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. 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.