Authors

Jill Wong, Bernita Lun, Samuel Chan, Ariel Yip

Introduction

In January 2026 the Securities and Futures Commission (SFC) issued a circular addressing expectations and requirements for sponsor work in connection with initial public offerings (IPOs) and other listing-related engagements. This circular followed a first warning shot in December 2025, when 13 Sponsors (Concerned Sponsors) received a joint letter from the SFC and Hong Kong Exchanges and Clearing Limited (HKEX) citing specific cases of concern from recent listing applications (Joint Letter).

In her accompanying remarks, Ms. Julia Leung, Chief Executive Officer of the SFC, warned that the gatekeeping role of sponsors “may have been eroded in their eager pursuit of deal volume”.

This was followed in March 2026 by HKEX proposing, in a consultation to boost Hong Kong’s competitiveness, to name other professional parties responsible for returned listing applications, widening in practice the number of gatekeepers who may face adverse consequences if they are involved in returned applications. Also in March 2026, the SFC announced that it will begin inspection of sponsors.

Circular: Gatekeeper Expectations

The SFC laid out clear and granular expectations, amongst them: 

  • Due diligence: rigorous, documented due diligence tailored to each issuer’s profile, with particular emphasis on financial statements, material contracts, corporate governance, and business model sustainability.
  • Accountability: allocation of responsibilities within the sponsor team, robust supervision of junior staff and clear oversight by senior sponsors.
  • Robust documentation: contemporaneous, retrievable working papers and evidence that due diligence steps were planned, executed and reviewed.
  • Handling conflicts of interest:  identify, manage, and document conflicts, both financial and non-financial, with specific controls where sponsors or their affiliates have business relationships with the issuer, major shareholders or underwriters.
  • Professional scepticism: active verification of issuer representations with testing and corroboration of key assertions.

Circular: Some relevant details

The circular distinguishes three groups:

  1. Concerned Sponsors: sponsors named in the Joint Letter (and any others subsequently notified).
  2. Sponsors with Strained Principals: sponsors with any principal supervising/participating in six or more Active IPOs.
  3. Sponsors generally: sponsors subject to universal near term reporting obligations and tightened personnel/exam rules.

What’s new and urgent

  • Immediate reporting (all sponsors):
    • Within 1 week: identify any individual engaged in sponsor work who has not passed the required exams; remove or replace non compliant individuals from transaction teams immediately.
    • Within 2 weeks: submit a list of all appointed sponsor principals and the number of active listing engagements for each.
  • Internal reviews and rectification (selected sponsors): 
    • Concerned Sponsors (those addressed in the Joint Letter) and Sponsors with Strained Principals (principals with six or more Active IPOs) must complete internal reviews within three months and submit a rectification & resource Plan signed off by Managers in Charge of Overall Management Oversight (OMO).
    • Such internal reviews should identify any material non-compliance issues related to internal control and remedial actions. In addition, accountability, such as supervision by Principals and oversight by management, should be determined and documented.
    • For Sponsors operating within a group company structure, the company should identify the key group personnel responsible for overseeing the Sponsor’s business line and key control functions. These individuals are likely to be the main contacts for the SFC.

Scope

Action(s)

Deadline

All Concerned Sponsors and Sponsors who receive similar letters from the SFC and/or HKEX in the future
  • A retrospective review of concerns cited for each listing application, with a focus on identifying any material non-compliance issues related to internal control and remedial actions.
  • Accountability measures should be determined and documented, including principal’s supervision and management oversight.
  • Complete the review, which should be signed off by the Manager-in-Charge of OMO

Within three months from 30 January 2026 
  • For Sponsors within a group company structure, identify key group personnel overseeing the Sponsor’s business line and control functions. These individuals will be part of the Sponsor’s management and may be engaged by the SFC about future concerns or regulatory expectations.​
  • Complete the review, which should be signed off by the OMO

All Sponsors with Strained Principal(s)
  • A comprehensive review of the resources available to each Sponsor for conducting sponsor work as well as the listing engagements that it is currently handling.
  • Consideration would be given to the ability and governance of management to implement a responsible rectification and resource plan for managing the Sponsor’s resources when the SFC considers any new Type 6 (advising on corporate finance) (RA6) individual applications.
  • For Sponsors operating within a group company structure, identify the key group personnel responsible for overseeing the Sponsor’s business line and key control functions. These individuals will be part of the Sponsor’s management and may be engaged by the SFC about future concerns or regulatory expectations.
  • Complete the review, which should be signed off by the OMO.
  • Submit rectification and resource plan.
  • The review should be signed off by the OMO.

