Comments from ACCA to the Hong Kong Securities and Futures Commission, July 2012.
We note that implicit wordings like ‘sound’, ‘reasonable’, ‘material’, ‘appropriate’ are used repeatedly in the consultation document, which are not well-defined and will be subject to different judgement and interpretation. However, whether a sponsor is considered to perform his/her job properly, and hence whether they comply with the Code of Conduct properly, will depend on this different judgement and interpretation of the requirements set out in these implicit terms. We therefore consider it necessary for the Commission to provide the sponsors with guidance, if not a definition, so that they could have a basis for their interpretation and judgement.
Q9: Do you agree that a sponsor, after reasonable due diligence, should have reasonable grounds to believe and does believe that at the time of issue of a listing document the information in the non-expert sections is true, accurate and complete in all material respects and that there are no material omissions? If not, why not?
While we agree that a sponsor should perform reasonable due diligence on the non-expert sections, we consider it more practically appropriate for them to confirm that they are not aware of any material omissions instead of confirming that there are no material omissions.
Q11: Do you agree that the sponsor should take these steps in connection with an expert report? Are the steps set out in paragraph 17.6(g) of the draft provisions sufficient and appropriate? If not, why not?
We note from paragraph 17.6(g)(v) that, unless the expert has done so, a sponsor is required to make independent inquiries or assessments or obtain independently sourced information to verify the accuracy and completeness of the information in the expert report where factual information on which an expert relies is solely or primarily derived from management’s representations and confirmations. It seems that it is practically infeasible for sponsors to assess the working papers of the experts, and hence it may not be possible for the sponsors to ascertain how the expert verifies the relevant information to be included in the expert report. The fact that sponsors could lack the expertise in reviewing the expert’s working papers, should they be able to assess them, also makes it practically difficult for sponsors to comply with this particular requirement.
Q18: Do you agree that the Application Proof submitted with a listing application should be made publically available when the application is made? If not, why not?
ACCA Hong Kong does not agree to this proposal.
We do not consider that this proposal would add any value to the public, and implementation of this proposal does not necessarily improve the quality of the Application Proof. To the contrary, it will create confusion to the market when there are any subsequent amendments to the Application Proof in response to comments from the regulators which are not accessible by the public. More importantly, the upload of the Application Proof will constitute leakage of commercial / confidential information if the listing becomes unsuccessful. Such a requirement may discourage overseas companies from listing in Hong Kong.
Q21: Do you agree that before accepting any appointment as a sponsor, a firm should ensure that, taking account of other commitments, it has sufficient staff with appropriate levels of knowledge, skills and experience to devote to the assignment throughout the period of the assignment? If not, why not?
We refer to our comments stated in the opening of this submission. In determining ‘appropriate’ level of knowledge and experience, we are unsure whether it relates to listing knowledge and experience, or whether it relates to the industry knowledge and experience of relating to the listing applicants. Further, where the listing applicant is involved in a niche industry, it is important to well define how a sponsor will be considered as having ‘sufficient’ staff with ‘appropriate’ level of knowledge and experience to devote to the assignment.
Q26: Do you agree that there should only be one sponsor on each engagement?
ACCA Hong Kong does not consider the current regime an issue and hence it is not necessary to have only one sponsor on each IPO engagement. As set out in paragraph 109 of the consultation paper, under the current regime, where a listing applicant has more than one sponsor, each of the sponsors has responsibility for ensuring that the obligations and responsibilities under the Listing Rules are fully discharged. We agree with the proposal as set out in that paragraph to further clarify the Code of Conduct in such situation.
In addition, we consider that where there is more than one sponsor in a transaction, they will be able to complement each other with various skills and experience required in an engagement.
Indeed, we consider that the question of whether there are any benefits in appointing more than one sponsor should be addressed by the listing applicant.
We also raise our concern that where only one sponsor is allowed for each engagement, it will limit the opportunities for relevant personnel to obtain the relevant experience required to be eligible as Principals. This appears to be inconsistent with the proposal under Question 25 to enlarge the category of individuals qualified to act as Principals. This also hinders the small sponsor firms from entering into the industry.
Q27: If more than one sponsor is allowed, do you agree that they should all be required to meet the Listing Rules independent requirements? If not, why not?
We do not agree to this proposal. We do not consider the current regime an issue.
Q32: Do you agree that it should be made clear that sponsors are liable for untrue statements (including material omissions) in a prospectus? If not, why not?
We do not consider it fair to hold sponsors liable for ‘untrue statement’, which has too wide a scope. Under the current prospectus regime, sponsors may be subject to civil and criminal liability under the Companies Ordinance for untrue statements in prospectuses. In addition, as the prospectus liability provisions under the Companies Ordinance are also ‘relevant provisions’ under the Securities and Futures Ordinance, the Commission may take action against, among others, sponsors in serious cases. The common law also provides a mechanism to penalise a sponsor who is involved in intentional fraudulent cases. We do not consider that there is a need of additional protection to the public. We also do not consider it fair to put sponsors at par as directors of the listing applicants.