Chapter 29

Due Diligence Guidelines –

Communications with Regulators

2. SFC’s Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (the Code of Conduct)

2.1 Standards

2.1.1 A sponsor should deal with the regulators in a truthful, cooperative and prompt manner. [Paragraph 17.2(d) of the Code of Conduct]

2.1.2 A sponsor should reasonably satisfy itself that all information provided to the Stock Exchange and the SFC during the listing application process is accurate and complete in all material respects and not misleading in any material respect and, if it becomes aware that the information provided does not meet this requirement, the sponsor should inform the Stock Exchange and the SFC (as the case may be) promptly. [Paragraph 17.9(a) of the Code of Conduct]

2.1.3 A sponsor should deal with all enquiries raised by, and provide all relevant information and documents requested by the Stock Exchange and the SFC (as the case may be) promptly, including answering any questions addressed to the sponsor in a cooperative and truthful manner. [Paragraph 17.9(b) of the Code of Conduct]

2.1.4 Where a sponsor becomes aware of any material information relating to a listing applicant or listing application which concerns non-compliance with the Listing Rules or other legal or regulatory requirements relevant to the listing (except as otherwise disclosed pursuant to Paragraph 17.4(d)1), it should report the matter to the Stock Exchange in a timely manner. Such duty continues after the sponsor ceases to be the sponsor of the listing applicant, if the material information came to the knowledge of the sponsor whilst it was acting as the sponsor. [Paragraph 17.9(c) of the Code of Conduct]

2.1.5 When a sponsor is appointed, it should advise the Stock Exchange as soon as practicable. [Paragraph 17.11(b) of the Code of Conduct]

2.1.6 Where a sponsor ceases to act for a listing applicant before completion of the listing, the sponsor should inform the Stock Exchange in a timely manner of the reasons for ceasing to act. [Paragraph 17.9(d) of the Code of Conduct]

2.1.7 “Regulators” refers to both the SFC and the Stock Exchange. [Paragraph 17.15(n) of the Code of Conduct]

2.2 Guidance

2.2.1 In an IPO context there will be many communications between the sponsor and regulators, both oral and in writing, in particular through the various declarations and confirmations that the sponsor gives in relation to the listing applicant and the listing document, and through responses to the Stock Exchange’s and SFC’s comments on the draft listing document.  The standards set out above in section 2.1 apply to all of these types of communications. On this basis, sponsors are reminded that any communications, including declarations, confirmations and responses, to the regulators, are subject to these standards.

2.2.2 There may also be communications outside of the ordinary course (for example, if a sponsor ceases to act for a listing applicant before completion of the listing application process and needs to explain its reasons for doing so).

2.2.3 A sponsor must comply with these standards – even where a listing applicant client may object vehemently to a sponsor providing certain information to the regulators and/or a listing applicant client may take the view that providing certain information to the regulators would violate a duty that the sponsor owes to its listing applicant client under the Code of Conduct2 or otherwise. It is recommended that engagement letters between sponsors and listing applicant clients explicitly refer to the sponsor’s communication obligations owed to the regulators and contain explicit acknowledgment from the listing applicant client that the sponsor must comply with these communication obligations (and its other obligations owed to the regulators) and will not violate any duties owed to the client by doing so.

Endnotes

1. Paragraph 17.4(d) of the Code of Conduct provides that “[w]hen submitting an application on behalf of a listing applicant to the Stock Exchange, a sponsor should ensure that all material issues known to it which, in its reasonable opinion, are necessary for the consideration of:

(a) whether the listing applicant is suitable for listing; and

(b) whether the listing of the applicant’s securities is contrary to the interest of the investing public or to the public interest;

are disclosed in writing to the Stock Exchange.

2. For example, the Code of Conduct’s General Principle 1 provides that “In conducting its business activities, a licensed or registered person should act honestly, fairly, and in the best interests of its clients and the integrity of the market.” [Emphasis added]