within three months from 30 January 2026 
  • Thematic on-site inspections: the SFC will carry out near term inspections of Concerned Sponsors and Sponsors with Strained Principals to examine resourcing, principal involvement, management oversight, and the quality of sponsor work.
  • Licensing and exam tightening: 
    • Stricter HKSI exam timing  - i.e. all individuals engaging in IPO sponsor work (including ITPs, temporary licensees, licensed representatives, responsible officers) to pass HKSI LE Paper 1 and 16 not more than 3 years prior to and for further for HK SI LE Paper 16, not later than 6 months after the date of the first engagement in IPO sponsor work, unless otherwise exempted.
    • Enhanced RA6 licensing submission requirements on all Sponsors must be accompanied by a document signed off by all OMOs of the Sponsor – this demonstrates that (i) no Principal is simultaneously involved in 6 or more active listing engagements, unless under very exceptional circumstances with valid justifications to the satisfaction of the SFC; (ii) the Sponsor’s resource arrangements align with paragraph 47 of the Substandard conduct of Sponsors.
  • Operational consequences: possible suspension of vetting of deficient listing applications, restrictions on sponsor business scope or number of active engagements, and disciplinary or licensing action in serious cases.
  • De facto principal cap: the SFC regards principals with six or more active listing engagements as presumptively strained unless exceptional justification is provided, effectively signalling a practical limit of no more than five active engagements per principal.

The Circular builds on earlier SFC guidance (including March 2018 sponsor standards and the October 2024 joint statement on vetting timeframes); in addition, it introduces concrete deadlines and clear expectations on principal capacity and resources, signalling an intensified supervisory stance.

Where warranted, the SFC may impose licence conditions to restrict a Sponsor’s business scope and to cap the number of active listing engagements that a Principal, responsible officer or licensed representative may supervise or participate in. In serious cases of misconduct, the SFC will also commence investigations and/or disciplinary proceedings against those responsible for the Sponsor’s failures — including the Sponsor itself, the Principals and senior management.

Looking Ahead

The SFC’s circular, reinforced by the emphasis on the sponsors’ gatekeeping role constitute a regulatory reset, requiring: rapid reporting, retrospective reviews, rectification plans, thematic inspections and tightened licensing/exam requirements. This is a clear signal from the regulators that the quality of sponsor work must not deteriorate despite the surge in new listing applications. Sponsors should not adopt – in the SFC’s words – “a process-driven approach” to listing applications.

Sponsors must prioritise timely reporting, remediation, demonstrable OMO involvement, reduce principal overload and strengthened quality assurance over prospectus drafting and offer execution.

Investigations of sponsors may lead to disciplinary action such as public reprimands, fines, suspension or revocation of licences.  If and to the extent that such investigations discover other breaches, the SFC has a range of powers to address misconduct.

The HKEX may proceed with its proposal to publish the names and roles of the professional parties responsible for the application materials and who are involved in the IPO (at present, only the identities of the sponsors and applicants are disclosed). Such public airing of bad quality work by professional advisors would be, at least, embarrassing and, at its most serious, lead to reputational damage and lawsuits. 

How we can assist?  We can :
  • Conduct internal reviews and help draft rectification plans.
  • Prepare inspection ready file packs and conduct mock inspections.
  • Review/redraft engagement letters, QA templates, principal appointment records and internal controls and procedure.
  • Advise on regulatory compliance and prepare defences for potential breaches.

SFC’s Key Concerns

The table below summarises the concerns raised by the SFC, along with specific case examples illustrating these issues. For full details of the case examples and sponsors’ potential non-compliance with relevant regulatory requirements, please refer to the Appendix to the Circular (the “Appendix”).

Key Concerns

Case Examples and Details
  • poor quality of draft listing documents involved:​
    • involved unclear or convoluted descriptions of business models;
    • excessive use of promotional language; and
    • selective presentation of industry data.
  • ​insufficient understanding of the applicant and its industry
  • A draft listing document lacked sufficient qualitative and quantitative information on the applicant to adequately explain:
    • ​the significant fluctuations in financial performance;
    • historical non-compliance;
    • legal proceedings;
    • sanction related risks; and/or
    • competitive landscape/market share.

Note to Sponsors: Inadequate drafting quality may lead to suspension of the vetting process of the listing application.

  • A draft listing document lacked disclosure on a certain bribery incident involving the applicant’s director and failed to analyse whether such incident would affect the applicant’s suitability for listing or the director’s competence and integrity.
  • In some listing applications relating to biotech and specialist technology companies, the draft listing documents lacked sufficient disclosure about eligibility:​
    • how the applicants’ core products (had been developed beyond the concept stage;
    • whether the applicants owned patent rights;
    • meeting the revenue thresholds; and
    • the qualifications of the sophisticated independent investors).
  • drafting listing documents have become unnecessarily long for various reasons, including:
    • extensive repetition of the same information across different sections;
    • the inclusion of boilerplate disclosures that do not meaningfully present the applicant’s business or financial performance. 
  • Mere “copy-and-paste” of paragraphs from other sections into the “Summary” section.
  • Use of generic descriptions in the “Business” section that are not specific to the applicant.

