Hong Kong Due Diligence Guidelines – About

The Hong Kong Sponsor Due Diligence Guidelines have been developed as an initiative of Hong Kong sponsors for the purpose of promoting standards in the conduct of due diligence in respect of new Hong Kong listings of equity securities with a view to maintaining the integrity of the Hong Kong market and, in particular, to assuring the quality of information disclosed in listing documents.

These due diligence guidelines have been developed in the light of the new Paragraph 17 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (the Code of Conduct), which sets out the standards and certain procedures, taken together with the requirements of the Listing Rules, expected by the SFC of sponsors in the conduct of a due diligence to support the listing of equity securities in Hong Kong.

In its initiative to provide a regulatory basis for defining the expected quality of sponsor work in the interests of public investors and all other stock market participants,[1] the Code of Conduct sets out the outcomes the SFC expects but not generally how they are to be achieved.  This leaves for sponsors and their advisers the practical issue of how best to achieve these standards.  These due diligence guidelines are intended to address this question, with the objective of compiling know-how from across the industry in respect of the conduct of due diligence in respect of Hong Kong listings of equity securities and with a view to maintaining the integrity of the Hong Kong market and, in particular, to assuring the quality of information disclosed in listing documents.  It is hoped that it will be one of the important reference points to guide sponsors bearing in mind that sponsors work is ultimately to be judged based on what a sponsors peers would consider objectively appropriate having regard to all relevant facts and circumstances at the time of making a listing application.[2]  It should have an additional benefit of serving as an educational tool for less experienced market practitioners or those who come to Hong Kong from other jurisdictions.

A common format was agreed for each chapter of the due diligence guidelines: a statement of the standard set out in Paragraph 17 of the Code of Conduct, followed by guidance on the scope and objectives of the standard and then recommended steps to achieve the standard.  As far as possible the style of each chapter has been conformed.  The underlying intention is that, as far as possible, the due diligence guidelines should set out practical steps that could be considered at each stage of a due diligence.  The process of due diligence is well established and well known and in most cases can be applied in a fairly conventional and consistent manner.  Obviously there will be outliers and exceptions but this does not mean that standard procedures cannot be described and this was felt to be important, if the due diligence guidelines were to be helpful to those actually engaged in sponsor work.  It was also decided to include all the relevant references we could identify on guidance and decisions from the SFC and the Stock Exchange relating to listing documents and sponsorship work.  While this may go beyond a due diligence exercise, these publications may impact on the design of a due diligence and are an essential input to the drafting of a listing document.  A decision was also made to self-publish the due diligence guidelines.  This has an advantage in terms of cost and flexibility but there are disadvantages too.  The principal disadvantage is that, absent the support of a professional publisher, there can be no commitment to the regular updating of the due diligence guidelines.  Even if it is not updated, it at least provides a base on which new precedents can be added by those who use it.

The due diligence guidelines have taken thousands of hours of hard work and involved many people who gave their time generously and freely.  They cannot all be mentioned by name, although each of their contributions is greatly appreciated: the due diligence guidelines are intended to be very much a collective and collaborative effort.  But one firm, Charltons, should be singled out, who acted effectively as the co-ordinating law firm. Their effort in managing and driving this endeavour was extraordinary and it is doubtful whether the due diligence guidelines would ever have been completed, certainly within the timetable to introduce the application of Paragraph 17 of the Code of Conduct set by the SFC, even if they had been started.

It is believed that this publication will prove useful to those directly involved in sponsorship work on a day to day basis, those supervising that work and advising sponsors on it, and those charged with ensuring their compliance and that it will achieve its objective of providing the means to meet what the SFC and the Stock Exchange expect of a sponsor.  If it does, this endeavour will have succeeded.

Hong Kong, March 2016

[1]    Consultation Paper on the Regulation of Sponsors.  Importance of Sponsors: page 3, paragraph 8.

[2]    Consultation Conclusions on the Regulation of Sponsors.  Comments received and SFCs responses: page 22, paragraph 106.

Due Diligence Guidelines

Hong Kong Sponsors


Hong Kong Due Diligence Guidelines

Guidance for Hong Kong Sponsors

Advice for Hong Kong Sponsors

Listing Rules

Paragraph 17 of the Code of Conduct

Persons licensed by or registered with the SFC

Hong Kong Securities and Futures Commission

Hong Kong SFC
Quality of sponsor work
Due Diligence Checklist
Due Diligence Process
Due Diligence Compliance