Hong Kong’s top securities regulator on Tuesday defended new proposals that could subject bankers to civil or criminal prosecution over misleading statements in documents of companies they bring public.
“We are not on a mission to put bankers in jail,” Ashley Alder, chief executive of the Securities and Futures Commission, told a roomful of bankers, lawyers, accountants and financial journalists at Hong Kong’s Foreign Correspondents’ Club.
“At base, the proposals are about how to assist the market to improve the quality of our I.P.O.’s.,” Alder said in his first public speech since the proposals were announced on May 9. “If we succeed in that goal, it can be measured by how infrequently we resort to enforcement action or criminal prosecution.”
Financial professionals in Hong Kong, the world’s biggest market for initial public offerings for the last three years, have closely watched the regulator’s proposals. They include a host of other measures that would increase the importance of due diligence before a stock market listing. The measures, which will be open to public comment until July 6, come on the heels of a series of accounting failures, fraud and other corporate scandals in both Hong Kong and the United States in recent years, mainly involving companies from mainland China.
The United States and Singapore already hold banks that underwrite or sponsor I.P.O.’s criminally liable for false or misleading disclosures by the companies they help bring public. Hong Kong’s proposals could subject listing sponsors to multiyear jail terms and fines of as much as 1 million Hong Kong dollars (about $130,000).
Major global investment banks in Hong Kong have declined to comment on the proposals. Instead, they have hired two leading corporate lawyers here to help formulate a response to the Securities and Futures Commission.
The banks include “most of the major players,” said one of the lawyers, Martin Rogers, head of litigation and dispute resolution in Asia at Clifford Chance. He declined further comment.
Analysts and legal experts said that increasing the due diligence could potentially make listing in Hong Kong less attractive. The I.P.O. process here can often take four to six months, notably longer than in the United States or Singapore. And the Asian I.P.O. boom of recent years has already showed signs of cooling. Total investment banking revenues from new listings in Asia, excluding Japan, has fallen to $434 million so far this year, down almost 70 percent from the period a year earlier, according to figures from the data provider Dealogic.
“There is an argument that an investment bank should be entitled to rely on information from the company that they’ve got no reason to disbelieve,” said Christopher Betts, a partner in Hong Kong at Skadden, Arps, Slate, Meagher & Flom who specialises in China-related deals. “The proposals could be interpreted as asking banks to second-guess everything, even for secondary listing applicants with established track records of compliance overseas.”
Alder of the securities commission said banks that sponsored I.P.O.’s “should kick the tires hard, all four of them, before submitting an application for listing approval.”
“I see a few who operate in the markets here, as advisers and such types, who have got direct experience of working on capital markets deals,” he told his audience on Tuesday.
“You’ve seen that frankly the incentive to get the deal done — because in most capital markets deals, payday only arrives when it’s done — overwhelms an objective approach to getting underneath the skin of the company and ensuring that the story that is told in disclosure to the market stacks up and is cohesive.”
Category: Hong Kong