must:
    • comply with undertaking
    • be closely involved in preparation of listing documents
    • ensure 9.03 & 9.05 to 9.08 complied with
    • address SEHK questions etc
    • accompany new applicant to meetings with SEHK
    • conduct reasonable DD to make declaration in 3A.13
slide41
5. Due diligence declaration
  • will cover due diligence re:
  • director’s declaration(s)
  • compliance with basic listing conditions
  • sufficiency of listing document
  • new applicant’s systems & controls
slide42
directors’ collective experience, qualifications & competence
  • directors’ individual experience, qualifications & competence
  • expert sections of listing document including whether:
slide43

factual information relied on by expert is true & complete (unless verified by expert)

  • all bases & assumptions = fair, reasonable & complete
  • expert appropriately qualified, experienced & resourced
  • expert scope of work appropriate
  • expert independent
  • listing document fairly represents expert views
slide44
6. Due diligence by sponsors
  • in determining what is reasonable DD refer new PN (3A.12)
  • requirement for DD:
  • is not new
  • crystallises existing expectations
  • is not intended to replace directors’ & experts’ obligations
  • will not absolve general obligations as CF advisers under SFC administered laws & codes
slide45
PN:
    • applies only to sponsor firms; not CAs, IFAs or individuals
    • is not a checklist / minimum steps
    • is SEHK’s expectations of typical DD steps (actual steps may be more or less)
    • is subject to what is reasonable
slide46
PN provides:

(at para 2)

  • sponsor should make inquiries until can reasonably satisfy itself in relation to the disclosure in the listing document
  • sponsor should examine with professional scepticism the accuracy & completeness of statements & representations made, or other information given, to it
  • professional scepticism means making a critical assessment with a questioning mind & being alert to information that contradicts or brings into question reliability
slide47

(at para 3)

  • [PN] sets out Exchange’s expectations of DD sponsors will typically perform
  • PN does not set out actual steps that may be appropriate in any particular case
  • each new applicant is unique & so will be DD steps necessary
  • scope & extent of appropriate DD may be different from (& in some cases, considerably more extensive than) the more typical examples in [PN]
  • sponsor must exercise judgment as to what investigations or steps are appropriate & the extent of each step
slide48

(at para 4)

  • Exchange expects sponsors to document DD planning & significant deviations from plans
  • includes demonstrating that turned their minds to question of what inquiries are necessary & reasonably practicable in the context & circumstances
  • Exchange also expects sponsors to document conclusions in respect of new applicant’s compliance with all the conditions in Chapter 8
slide49

(at para 5)

  • may be appropriate for a sponsor to engage 3rd party professionals to assist with tasks related to DD
  • e.g. assistance in reviewing circumstances of current legal proceedings
  • in such cases, Exchange expects sponsor to satisfy itself is reasonable to rely on information / advice provided by the 3rd party
  • Including e.g.:
slide50
(a) being satisfied as to:
  • competence of the professional
  • scope of work to be undertaken by 3rd party
  • methodology proposed to be used by 3rd party

(b) being satisfied that 3rd party’s report or opinion is consistent with other information known to sponsor about new applicant, its business & its business plans

slide51
DD expectations in PN include:
  • 1. re collective & individual experience, qualifications, competence & integrity of directors:
  • (a) review directors’ past performance
  • (b) assess individually & collectively directors’ financial literacy, corporate governance experience & competence
  • (c) review financial & regulatory track record of listed companies directors previously involved with
slide52

2. re new applicant’s compliance with qualifications for listing:

(a) search co registry in place of incorporation to confirm new applicant duly established

(b) review material financial information including:

  • new applicant’s & subsidiaries’ financial statements
  • internal financial records, tax certificates etc for trading record period

(c) assess accuracy & completeness of information submitted to demonstrate trading record requirement

slide53

3. re preparation of listing document & supporting information:

  • (a) assess financial information to be in listing document including:
  • obtaining written confirmation from new applicant & directors that properly extracted
  • satisfied confirmation given after due & careful inquiry
slide54

(b) assess performance & finances, business plan & any profit forecast / estimate - normally including interviewing senior management & often major suppliers, customers, creditors & bankers

(c) assess whether financial change requiring disclosure

(d) assess whether reasonable to conclude issue proceeds will be used as proposed

slide55

(e) undertake physical inspection of material assets

(f) understand new applicant’s production methods

(g) understand how new applicant manages its business

(h) review business aspects of contracts material to the business

(i) review legal proceedings / other material disputes

(j) analyse business aspects of economic, political or legal conditions that may materially affect the business

slide56

(k) consider industry & target markets

(l) assess whether appropriate documentation to confirm material assets appropriately held by new applicant

