Hong Kong Regulator Steps Up Efforts to Probe IPO Misconduct

  • SFC expects to bring more cases, enforcement director says
  • Conduct by some sponsors leaves ‘a lot to be desired’

Hong Kong, the world’s second-largest market for new listings this year, is planning to step up its efforts to police misconduct by sponsors of initial public offerings.

The Securities and Futures Commission will bring more cases against IPO sponsors, or financial institutions that sign off on listings, Thomas Atkinson, the regulator’s executive director of enforcement, said Wednesday at a conference in the city.

The SFC is boosting its supervision of new listings amid a spike in complaints against publicly traded companies in recent years. Inexplicably high valuations, excessive shareholding concentrations and trading volumes that collapsed after some IPOs were among problems highlighted by the SFC’s Chief Executive Officer Ashley Alder earlier this week.

“To put it very lightly, the conduct and level of professionalism demonstrated by some sponsors has left a lot to be desired,” Atkinson said at the Thomson Reuters Pan-Asian Regulatory Summit. “You can expect to see some more of these cases,” he said, adding that “hopefully, we’ll hold these firms and the senior management accountable.”

The commission on Nov. 1 alerted Standard Chartered Plc that it intends to take action against a unit of the U.K. bank in relation to its role as a joint sponsor of an IPO in the city in 2009. Last month, UBS Group AG said it could be fined and suspended from arranging first-time share sales in Hong Kong.

Read more: Atkinson focuses on specialist investigation teams

The securities watchdog introduced a new system in October 2013 where sponsors of an IPO will be held accountable if the offer documents contain untrue statements. It has also warned that bankers on such deals can be held criminally liable. In 2012, the SFC said a stricter regime, with unambiguous criminal and civil liability, was needed to protect investors after a string of accounting scandals involving publicly traded Chinese companies.

“We are particularly concerned about risks posed by corporate fraud and misfeasance, market manipulation and intermediary misconduct,” Atkinson said. More than HK$200 billion ($25.6 billion) in value has been wiped from the Hong Kong stock market because of these wrongdoings, he said, without specifying a timeframe.

“These cases not only caused immense losses to investors, they also severely damaged the integrity and reputation of the Hong Kong markets,” he said. “I also want to emphasize that our enforcement actions will focus on holding individual wrongdoers accountable for their misconduct.”

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