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November 10, 2016

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HK regulator warns of tighter eye on sponsorship of stock listings

INVESTORS can expect to see more regulatory probes into the sponsorship of stock listings in Hong Kong, the city’s top markets enforcement official said, underlining a crackdown that has already led to two global banks being investigated.

Speaking at the Thomson Reuters Pan-Asian Regulatory Summit yesterday, Thomas Atkinson, recently appointed to head up enforcement at Hong Kong’s Securities and Futures Commission, said the regulator had created a temporary team dedicated to monitoring misconduct for initial public offerings.

“Corporate fraud and malfeasance pose one of the greatest threats to the integrity of the Hong Kong market,” Atkinson said. “We have received a steady stream of referrals from our corporate finance division.”

“Of particular note are those involved in misconduct of IPO sponsors: to put it very lightly, the conduct and level of professionalism demonstrated by some sponsors has left a lot to be desired,” Atkinson said, without disclosing any sponsor names.

“You can expect to see some more of these cases and hopefully we’ll hold these firms and senior management accountable.”

Atkinson’s tough stance comes in the wake of Standard Chartered saying last week that the SFC is investigating its role as a joint sponsor of an IPO in 2009, and could take action against its Hong Kong unit.

That disclosure came just days after UBS also said the SFC was investigating its role as sponsor of certain listings in the city. USB could potentially face financial penalties, and could even be temporarily stripped of its ability to provide coveted corporate finance advisory services in Hong Kong.

The banks did not identify the IPOs at the center of the probes.

In 2009, Standard Chartered’s Hong Kong brokerage unit acted in only two IPOs including the US$216 million listing of timber company China Forestry Holdings Co, a listing also sponsored by UBS.

Trading in China Forestry has been suspended since January 2011, and the company is now in liquidation and delisting after the company’s auditor said it had found possible accounting irregularities.

With Hong Kong the world’s hottest market for IPOs, scrutiny of listings is crucial to retain the bourse’s attractiveness to investors. Under SFC regulations, banks can face fines and other sanctions if the listing documents of companies they are sponsoring for a market debut mislead investors.

Atkinson said yesterday that he has carried out a strategic review of enforcement priorities and concluded the regulator needs to focus on quality and “high-impact cases.”

“At the top of our priorities is listed company issues. We are particularly concerned about risk posed by corporate fraud and malfeasance,” Atkinson said, adding that cases of fraud and corporate malfeasance have “severely damaged” Hong Kong’s reputation.

He also said an investigation into Chinese solar energy company Hanergy Thin Film, the subject of a high-profile probe for alleged market manipulation, was still ongoing.


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