SFC calls on senior bankers to take more responsibility over new offerings The Securities and Futures Commission wants tighter regulations for listing sponsors that will place more responsibility on senior management at investment banks. In a consultation paper containing major rule changes, the market regulator has proposed that each sponsoring firm should have at least two principal investment bankers and also file annual self-assessments to the commission. A principal must have at least five years of corporate finance experience and have played a leading role in at least two initial public offerings in the previous five years. Under the proposed changes, they will be individually responsible for the comprehensiveness and accuracy of the due diligence process on listing firms. 'We can't accept those working on an [initial public offering] to say that they don't know who's responsible for the due diligence when something goes wrong,' SFC executive director Alexa Lam said. The proposals require each deal to be handled by an individual team led by at least one principal banker but set no other guidelines on resources and manpower firms must deploy on each deal. 'Ultimately, they will be the ones who are responsible for the consequences if they made any bad judgment,' said Mrs Lam, who expected most of the 70 sponsor firms with listing track records in the past five years to make a 'smooth transition' to the new rules. The corporate finance industry generally welcomed the plan to have more experienced bankers take responsibility for company listings. One share listing expert at a large US investment bank said the new requirement would encourage companies that delegated large parts of due diligence work to external law firms to become more involved. The consultation is the second part of a two-stage process launched by the commission and the stock exchange to raise standards of advisory work provided by sponsors. Calls for tougher regulations have come amid several high-profile scandals involving listed companies such as Euro-Asia Agricultural (Holdings) and AKuP International Holdings in the past few years. The SFC also proposed that firms buy insurance to partly cover investor losses in cases of similar debacles, a common practice in the US because of the threat of class actions. '[Having insurance coverage] is a general trend among other well-regulated industries and we believe we should do the same,' Mrs Lam said. 'But we will see what the market response is before making a decision.' An investment banker at a small firm that specialises in arranging share offerings for small mainland companies said the insurance requirement would hurt the competitiveness of smaller outfits. 'It can have a big effect on us because our profit margins are generally smaller than [those of] the big firms,' she said. The new rules could come into effect in about 14 months.