'From January 1 next year, only those corporate finance advisory firms that meet the stringent eligibility criteria may act as sponsors. Existing sponsors should not assume that they will automatically pass the test,' she said.

Mrs Lam refused to predict how many firms would fail to meet the new requirements.

'It would be up to the individual sponsors to decide if they want to continue the sponsorship business,' she said.

'For those wanting to continue to be sponsors, it will be their responsibility to raise their working capital and hire experienced staff to do their job properly.'

She also said the commission had set up a special team to do regular and ad hoc inspections to ensure sponsors had made the grade.

'The [commission] will inspect the sponsors and will not hesitate to take action against firms for substandard work.'

Mrs Lam said poorly performing sponsors would face a range of penalties including suspension, fines or a ban.

The commission introduced the regulations after several corporate scandals in recent years. The most serious was the case of Euro-Asia Agricultural (Holdings), which allegedly inflated revenue 20 times in the four years leading to its listing in 2001. The firm collapsed a year later.

The due diligence shortcomings and other examples of poor-quality new listings led regulators and the public to question whether the sponsors had done their duty, which prompted the commission to come up with a range of proposals, including the capital and experience requirements, in a consultation paper in June last year.

Mrs Lam said most of the proposals had won strong support but the commission would not force sponsors to buy professional indemnity insurance.

'Many sponsors and even insurance companies said it would be difficult for them to offer this kind of insurance products.'

She said the watchdog would not require sponsors to submit annual reports to it either because this would duplicate the existing rules requiring all licensees of the commission to submit their financial information.

David Lui Yin-tat, the chief executive of Bank of Communications Schroder Fund Management, welcomed the move.

'It is important to have a tightened regulation on sponsors so as to improve the quality of new listings and hence protect the interests of small investors,' Mr Lui said.