Hong Kong's Securities and Futures Commission (SFC) yesterday launched a two-month consultation on proposals to increase its scrutiny of listing sponsors - the first step towards a law that could put them in jail if a company's prospectus for listing misleads investors.
SFC chief executive Ashley Alder said there was no definite timetable for implementing the proposed regulatory changes.
The consultation also proposes tougher codes of conduct for sponsors, who, the watchdog says, may be 'overly reliant' on opinions from auditing firms and lawyers when carrying out due diligence.
Edward Au, who is responsible for overseeing initial public offerings for auditing firm Deloitte, said sponsors might sometimes decide to carry out more due diligence work above and beyond the level normally performed by auditors, who act according to Hong Kong Institute of Certified Public Accountants (HKICPA) guidelines.
For example, under HKICPA guidelines, auditors might only visit a few outlets of a retailer planning a listing, but the sponsor might decide to check more shops as part of its due diligence.
In IPOs involving more than one sponsor, an auditor has to liaise with banks over due diligence work. The SFC is proposing that there should either be a single sponsor for a listing or that a limit be set on the number of sponsors for a listing.