(m) assess existence, validity & business aspects of new applicant’s rights e.g. proprietary interests, IP rights & licensing arrangements

(n) understand technical feasibility of new product / service / technology

(o) assess stage of development of the business & business plan

slide57

4. re expert sections of listing document:

(a) interview expert & review terms of engagement & public information to assess:

  • expert’s qualifications, experience & resources
  • whether expert is competent to undertake the work
slide58

(b) review expert sections as to whether following are disclosed / commented on appropriately:

  • factual information on which expert relies
  • assumptions on which expert opinion based
  • scope of work performed by expert in arriving at opinion
slide59

(c) verify factual information

  • (d) where sponsor is aware new applicant made formal or informal representations to expert, assess whether representations are consistent with sponsor’s knowledge
  • (e) by reference to sponsor’s knowledge assess whether assumptions on which expert opinion is based, are fair, reasonable & complete
slide60

(f) if opinion is qualified, assess whether qualification is adequately disclosed in listing document

  • (g) where standard of independence is not set, obtain written confirmation from expert that it is independent
slide61

5. re new applicant’s accounting & management systems & directors’ appreciation of their / new applicant’s obligations:

  • assess new applicant’s accounting & management systems relevant
  • interview all directors / senior managers with key responsibilities for ensuring compliance to assess their individual & collective experience, qualifications & competence & understanding of relevant obligations
slide62

6. to the extent sponsor finds new applicant’s procedures / directors / key senior managers inadequate discuss with board & recommend remedial steps

slide63
7. CAs
  • need only advise when consulted
  • 3A.23: when issuers must consult CA:
  • before publication of announcement, circular or financial report
  • notifiable or connected transaction contemplated
  • proposing to use IPO proceeds not as disclosed
  • issuer’s business activities etc deviate from forecast, estimate or other in listing document
  • SEHK makes inquiry under 13.10
slide64

3A.24: what CAs must do e.g.:

  • ensure issuer is properly guided & advised as to LR compliance …
  • accompany issuer to meetings with SEHK
  • discuss with issuer:
  • operating performance & use of proceeds as disclosed
  • waiver compliance
  • whether profit forecasts will be met
  • compliance with issuer’s & its directors’ undertakings
slide65
8. Termination & resignation
  • some limitations
  • sponsors: 3A.17 to 3A.18
  • CAs: 3A.26 to 3A.27
process key objectives key aspects 2 phases rule changes66

Agenda:

Process

Key Objectives

Key Aspects

2 Phases

Rule Changes

  • sponsors & CAs
  • IFAs
  • transitional
  • Enforcement
  • Questions
slide67
IFAs:

1. Overview of rule amendments

  • insert new rules 13.80 to 13.87
  • new rules will:
  • require IFAs take reasonable steps to ensure reasonable basis for opinion letter
  • set out what are reasonable steps (based on sponsor PN)
  • set out independence test
  • require undertaking & declaration similar to sponsors
slide68
2. Appointment
  • no change
  • 13.39(6)(b) and 19.05(6)(a)(iii) provide for appointment of IFA acceptable to SEHK
slide69
3. Independence
  • all IFAs must perform duties with impartiality
  • all IFAs must be independent
  • bright-line test (13.84)
  • must declare independence to SEHK (13.85(1))
slide70
“IFA group” is defined at 1.01 as:
  • the IFA
  • any holding company of the IFA
  • any subsidiary of any holding company of the IFA

(d) any controlling shareholder of:

  • the IFA; or
  • any holding company of the IFA, which controlling shareholder is not, itself, a holding company of the IFA; &

(e) any associate of any controlling shareholder referred to in paragraph (d) above

slide71

This chart does not form part of the Listing Rules

Definition of “IFA group”

(: Main Board rule 1.01 and GEM rule 1.01)

Associates of controlling shareholder (CS)

Associates of CS

Associates of CS

Associates of CS

CS of Co A that is not, itself, a holding company of IFA

CS of IFA that is not, itself, a holding company of IFA

Holding company of IFA (Co A)

Subsidiary of Co A

IFA

slide72

This chart does not form part of the Listing Rules

Definition of “IFA group”

