Due Diligence Guidelines –
Interaction with Third Parties including Expert Advisers1
2. Qualifications and Competencies
Non-expert third parties
…[T]he sponsor should:… assess whether the third party is appropriately qualified and competent for the tasks assigned to it. [Paragraph 17.6(g)(i) of the Code of Conduct]
…[T]he sponsor should:… satisfy itself that:… the expert is appropriately qualified, experienced and competent to give the opinion. [Code of Conduct 17.7(a)(i)]
2.2.1 While a sponsor is not expected to identify and deal with issues in such a manner that requires specialised knowledge and skills which the sponsor does not possess, in order for the sponsor to rely on the work performed by the third party, it should satisfy itself that it is reasonable to rely on such information or advice, including being satisfied as to the qualification and competence of the third party.
2.2.2 As part of its due diligence, the sponsor should assess the third party’s qualifications and competencies to undertake the required work. As regards experts, the sponsor should also assess the experts’ experience in conducting similar assignments in the past. As regards non-expert third parties, experience is not a strictly required criteria for the sponsor to apply when making the relevant assessment.4 Nevertheless, the sponsor should consider taking into account the experience of a non-expert third party when deciding whether to assign a particular task to it. This is because how experienced the non-expert third party is in conducting a certain type of due diligence may directly or indirectly impact its competency in working on the transaction in question or affect the reliability and quality of the work product.
2.2.3 When conducting the relevant assessment, the sponsor should normally include interviewing the third party and reviewing publicly available information about the third party.5
2.3 Recommended Steps
2.3.1 The sponsor should request the third party to provide information in relation to its qualification and experience, which should include:
(a) its professional qualifications supporting its undertaking of the assignment;
(b) its previous experience in similar assignments and/or similar industries as the listing applicant; and
(c) core team members involved in the assignment, their seniority levels and their relevant experience.
2.3.2 The sponsor may obtain such information through a number of means, including a face-to-face interview with the third party, via telephone conference, or by means of a written interview questionnaire or other written materials.
2.3.3 The sponsor should review the third party’s responses to assess its qualification, experience and competence. If the responses are incomplete or unsatisfactory, the sponsor should either arrange a follow-up interview or submit follow-up questions in writing to allow the third party to respond appropriately.
2.3.4 The sponsor may consider checking internally on the experience, if any, in dealing with a specific third party.
2.3.5 The sponsor should also review publicly available information about the third party as an independent check of the information provided by the third party.
2.3.6 The above due diligence procedures should be conducted as soon as practicable and if possible, before the engagement of the third party.
5. Paragraph 14(a) of to the Listing Rules: Typical due diligence enquiries in relation to the expert sections of the listing document include interviewing the expert, reviewing the terms of engagement (having particular regard to the scope of work, whether the scope of work is appropriate to the opinion required to be given and any limitations on the scope of work which might adversely impact on the degree of assurance given by the expert’s report, opinion or statement) and reviewing publicly available information about the expert to assess:
(a) the expert’s qualifications, experience and resources; and
(b) whether the expert is competent to undertake the required work.
HKCFEF Limited and the contributing law firms, accountants and sponsors are not offering these due diligence guidelines as legal, financial or professional advice or services and they should not be relied upon as such. These due diligence guidelines should not be used as a sole basis for any decision, action or inaction and are not meant to serve as a substitute for the advice of qualified professionals. See here for the full terms and conditions.