SFC identifies deficiencies by lead IPO underwriters

Hong Kong’s securities regulator has issued a fresh circular urging licensed corporations acting as initial public offering (IPO) sponsors to critically review and enhance their systems and controls.

The move comes in the wake of the Hong Kong Securities and Futures Commission (SFC) blocking UBS from being a sponsor – or lead underwriter – for 18 months on the Hong Kong stock exchange, the Swiss bank confirmed in its annual report released on Friday. It plans to appeal against the decision.

The authority said on Monday evening it had found that some sponsors, when conducting due diligence, had failed to follow up on obvious red flags.

Some others, it added, had only followed standard checklists without adapting them to the circumstances of specific listing applications, and failed to confirm that interviewees had the appropriate authority and knowledge to provide the information requested.

“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 Ashley Alder, the SFC’s chief executive.

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The circular emphasised that sponsors with a history of returned or rejected listing applications or which were found to have had serious deficiencies and instances of non-compliance, may expect frequent inspection visits and supervisory actions in future.

UBS and Standard Chartered disclosed separately in 2016 they were under investigation by the SFC for their roles as sponsors of unidentified IPOs.