(incorporating effect of definition of “holding company” in s2(7) Companies Ordinance)

Associates of controlling shareholder (CS)

Associates of CS

Associates of CS

Associates of CS

CS of IFA that is not, itself, a holding company of IFA

CS of Co A that is not, itself, a holding company of IFA

Holding company of IFA (Co A)

Subsidiary of Co A

IFA

Subsidiary of subsidiary of Co A

Subsidiary of subsidiary of Co A

Subsidiary of IFA

Subsidiary of IFA

Subsidiary of

subsidiary of IFA

Subsidiary of

subsidiary of IFA

Subsidiary of

subsidiary of IFA

Subsidiary of

subsidiary of IFA

slide73
13.84 provides an IFA is not independent if:

1. the IFA group & any director or associate of a director of the [IFA] holds, directly or indirectly, in aggregate more than 5% of:

  • the issued share capital of the issuer
  • another party to the transaction; or
  • an associate or connected person of the issuer or another party to the transaction
slide74
2. any member of the IFA group or any director or associate of a director of the [IFA] is
  • an associate or connected person of the issuer or another party to the transaction
slide75

3. any of the following exceeds 10% of total assets shown in latest consolidated financial statements of [IFA’s] ultimate holding company (or, where is no ultimate holding company, the [IFA]):

(a) the aggregate of:

(i) amounts due to the IFA group from:

(A) the issuer

(B) the issuer’s subsidiaries

(C) any controlling shareholder of the issuer; &

(D) any associates of any controlling shareholder of the issuer; &

slide76
(ii) all guarantees given by the IFA group on behalf of:

(A) the issuer

(B) the issuer’s subsidiaries

(C) any controlling shareholder of the issuer; &

(D) any associates of any controlling shareholder of the issuer

slide77

(b) the aggregate of:

(i) amounts due from IFA group to:

(A) issuer

(B) issuer’s subsidiaries; &

(C) any controlling shareholder of issuer; &

(ii) all guarantees given on behalf of IFA group by:

(A) issuer

(B) issuer’s subsidiaries; &

(C) any controlling shareholder of issuer

slide78

(c) the aggregate of:

(i) amounts due from the IFA group to any of the following (referred to in this rule as “the Other Parties”):

(A) another party to transaction

(B) any holding company of another party to transaction

(C) any subsidiary of any holding company of another party to transaction

slide79
(D) any controlling shareholder of:

(1) another party to the transaction; or

(2) any holding company of another party to the transaction,

which controlling shareholder is not, itself, a holding company of another party to the transaction

(E) any associate of any controlling shareholder referred to in paragraph (D) above; &

slide80
(ii) all guarantees given by any of the Other Parties on behalf of the IFA group; &

(d) the aggregate of:

(i) amounts due to the IFA group from any of the Other Parties; &

(ii) all guarantees given by the IFA group on behalf of any of the Other Parties

slide81
4. any of the following has a current business relationship with the issuer or another party to the transaction, or
  • a director, subsidiary, holding company or substantial shareholder of the issuer or another party to the transaction
  • which would be reasonably considered to affect the [IFA’s] independence in performing its duties as set out in the [rules], or
  • might reasonably give rise to a perception that the [IFA’s] independence would be so affected
  • save & except where that relationship arises pursuant to the [IFA’s] appointment for the purpose of providing the subject advice:
slide82
(a) any member of IFA group

(b) an employee of [IFA] who is directly engaged in providing the subject advice to the issuer

(c) an associate of employee of the [IFA] who is directly engaged in providing the subject advice to the issuer

(d) a director of any member of IFA group; or

(e) an associate of a director of any member of IFA group

slide83
5. within 2 years prior to making declaration pursuant to 13.85(1):

(a) a member of IFA group has served as financial adviser to:

(i) issuer or its subsidiaries

(ii) another party to transaction or its subsidiaries; or

(iii) a connected person of issuer or another party to transaction; or

slide84
(b) without limiting para (a), an employee or a director of [IFA] who is directly engaged in providing subject advice to issuer:

(i) was employed by or was a director of another firm that served as a financial adviser to any of the entities referred to at para (a)(i) to (a)(iii) above; &

(ii) in that capacity, was directly engaged in provision of financial advice to the issuer or another party to the transaction

slide86
4. Due diligence by IFAs
  • 13.80 requires that an IFA take all reasonable steps to satisfy itself that:
  • it has a reasonable basis for making the statements required
  • there is no reason to believe any of the information relied on by the IFA or by any 3rd party expert relied on by the IFA is not true or omits a material fact
slide87

