CCB International Capital becomes the latest IPO sponsor that gets reprimanded and fined by the Securities and Futures Commission in Hong Kong, after Citigroup Global Markets Asia and UBS earlier in the year.
The SFC on Monday fined CCBIC HK$24 million (US$3.06 million) for failing its duty as a sponsor in the initial public offering application in Hong Kong of Fujian Dongya Aquatic Products.
According to the regulator, CCBIC did not conduct all reasonable due diligence on Dongya before submitting the seafood firm’s application to be listed on the stock exchange’s main board in March 2014. Dongya finally did not list.
While about 90% of Dongya’s turnover between 2011 to 2013 was derived from its sales to overseas customers, the investment bank did not complete the due diligence on the company’s customers agreements or interviewed some of these customers face-to-face, SFC.
According to an SFC statement, the lack of proper customer due diligence includes:
- only 12 of 22 overseas customers were interviewed in face-to-face meetings and 11 of these 12 interviews were conducted in the presence of one or two Fujian Dongya representatives;
- eight of these 12 interviews were not conducted in the customers’ premises; and
- Ten customers were interviewed by telephone but there is no record as to why these customers could not attend face-to-face interviews.
In addition, the SFC found that a member of CCB International Capital’s transaction team raised concerns about the genuineness of the signatures on the indemnity agreements and a review of agreements shows that some of them were signed by the same person on behalf of different customers.
The SFC’s investigation also found that CCBIC did not keep a proper audit trail or written record of its due diligence work.
“For example, CCBIC did not maintain records that could explain its decision of not completing the above-mentioned due diligence plan,” the regulator said in the statement.
SFC said it took into consideration CCB International’s improvement on internal controls when it comes to disciplinary sanction, adding that it found “no evidence that the breaches and deficiencies identified above were deliberate, intentional or reckless” as the investment bank cooperated fully with investigators.
Citigroup Global Markets was fined HK$57 million for failing in its duties as IPO sponsor to Real Gold Mining in May, while UBS was fined HK$119 million and suspended as an IPO sponsor for 18 months.