A Securities and Futures Commission (SFC) proposal to tighten regulation of initial public offering sponsors has drawn indignation from investment banks over the possibility of jail sentences under the new law, but investigative firms and lawmakers are throwing their weight behind the tougher rules.
The move aims to help Hong Kong to catch up with Singapore's tougher regulatory regime for sponsors. The proposal would allow prison sentences for sponsors, such as brokers or bankers, who fail to ensure the accuracy of IPO documentation.
Steve Vickers, chief executive of Hong Kong risk consultancy firm Steve Vickers Associates, said the SFC proposal would encourage more firms to hire investigative firms to conduct due diligence but would still not enable Hong Kong to catch up with Singapore. 'But now at least the SFC proposal is catching up,' he said.
Vickers said Singapore had a more comprehensive practice note on how to conduct due diligence, while the SFC proposal lacked sufficient detail. For example, Vickers said the SFC proposals used the word 'reasonable' without giving a full definition.
Edward Chow Kwong-fai, deputy chairman of the Business and Professionals Federation of Hong Kong, endorsed the SFC proposal, saying sponsors carried ultimate responsibility for the quality of new listings.
Paul Chan Mo-po, legislator for the accounting constituency, said: 'It's time for the SFC to reform sponsor regulation to restore investor confidence and strengthen the reputation of the Hong Kong market.'
A bid by the markets watchdog to tighten sponsor regulations in 2005 was dropped due to stiff opposition.