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HK SFC Unveils New Eligibility Criteria For Sponsors

by Mary Swire, for LawAndTax-News.com, Hong Kong

12 April 2006

Hong Kong's Securities & Futures Commission on Monday unveiled new eligibility criteria and ongoing obligations for sponsors, to come into effect on January 1.

The Commission's Executive Director of Intermediaries & Investment Products, Alexa Lam explained that under the new regime, only those corporate finance advisory firms that meet the stringent eligibility criteria may act as sponsors.

"Firms should not assume that they will automatically pass the test. Sponsors and compliance advisers and their management are also reminded that they will be held responsible for their work," Mrs Lam stated, adding that:

"The SFC will inspect sponsors and compliance advisers regularly and on an ad-hoc basis to review their compliance with the regulations. The SFC will not hesitate to take action against firms for substandard work."

Mrs Lam explained that enhancing the sponsor regime is a key response to the regulatory challenge to promote high standards of corporate governance and behaviour in the Hong Kong market, which is crucial to Hong Kong maintaining its status as a fundraising centre.

Under the new guidelines, a sponsor must:

  • Have sufficient expertise and resources, and a minimum paid-up capital of $10 million; although professional indemnity is not mandatory;
  • Have effective internal controls and management supervision to ensure the sponsor's compliance with codes and regulations, while the management is responsible for the firm's sponsor work; and
  • Appoint at least two principals, while each transaction team should be supervised by at least one principal.

A sponsor must also comply with the following ongoing obligations:

  • Carry out annual assessments of its internal systems and controls to ensure that they remain effective;
  • Maintain proper and updated records; and
  • Ensure that staff undertaking sponsor work should have sufficient relevant continuous professional training.

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