New IPO Due Diligence Guidelines Establish Hong Kong as 'Global Standard Bearer'

Investment banks acting as sponsors to new stock market equity listings in Hong Kong have collaborated with other market professionals to publish a set of Due Diligence Guidelines on how to meet standards being set under new legal and regulatory requirements.


The 762-page document was completed after over a year of extensive consultation involving leading Hong Kong law firms, two of the Big Four accounting firms and more than 40 banks or financial advisory businesses. They include most of the city’s international and mainland Chinese investment banks and over a dozen smaller local institutions.


The decision to draft the Guidelines followed a move last year by the Hong Kong Securities and Futures Commission to introduce the most sweeping changes in sponsor regulation in a generation.


The changes include criminal liability for IPO sponsors under proposed amendments to section 40A of the Companies Ordinance. In addition, tighter regulatory standards of IPO due diligence under a revised Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission took effect October 1.


“While sponsors fully understand the rationale for these changes, there was real concern that the new SFC Code of Conduct, in common with Stock Exchange Listing Rules, left the very practical issue of how to meet the standards expected. The Guidelines attempt to address that issue in detail,” notes Julia Charlton, Senior Partner of Charltons which acted as the coordinating law firm.


Stephen E Clark, the current Chairman of the Panel on Takeovers and Mergers in Hong Kong welcomed the proposals, saying: “To my knowledge the introduction of the Hong Kong Sponsor Due Diligence Guidelines results from the largest and most complex voluntary effort from the financial and legal sector in Hong Kong’s history. I have no doubt it will achieve its objective of providing the means to meet what the SFC and the Stock Exchange expect of a sponsor.”


Alongside Charltons, which in addition to acting as coordinating law firm also represented 12 local sponsors, another 20 or so international law firms, and several other professionals were also involved in drafting the new Guidelines. 


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