Simply speaking, a special category of Type 6 licensees has been created: sponsors & compliance advisers working for companies listed on SEHK. Additional requirements (focused on sponsors) have been inserted as Appendix I of the Fit & Proper Guidelines. Compliance adviser is basically a continuum of sponsor.
Major Requirements for Sponsors
(1) Competence
- A transaction team with sufficient HK regulatory experience (including at least one Principal) is appointed for each sponsor job.
- Management is ultimately responsible for supervision of the sponsor work and compliance with relevant regulations.
- A sponsor should have at least 2 Principals at all times.
- A Principal must be a RO with minimum 5 years of relevant corporate finance experience (where playing a substantial role in at least 2 completed IPO) for companies listed on SEHK.
- A sponsor should put in place adequate systems & controls and carry out an annual assessment.
- Records for appointment of transaction team & principal and annual assessment should be kept.
Comment: While SFC is quite dissatified with the working quality of some sponsors, it takes the approach of defining clearly the "responsible" parties. My concern is whether adequate Principals with qualified experiences could be recruited.
(2) Minimum capital requirements - HK$10m (must be met by 31 Aug 2007)
Comment: This is nothing special, simply repeating the same requirement for GEM sponsors. But what is the purpose of this $10m? This is of course not enough to compensate for investors buying a bad IPO stock or pay the SFC fine ($30m was paid for settlement in ICEA's case). But a financially sound sponsor could afford taking out indemnity insurance.
(3) CPT - Sponsor staff should attend CPT on topics relevant to sponsor work (at least 50% of 5 CPT hours)
Comment: This requirement creates a demand for more CPT courses on sponsor topics. But qualified trainers are not easy to find. Don't you think practitioners in this field would have time to conduct such trainings?
Notification to SFC
SFC is now requesting the Type 6 firms to indicate their intention to act as a sponsor after 1 Jan 2007 - if no, they will be imposed a licensing condition; if yes, they have to make an application.
In the FAQ, there is such a question: Should a Type 6 firm act as a sponsor before its application has been approved by SFC? SFC's answer is quite tricky: The firm should consider carefully beforehand whether it will meet all the requirements under the Sponsor Guidelines during the interim period.
The essence of the guidelines is control. It is not a new concept. I wonder which firm can really achieve the ideal control standard. There is nothing to restrict the use of the capital. The $10m will shortly be eroded after the implementation of the new FRR. The CPT requirement has always been a joke. People just go there to sit for 5 hours at the back of the room, waiting to go back to sleep. I have come across staff members, when being asked for the reason of being late to the in-house CPT (for 30 mins.), told you a reasonable reason, saying it with single character foul language in between and afterwards. I doubt the effectiveness of having 2.5hrs of CPT on corporate finance (they spend thousand of hours a year on corporate finance work). It just create another “migration” providing an opportunity to get rid of the bads or to make the bads to turn good afterwards.
ReplyDeleteIf the SFC really want to raise the standard of sponsors, why not:
ReplyDeletestatutory audit by external auditors based on SFC specified areas;
uniform sponsor staff exam;
annual renewal of licence;
compulsory attendance of endorsed courses on corporate finance,
i.e. to make every requirements compulsory and statutory.
This in fact put additional and new challenges to compliance officers whom I believe seldom have any say in issues regarding coporate finance - a very profit making department.