Bankers could be jailed over dodgy listings
Proposals being drawn up by Securities and Futures Commission, after cases of misleading prospectuses, would mean company sponsors becoming liable
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Proposals being drawn up by Securities and Futures Commission, after cases of misleading prospectuses, would mean company sponsors becoming liable
Enoch Yiu
20 April 2012
Bankers and brokers may be jailed if they fail to ensure the accuracy of listing prospectuses produced by companies they are sponsoring to join the stock market.
Allocating criminal liability for such misdeeds is part of the Securities and Futures Commission’s plan to improve market quality in light of recent scandals that have tarnished the image of the local bourse.
Two sources acquainted with details told the South China Morning Post that the SFC is expected to propose in a consultation paper that sponsors follow tougher due diligence requirements and should face harsher penalties if they fail to check misleading information in listing prospectuses.
This may result in the executives of banks or brokerages facing jail terms and firms paying huge fines.
The regulation of investment banks and brokerages, which act as sponsors to listing firms, has come under the spotlight after several instances of companies getting into financial trouble shortly after listing.
The plan, however, is set to face stiff opposition from sponsors and the stock exchange, which relies on income from new listings.
Investors support the SFC plan as a way of improving market transparency and investor protection.
The SFC would consult the market on reforming regulation of listing sponsors, said SFC chairman Eddy Fong yesterday, declining to give more details. Both former SFC chief executive Martin Wheatley and current chief executive Ashley Alder support the reforms.
Fabric maker Hontex International was suspended from trading after only 64 days after the SFC found it had misleading information in its 2009 listing prospectus. In the past two months, the Financial Reporting Council has put 13 companies on watch lists, including some newly-listed firms that are alleged to have accounting problems.
At present, criminal liability does not attach to sponsors for allowing misleading information in listing prospectuses. Current penalties include a public reprimand, licence suspension or a small fine.
“The Hong Kong listing regime includes penalties that are too light for sponsors,” said Steve Vickers, chief executive of Steve Vickers Associates, a Hong Kong risk consultancy.
“In Singapore, the penalties are much tougher and sponsors who fail in their duties face criminal liability. The SFC is doing the right thing as the recent scandals of listed companies have damaged the image of the Hong Kong market.”
Vickers said that sponsors should appoint independent investigative firms to check the accuracy of information provided by companies.
Andrew Lam Hung-yun, director of accounting firm BDO, said the SFC may ask listing sponsors to carry out more due diligence, such as checking information with the tax bureau or checking on valuation reports and accounting statements.
“Overall, sponsors are expected to do more and to face tougher penalties. This may drive some players away from the IPO market.”
Sally Wong, chief executive of the Hong Kong Investment Funds Association, welcomed the move to enhance investor protection. “Sponsors play a very important role in the due diligence process,” she said. “A regime that can ensure the proper discharge of the gate-keeping role is pivotal not only to protect investors, but also to maintain Hong Kong’s reputation as a world-class listing hub.”