Hong Kong Securities Regulatory Commission Dai Lin: Increasing the volume of IPOs in Hong Kong stocks, reducing quality, enforcement is important quickly and efficiently

The Zhitong Finance App learned that Michael Duignan (Michael Duignan), executive director of the Hong Kong Securities Regulatory Commission's Regulatory Enforcement Department, warned that at a time when turnover is rapidly rising, the quality of IPOs often unwittingly declines. Because of this, the Hong Kong Securities Regulatory Commission issued a circular to sponsors in January of this year, setting out clear boundaries while pointing out where the problem lies, so as to prevent risks in advance.

As to why such detailed regulations should be made in the January circular of this year, rather than dealing with issues one by one after they have surfaced, Dai Lin explained that this reflects the concept of “quick and efficient” supervision.

Dai Lin pointed out that weak due diligence will lead to poor quality listing documents, and such issuers can easily evolve into enforcement cases in the future. It is neither quick nor efficient to adopt “keep up and wait” after the fact; when the enforcement stage actually enters, substantial damage has already been caused, which is unfair to the market. Regulatory expectations are set out in written circulars as early as possible, and structural factors such as carrying capacity, competency, and incentives are used to correct the underlying causes of misconduct. When regulators take action in the future, violators can no longer push back on the grounds of “unexpected.”

Dai Lin admits that the concept is “easier said than done.” In the face of complex cases, incomplete evidence, priorities and time pressure, law enforcers should not just rely on “hard work.” Dai Lin believes that enforcement does not necessarily require the use of powerful tools; instead, the smartest and fastest enforcement action is “no action required at all” — provided that regulators have clarified the red line with the market in advance.

The Hong Kong Securities Regulatory Commission's January circular points out three major risks in the IPO market

The Hong Kong Securities Regulatory Commission issued a circular to sponsors in January of this year, pointing out three major industry risks: the first is formalizing due diligence review. Preparation of listing documents is like a “checklist (checklist)” routine, and lacks substantive review; the second is excessive manpower. Ongoing transactions handled by key personnel at the same time far exceed the amount reasonably assumed; third, there is an unauthorized signing and approval loophole. In some cases, approval was even issued by an unqualified person.

Overseeing 6 transactions at the same time is “overburdened”

In order to curb these distortions, the Hong Kong Securities Regulatory Commission clearly raised the competency threshold, tightened requirements for sponsor licensing examinations, and set a specific schedule.

In terms of the definition of “overburdened”, any key person who supervises 6 or more ongoing transactions at the same time will be marked as an “overburdened principal person”. In terms of personnel investigation and reporting, sponsors are required to identify unqualified personnel to process ongoing transactions within 1 week, and report the overall ratio of key personnel to transactions within 2 weeks. In terms of submitting rectification plans, companies marked as “worthy of attention” must complete an internal review within 3 months and submit a correction plan signed by the head of the core function.