Due Diligence Guidelines –
Sponsor Appointment, Fees, Staffing and Controls
3. Sponsor Staffing
3.1.1 Taking account of the nature, scale and complexity of the assignment and any other factors that may affect the standard of work, the sponsor should appoint a Transaction Team which:
(i) comprises staff with appropriate levels of knowledge, skills and experience; and
(ii) includes at least one Principal who acts as the supervisor of the Transaction Team
to carry out the assignment throughout the period of the assignment. [Paragraph 17.11(c) of the Code of Conduct]
3.1.2 A Transaction Team should have sufficient knowledge and experience of Hong Kong regulatory requirements. [Note 1 to Paragraph 17.11(c) of the Code of Conduct]
3.1.3 Members in one Transaction Team may work in other Transaction Teams of the sponsor provided that:
(A) Management and the Principals of the respective Transaction Teams are satisfied that the sponsor can properly discharge its responsibilities in all the sponsor work that it undertakes;
(B) if a Principal is assigned to supervise more than one Transaction Team, Management is satisfied that each team is properly and adequately supervised by at least one Principal who has the necessary capacity, capability and competence to supervise; and
(C) the sponsor complies with General Principle 6 and paragraph 10.1 of the Code of Conduct in respect of conflicts of interest. [Note 2 to Paragraph 17.11(c) of the Code of Conduct]
3.2.1 The Code of Conduct provides that a licensed or registered person should have and effectively employ the resources and procedures that are needed for the proper performance of its business activities.17
3.2.2 Licensed representatives and/or relevant individuals who intend to engage in sponsor work are required to pass an examination not more than three years before and not later than six months after the date of their first engagement in sponsor work.18 As an one off grandfathering arrangement, individuals who have engaged in sponsor work as a licensed representative or a relevant individual within the three years preceding 1 October 2013 in at least one completed IPO transaction are exempted from the aforesaid examination requirement. Individuals who have passed the examination or are exempted from taking the examination will not be required to take the examination again unless such individuals cease to be licensed or registered for Type 6 regulated activity for more than three years. 19
3.2.3 A licensed or registered person should try to avoid conflicts of interest, and when they cannot be avoided, should ensure that its clients are fairly treated.20 Where a licensed or registered person has a material interest in a transaction with or for a client or a relationship which gives rise to an actual or potential conflict of interest in relation to the transaction, it should neither advise, nor deal in relation to the transaction unless it has disclosed that material interest or conflict to the client and has taken all reasonable steps to ensure fair treatment of the client.21
1. For guidance on appointments made prior to 1 October 2013, see Frequently Asked Questions Series 24 (Released on 26 July 2013).
17. General Principle 3 of the Code of Conduct.
18. Paragraph 1.4A.1 of the Sponsor Guidelines; and Paragraph 240 of the Consultation Conclusions on the Regulation of Sponsors.
19. Paragraph 1.4A.2 of the Sponsor Guidelines; and Paragraph 241 of the Consultation Conclusions on the Regulation of Sponsors.
20. General Principle 6 of the Code of Conduct.
21. Paragraph 10.1 of the Code of Conduct.
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.