The enforcement chief of Hong Kong’s securities regulator said some sponsors of initial public offerings (IPO) in the territory have been “extremely reckless,” signaling more penalties to come after the regulator slapped a ban on UBS Group AG’s local unit this month.
The Hong Kong Securities and Futures Commission (SFC) is seeking a range of penalties, including large monetary fines, and will announce more results of its investigation into 15 firms in the next six months, Tom Atkinson, the regulator’s head of enforcement, said at a forum on Wednesday.
The commission wants to hold individuals as well as the firms accountable, Atkinson said.
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Hong Kong is seeking to improve underwriting standards after a series of corporate scandals in recent years that saddled stock investors with losses and dented the territory’s reputation as a premier financial hub.
Last week, UBS said it had been banned from sponsoring Hong Kong IPOs for 18 months and fined HK$119 million (US$15.2 million) by the commission for work on an IPO.
UBS said it would appeal the decision.
The Hong Kong regulator recently reviewed the work of 31 sponsors from 2013 to last year and found deficiencies in their work, particularly in due diligence, SFC Deputy CEO Julia Leung (梁鳳儀) said at the same forum.
Sponsors ignored red flags, including whether invoices and payments matched, and were too reliant on third parties, Leung said.
They need to ask more questions of the companies they bring to market, she said, adding that the regulator returned about 44 IPO applications since 2013 due to concerns over substandard work.
Scrutiny of sponsors has increased in Hong Kong after a system was introduced in 2013 that holds senior banks on a deal accountable if offer documents contain untrue statements.
The regulator is to issue a circular later this month with additional guidance, Leung said.
While UBS did not disclose which transaction the penalty was related to, people familiar with the matter have said it was China Forestry Holdings Co (中國森林控股), which was suspended in 2011 after financial irregularities were discovered.
The Swiss bank is still able to underwrite IPOs during the suspension.
Standard Chartered PLC and Citigroup Inc are among firms that have been investigated in relation to new issues.
CCB International Holdings Ltd (建銀國際證券) is also being questioned for work on a scrapped 2014 IPO, while Bank of Communications Co’s (交通銀行) investment-banking unit was fined HK$15 million in March last year by the commission for failings related to its work on China Huinong Capital Group Ltd’s (中國惠農資本集團) IPO in late 2014.
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