Sponsor principals beware: Hong Kong SFC holds individual accountable as well as licensed corporation for sponsor failures

Following the Hong Kong Securities and Futures Commission’s (SFC) HK$20 million fine on Changjiang Corporate Finance (HK) Limited (CJCF) for sponsor failures, the Commission has now prohibited CJCF’s former responsible officer (RO) from re-entering the industry for seven years, for failing to discharge his supervisory duties as sponsor principal in charge of five listing applications.

The SFC found that the RO, who was also sponsor principal and a member of CJCF’s senior management, had failed to:

• Exercise due skill, care and diligence when handling the five listing applications. For example, the RO did not critically assess the results of the due diligence performed by the transaction team or turn his mind to consider the steps required to resolve all compliance issues with the listing requirements;
• Diligently supervise the transaction teams in carrying out the sponsor work. For example, the RO did not provide sufficient instructions and supervision to the transaction team conducting the due diligence work or ensure that the transaction team under his supervision had satisfied itself that it had conducted sufficient due diligence or that all information in the application proof prospectus was substantially complete, before submission of the listing application; and
• Ensure the maintenance of appropriate standards of conduct by CJCF. For example, the RO did not ensure that the transaction team under his supervision had maintained the appropriate standards of conduct by properly advising and guiding the listing applicants on their compliance with all relevant listing qualifications.

A ban of seven years is severe and, in fact, the longest ban imposed for sponsor principal failings. This is a stark reminder that the SFC does not tolerate failures of sponsors or sponsor principals. The SFC will continue to sanction licensed corporations that commit serious regulatory breaches as well as senior individuals to whom the corporation’s failures are attributable.