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The Securities and Futures Commission (SFC) today issued a circular urging licensed corporations carrying out sponsor work to critically review and enhance their systems and controls following a thematic inspection of sponsors (Note 1) which found deficiencies in standards of conduct, due diligence practices as well as internal systems and controls.
The inspection found that some sponsors, when conducting due diligence, failed to follow up on obvious red flags, only followed standard checklists without adapting them to the circumstances of specific listing applications and did not confirm that interviewees had the appropriate authority and knowledge to provide the information requested.
In vetting draft prospectuses of listing applications, the SFC also identified concerns which the sponsors should have discovered and addressed through reasonable due diligence prior to the submission of the listing applications.
"Sponsors and their senior executives are reminded to comply with the expected standards and the relevant codes, rules and regulations in carrying out their work," said Mr Ashley Alder, the SFC's Chief Executive Officer. "The SFC will not hesitate to take enforcement action against those responsible for failing to do so."
The inspection also found that serious deficiencies and instances of non-compliance were prevalent in the sponsor work done for initial public offering transactions on GEM.
Due to sufficiently serious concerns raised during the vetting process, 44 listing applications were returned or rejected since October 2013. Today's circular emphasised that sponsors with a history of returned or rejected listing applications or which are found to have had serious deficiencies and instances of non-compliance may expect more frequent inspection visits and supervisory actions. These factors may cast doubt on a sponsor's capability to discharge its responsibilities as well as potential compliance risk. Future listing applications submitted by them may also be subject to closer regulatory scrutiny.
Notes:
- The thematic review covered the work undertaken by 31 sponsors from October 2013, when the new sponsor regime was introduced, to December 2017. Detailed findings are set out in the SFC's Report on the Thematic Review of Licensed Corporations Engaged in Sponsor Business published today. This follows the SFC's first thematic review of sponsors which was detailed in a report published in March 2011.
