Due Diligence Guidelines –
Code of Conduct Paragraphs
A sponsor should maintain adequate records so as to demonstrate to the SFC its compliance with the Code [of Conduct] and in particular compliance with this paragraph. [Paragraph 17.10(a) of the Code of Conduct]
1.2.1 The requirement is to keep adequate records to demonstrate compliance with the provisions of the Code of Conduct, but with particular emphasis on Paragraph 17 itself.
1.2.2 The requirement does not extend beyond demonstrating compliance with the Code of Conduct itself.
1.2.3 The requirement is to keep adequate records. The requirement is not to keep necessarily full records or the equivalent of a full audit trail, but merely adequate records.
1.3 Recommended Steps
1.3.1 From a risk-weighted perspective, it is sensible to focus on strengthening contemporaneous documentation of consideration of critical or difficult issues, as regards due diligence, disclosure and treatment under the Listing Rules, rather than to seek to establish a detailed audit trail on all aspects of the sponsor’s work no matter how trivial.
1.3.2 One or more members of the Transaction Team should be given responsibility at the outset for establishing and maintaining the sponsor’s files relating to the listing assignment.
1.3.3 At, or close to, the conclusion of the listing assignment, steps should be taken to ensure that all of the sponsor’s documents relating to the listing assignment, including both physical and electronic documents, are brought together and organised so as to be readily accessible. The Transaction Team should follow their internal procedures regarding the retention and storage of e-mails relating to the assignment. If a member of the Transaction Team ceases to be involved in an assignment, for example because he has been re-assigned or leaves the employment of the sponsor, then before he is re-assigned or leaves, steps should be taken to secure all of his e-mails and other documents relating to the listing assignment.
1.3.4 If there is any documentation which is likely to require the assistance of the sponsor’s legal adviser to gather and provide to the sponsor at, or close to, the conclusion of the listing assignment, the sponsor should inform the sponsor’s legal adviser at the outset of the listing assignment.
1.3.5 The status of the retention of relevant documents should be reviewed as appropriate during the conduct of the sponsor’s work. The aim is that records and documents retained should be those that have been prepared and gathered contemporaneously, as this would ensure that the documents record properly and accurately the matters that were under consideration, relevant parties’ assessment and opinions on those matters and the decision and outcome of the assessment.
A sponsor should document its systems and controls governing sponsor work and the annual assessment required under paragraph 17.12 [of the Code of Conduct]. [Paragraph 17.10(a) of the Code of Conduct]
1.5.1 For guidance on complying with the requirements of resources, systems and controls and the assessment of systems and controls under Paragraphs 17.11 and 17.12 of the Code of Conduct, please refer to Chapter 26 “Due Diligence Guidelines – Sponsor Appointment, Fees, Staffing and Controls”.
1.5.2 The record keeping requirement is to keep adequate records to demonstrate that the sponsor has maintained sufficient resources and effective systems and controls to ensure that the sponsor is able to meet all its obligations and responsibilities under the Code of Conduct.
1.5.3 A sponsor should keep records evidencing the sufficiency of the sponsor’s resources, systems and controls generally as well as the specific resources allocated to, and systems and controls put in place for, the particular listing assignment. Records that are retained should include those that demonstrate the sponsor’s compliance with the requirements in each of the sub-paragraphs of Paragraphs 17.11 and 17.12 of the Code of Conduct.
1.6 Recommended Steps
1.6.1 Amongst the files that are retained for a particular assignment, the sponsor may consider including references to the general policies and procedures established by the firm, instead of retaining copies of the actual manuals that prescribed such policies and procedures. Internal memoranda or evidence of internal communications, in relation to the particular listing assignment should be retained to show that the Transaction Team has in fact complied with the relevant policies and procedures for the subject listing assignment.
1.6.2 To the extent that specific procedures, controls and systems have been established for the particular listing assignment that deviate from, or are in addition to, the standard procedures, controls and systems of the sponsor that would normally apply for a typical listing assignment, the sponsor should retain adequate records on the reasons for establishing such procedures, controls and systems, the sponsor’s assessment of the appropriateness of such procedures, controls and systems, as well as compliance by the Transaction Team with such procedures, controls and systems.
A sponsor should keep a record of all sponsor work. On request by the SFC a sponsor should be able to provide an up-to-date list of sponsor work undertaken setting out the names of client companies, the composition of Transaction Teams (including any variations) and the names, titles and roles of staff assigned to each listing. [Paragraph 17.10(b) of the Code of Conduct]
Please refer to section 2 below.
Management is ultimately responsible for the supervision of the sponsor work and for compliance with all relevant legal and regulatory requirements, it may delegate operational functions to its staff but cannot abrogate its responsibilities. Accordingly, Management must put in place appropriate systems, controls and procedures to govern sponsor work, which include:
(i) formulation of an appropriate due diligence plan, amended or updated as necessary;
(ii) allocation of sufficient persons with appropriate levels of knowledge, skills and experience to each assignment over the period of the assignment;
(iii) implementation of the due diligence plan, with any outstanding steps or steps which deviate from the original plan identified, explained and followed up;
(iv) adequate supervision and management of the staff who carry out the work; and that the staff do not act beyond their proper authority;
(v) reviews of the standard and extent of due diligence work, and the performance of the Principals and the Transaction Team; and
(vi) escalation of critical matters including but not limited to those set out in paragraph 17.11(d) to Management or its designated committee for decision.
[Paragraph 17.11(e) of the Code of Conduct]
1.10.1 For guidance on complying with the requirements set out in Paragraph 17.11(e) of the Code of Conduct in relation to systems, controls and procedures, please refer to Chapter 26 “Due Diligence Guidelines – Sponsor Appointment, Fees, Staffing and Controls”. For guidance on complying with the requirement for escalation of critical matters to Management or its designated committee, please refer to Chapter 32 “Due Diligence Guidelines – Escalation of Critical Matters”.
1.10.2 The sponsor should retain adequate records to demonstrate that the Management has put in place appropriate systems, controls and procedures to govern sponsor work, and in particular systems, controls and procedures to address, at least, each of the items set out in (i) to (vi) of Paragraph 17.11(e) of the Code of Conduct. The records retained should be in relation to each listing assignment.
1.10.3 In relation to any particular listing assignment, to the extent that there are deviations from, or additions to, the standard controls, procedures and processes that the Management would adopt to supervise the conduct of the sponsor work for a typical listing assignment, the sponsor should retain adequate records on the reasons for such deviations or additions, and evidence that the deviated or additional controls, procedures and processes have been followed.
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