Chapter 24

Due Diligence Guidelines –

Biological Assets

6. Verification of Actual Operations and Consistency and Compliance with Licences/ Rights/ Permits and Records

6.1 Standard

6.1.1 A sponsor should conduct the following independent due diligence steps: … in relation to material matters, independently obtain information from sources outside the listing applicant, such as searches of public filings and databases, external confirmations, third-party data about competitors and the engagement of external agents to perform relevant checks. [Paragraph 17.6(e)(v) of the Code of Conduct]

6.1.2 The sponsor should confirm that it has independently verified that the applicant’s actual operations (including area covered by the operations) are consistent with and in compliance with the relevant licences/ rights/ permits and records maintained by the competent authorities (if any). [Paragraph 4.8(f) of Exchange Guidance Letter GL46-12]

6.2 Guidance

The sponsor should follow the guidance set out in Chapter 8 “Due Diligence Guidelines – Business Model” in relation to understanding the business, operations and structure of the applicant and Chapter 19 “Due Diligence Guidelines – Foreign Lawyers” and Chapter 13 “Due Diligence Guidelines – Internal Controls” in relation to assessing the legality and compliance of the listing applicant’s business operations.

6.3 Recommended Steps

6.3.1 The sponsor should discuss with the listing applicant’s management and lawyers in relevant jurisdictions to understand the operations of the applicant and if such operations as carried out are in compliance with the relevant licences/ rights/ permits and records and if there is any risk of possible revocation or cancellation. The sponsor should also discuss with the listing applicant’s management and lawyers in relevant jurisdictions any conditions of the licences, rights or permits to satisfy itself that the listing applicant is in compliance with the conditions.

6.3.2 As stated in paragraph 4.3.6, the sponsor should consider whether to appoint an independent expert to assist in verifying that the listing applicant’s actual operations are consistent with and in compliance with the relevant licences/rights/permits and records maintained by the competent authorities.

6.3.3 Where possible, the sponsor should also check operational data (such as production levels) provided by the listing applicant against any available statistics for the city, town, province, region or country, for consistency.