Note to Sponsors: Where the SFC finds a listing document unreasonably long relative to the applicant's nature, business and operating industry, it may put the vetting process on hold and impose page limits. SFC’s expectation is that the main body of a listing document should stay under 300 pages (excluding the experts’ reports contained in the appendices). 
  • Failure to address regulatory comments despite clear guidance.
  • Failure to address regulatory inquiries in a cooperative and truthful manner.
  • Failure to provide accurate, complete and not misleading information to the regulators.
  • Failure to provide sufficient justification to support waiver applications.
  • Failure to provide detail of tax liabilities or analyse its impact. Subsequently failure to timely update a change in status of certain tax proceedings.
  • Submissions that were incomplete, inconsistent or contradictory

Note to Sponsors: Materially incomplete and/or unsatisfactory responses from Sponsors to regulators’ comments may lead to delay or suspension of the vetting process of the listing application.​
  • Failure to put in place sufficient arrangements and resources to ensure that the public offer is conducted in a fair, timely and orderly manner, including:​
    • Failure to allocate experienced and suitably senior staff to attend to the key regulatory processes during the offer stage.
    • Failure to comply with and adhere to the required deadlines and facilitate the key processes and procedures at the offer stage.
    • Insufficient number of/capacity of principals to supervise the staff appointed by a Sponsor to carry out a listing assignment (Transaction Teams) and participate in the listing engagements.1
  • Responsible representatives were either not reachable in a timely manner or did not have adequate knowledge of the listing application and/or process.
  • Failure to:
    • submit details as well as marketing and independence statement by prescribed deadlines;
    • identify connected clients;
    • publish the allotment results announcements on HKEX’s website by the prescribed deadline.
  • Principals were simultaneously overseeing 6 or more active listing engagements. The most active principal oversaw 10 active listing engagements while also being a Transaction Team member for 9 additional active listing engagements. In addition, the other principals were involved in 11 or more active listing engagements.
  • Failure to ensure that appointed staff, including the itinerant professionals (ITPs)2,  met the eligibility criteria to conduct sponsor work, for example:
    • Failure to appoint a Transaction Team with experienced and suitably qualified staff.
    • Insufficient staff with appropriate levels of knowledge, skills and experience in Hong Kong IPOs.
    • Attempts to appoint principals that are not suitably qualified/meet the eligibility criteria as required under paragraph 3.2 of the Sponsor Guidelines.
    • Failure to ensure that the ITPs met the eligibility criteria to conduct sponsor work and placed heavy reliance on ITPs with little or no experience in Hong Kong IPOs for certain listing engagements.

Note to Sponsors: Generally, any principal who simultaneously supervise or participate in 6 or more active listing engagements will be considered as lacking adequate or appropriate resources to carry out sponsor duties, unless under very exceptional circumstances with valid justifications to the satisfaction of the SFC.

  • For three other active Sponsors, over 80% of their principals were simultaneously supervising or participating in 6 or more active listing engagements. The most active principals at these Sponsors were acting as the signing principal for 19, 17 and 7 active listing engagements, respectively.
  • The most active principal at another Sponsor was acting as the signing principal in 8 active listing engagements and as a Transaction Team member for 6 additional active listing engagements as of 31 December 2025.
  • Some Sponsors have attempted to appoint as principals individuals with only “client relationship”, “client management”, “sector coverage” or high-level management duties and experience.
  • A number of Sponsors appointed a considerable number of junior and temporary staff, to conduct sponsor work for listing engagements.3
  • Two Sponsors failed to ensure that all their ITPs met the eligibility criteria.
  • The Transaction Team for three listing applications expected to be filed within two months were comprised primarily of ITPs.
  • In the most extreme case, 8 out of 10 members of a Transaction Team were ITPs and four were reported to have less than one year of experience in Hong Kong IPOs.
  • Approximately 50% and 75% of the ITPs engaged by two Sponsors during the two years ended 31 December 2025 held positions at the rank of vice president or above, and around 50% and 80% of these senior ITPs had no experience or less than one year of experience in Hong Kong IPOs.
  • Over-reliance on experts and third parties without adequate assessments of their competency and resources, including inadequate assessments on competency and resources of experts and third parties.
  • Failure to keep adequate records as per paragraph 17.10(c) of the Code of Conduct.

Note to Sponsors: Sponsors must maintain records that clearly justify the appointment of Transaction Teams and confirm adequate resource allocation for each listing engagement.

Ineffective reporting line.

1. Pursuant to paragraph 17.15(l) of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (Code of Conduct), “principal” means an individual that meets the criteria stipulated in Appendix A to the SFC’s the Guidelines on Competence (Sponsor Guidelines) appointed by a Sponsor to act as a principal; in respect of a listing assignment, a principal means an individual appointed by a Sponsor to supervise the Transaction Team.2. Pursuant to paragraphs 5.3.8 and 5.3.9 of the SFC’s Licensing Handbook, ITPs refers to individuals who will repeatedly visit and conduct regulated activities in Hong Kong for not more than 45 days in each calendar year.3. During the two years ended 31 December 2025, the SFC noted that more than 40% of the total deal team members at two Sponsors had less than one year of experience in Hong Kong IPOs, and ITPs constituted over 50% of the staff responsible for all listing engagements at these Sponsors. 

Client Alert 2026-066

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