November 27, 2012 / 5:31 AM / 5 years ago

Hong Kong watchdog says IPO sponsors to have more power to probe

HONG KONG (Reuters) - Proposed new regulations for sponsors of IPOs in Hong Kong will give bankers greater authority to scrutinise their clients before they list, the CEO of city’s securities watchdog told Reuters on Tuesday, referring to a controversial plan that could make banks liable for listing documents.

Ashley Alder, chief executive of the Securities and Futures Commission (SFC), told Reuters that responses to a consultation on initial public offering sponsor regulation would be released next month and include proposals to give sponsors more powers.

“Fundamentally we will be saying a fair amount about how to establish greater authority for sponsors,” he said.

Investment banks are opposed to rules that explicitly make sponsors of IPOs civilly and criminally liable for prospectuses, arguing competitive pressures and resistant clients can make it impossible for them to detect fraud.

IPO sponsors, usually banks or corporate finance houses, prepare a company’s listing documents and perform due diligence to ensure they comply with Hong Kong’s listing rules.

The consultation came after a number of companies that listed in Hong Kong ran into trouble shortly after going public.

In April this year the SFC revoked the licence and announced a record fine for the sponsor of the 2009 listing of Chinese textile maker Hontex International Holdings Co Ltd 0946.HK.

Alder said some of the industry had pushed back strongly against liability, fearful it would lead to bankers running the risk of going to prison.

“Those who simply say ‘oh my god I‘m going to go to jail’, you’ll only go to jail if you’ve done something seriously wrong,” he said in the interview on the sidelines of the third annual Thomson Reuters Pan-Asian Regulatory Summit.

”This is not a question of doing a due diligence job a little bit shoddily and you’ll be marched off to jail.

“The whole idea is to try to lower risk rather than increase it, so you lower risk for the sponsors because they can do their jobs properly, you lower risks for the markets because they have better gatekeepers and then you lower risks for investors.”


In a speech to summit delegates earlier, Alder had urged Asian regulators to maintain high standards and come together to stop U.S. and European regulators imposing their rules on the region’s financial markets.

He told an audience of 550 people from the compliance industry that there was a danger a “one-size fits all” set of financial rules would be foisted on Asian banks and brokers by Western regulators unless the region’s watchdogs spoke up.

“If Asia does not get properly involved in the global regulatory agenda, we will find that the U.S. and European rules will be extended to us whether we like it or not,” said Alder.

“The result could be an isolation of Asian markets from international finance,” he added.

Banks in Asia have become increasingly concerned by the overseas reach of new U.S. financial regulations.

One big area of contention is the new rules on derivatives trading under the Dodd-Frank Act. U.S. regulators want to ensure that the rules apply to cross-border trades between, say, a Wall Street and an Asian bank.

Asian regulators are concerned that would mean banks in their countries would have to follow U.S. and domestic regulation, which may in some cases clash and drain liquidity from their markets.

In a rare unified move, regulators from Australia, Hong Kong and Singapore wrote a joint letter to the U.S.’s Commodities and Futures Trading Commission (CFTC) in August asking them to review the overseas reach of these new rules.

“The fact that this letter came from multiple regulators had a real impact and it undoubtedly changed the debate,” said Alder during his speech.

Alder, who took up his post a year ago, said that it was vital that cross-border rules be internationally agreed, and that Asia had no interest in having laxer rules than the West.

“There is no advantage of lowering our standards to attract business. This kind of regulatory arbitrage always ends badly,” he said.

On a subsequent panel discussion, Krirk Vanikkul, deputy governor at the Bank of Thailand, said Western regulators needed to understand that Asian markets were different.

“What Asia is trying to do is not overturn the system or reform. What we are asking for is some greater flexibility so we can design our own measures to suit our systems,” he said.

Greg Medcraft, chairman of the Australian Securities and Investments Commission, said regulators had to make it easier for financial firms to operate across borders.

“This is critical. Markets are global and we’ve got to find a way for making it easier for institutions to operate across markets and avoid duplication,” he said.

Alder added that if Asian regulators did not push Western regulators to agree on a workable set of international rules, big banks could be forced out of the region’s markets.

“The threat is that if we or Asian firms don’t play ball, international firms will find it hard to operate here, seriously harming liquidity in these markets. It could be a case of my way or the highway.”

Reporting by Rachel Armstrong and Michael Flaherty; Editing by Alex Richardson

Our Standards:The Thomson Reuters Trust Principles.
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