Hong Kong’s New Regulations for IPO Takes Effect October 1

The Hong Kong Securities and Futures Commission's (SFC) new regulations for IPO sponsors, the HKEx’s Listing Rules changes and a series of new and revised guidance letters will come into effect today, October 1, 2013.


The new measures come at a time when investors have become increasingly concerned about the quality of accounting at Chinese publicly traded companies.


Under the new SFC regulations, which seek to strengthen investor protection after a series of accounting scandals involving IPOs, IPO sponsors will be liable for civil and criminal action if they make false statements in IPO documents.


The changes would force investment banks to complete due diligence before a company can make a formal application to list. The draft prospectus that the bank submits on behalf of the company would be made public, similar to the practice in the US, pushing more of the vetting process on to deal sponsors.


“The new regulations and Listing Rules highlight the necessity of early, in-depth investigation and due diligence on IPO candidates," comments Jason Wright, Associate Managing Director at Kroll. "Given the risk of fraud in China, it is important to seek out, detect and measure risks that are not apparent during the normal course of business discussions or via traditional legal and regulatory compliance procedures. Getting these exercises right would help investment banks better manage their regulatory, operational and perhaps most importantly, reputational risks.”


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