Note 1 to 13.80 sets out Exchange’s expectations of reasonable steps an IFA will typically perform including:

  • obtaining issuer’s information / documents relevant to assessment of fairness & reasonableness of terms of transaction
  • researching relevant market & other conditions & trends relevant to the transaction pricing
  • reviewing fairness, reasonableness & completeness of any relevant assumptions or projections
slide88

re any 3rd party expert:

  • interviewing expert
  • reviewing terms of engagement
  • where IFA is aware issuer or another party has made formal / informal representations to expert, assessing whether representations accord with IFA’s knowledge
  • if any relevant alternative offers made, reviewing & assessing them & reasons for rejecting them
process key objectives key aspects 2 phases rule changes89

Agenda:

Process

Key Objectives

Key Aspects

2 Phases

Rule Changes

  • sponsors & CAs
  • IFAs
  • transitional
  • Enforcement
  • Questions
slide90
Transition:
  • applications made on or before 19 Oct 2004:

rules will not apply

  • applications made on or after 20 Oct 2004 but completed by 31 Dec 2004:

rules will not apply

slide91
other applications
  • rules will apply on 1 Jan 2005
  • on 1 Jan 2005 have to comply with steps passed (e.g.: requirement for independence statement & undertaking)
  • BUT Division has discretion to modify if new applicant demonstrates compliance would cause significant hardship
process key objectives key aspects 2 phases rule changes93

Agenda:

Process

Key Objectives

Key Aspects

2 Phases

Rule Changes

  • sponsors & CAs
  • IFAs
  • transitional
  • Enforcement
  • Questions
slide94
Enforcement:
  • Clear message:

SEHK & SFC will continue to co-operate to ensure failures to meet the standards are addressed promptly & effectively

slide95

Tightening of structure including:

  • Clear policy and rules as to what is expected
  • Monitoring of sponsors aided by requirement that:
  • conduct reasonable DD to put itself in a position to be able to make DD declaration
  • (from PN) document DD planning and significant deviations from plans
  • (from PN) document conclusions re basic listing conditions compliance
slide96

Monitoring of CAs aided; e.g. could ask:

  • did issuer consult CA?
  • if CA consulted, when consulted and did it e.g. ensure issuer properly guided and advised?
slide97

Investigation and enforcement aided by e.g.:

  • having clear policy
  • undertakings:
  • confirm contractual nexus
  • require (sponsors, CAs and IFAs) to cooperate in investigations
slide98

Breaches may still  e.g.:

  • private reprimand
  • public statement with criticism
  • public censure
  • GEM: removal from sponsors list
  • impact upon fitness & properness
  • revocation / suspension of licence
  • SFO penalty
process key objectives key aspects 2 phases rule changes99

Agenda:

Process

Key Objectives

Key Aspects

2 Phases

Rule Changes

  • sponsors & CAs
  • IFAs
  • transitional
  • Enforcement
  • Questions
slide100

When

What

Why

New applicant & its directors must assist sponsor (3A.05)

Sponsor must perform duties impartially (3A.06)

IPO planning Appoint sponsor/s 3A.02

MB: When first submit documents to SEHK or before

GEM: At least 25 clear business days before provisional hearing of application

Sponsor must make independence statement to SEHK; make statement even if not the independent sponsor; assess as at the time of making the declaration pursuant to 3A.13

3A.03 to 3A.04, 3A.07; App 17

If sponsor / new applicant becomes aware of change from independence statement

Notify SEHK asap

3A.09

Asap after hearing of listing application but on or before issue of listing document

Sponsor must submit to SEHK declaration in terms of 3A.14 to 3A.16 informed by reasonable due diligence inquiries undertaken having regard to PN

3A.11(2), 3A.12, 3A.13; App 19

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When

What

Why

CAs must perform duties impartially (3A.25)

Initial listing

Appoint CA (MB: 1+ years / GEM: 2+ years)

3A.19

No later than immediately CA & issuer agree terms of engagement or, if later, CA commencing work for issuer

CA must give undertaking to SEHK

3A.21

Issuer must consult with and, if necessary, seek advice from its CA

3A.23

At times set out in 3A.23

When consulted

CA must discharge duties in 3A.24

3A.24

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When

What

Why

After Fixed Period

SEHK may direct listed issuer to appoint a CA for a further period

3A.20