The Securities & Futures Commission has unveiled new eligibility criteria and ongoing obligations for sponsors, to come into effect on January 1.

The commission's Executive Director of Intermediaries & Investment Products Alexa Lam said under the new regime, only those corporate finance advisory firms that meet the stringent eligibility criteria may act as sponsors.

"Firms should not assume that they will automatically pass the test. Sponsors and compliance advisers and their management are also reminded that they will be held responsible for their work," Mrs Lam said.

"The SFC will inspect sponsors and compliance advisers regularly and on an ad-hoc basis to review their compliance with the regulations. The SFC will not hesitate to take action against firms for substandard work," she added.

Mrs Lam said enhancing the sponsor regime is a key response to the regulatory challenge to promote high standards of corporate governance and behaviour in the Hong Kong market, which is crucial to Hong Kong maintaining its status as a fundraising centre.

Consultation draws 14 submissions

Last June, the commission consulted the public on tightening sponsors' regulation and received 14 submissions from market practitioners, professional bodies, and individuals. In general, respondents supported the proposal to impose specific eligibility criteria and ongoing compliance obligations on sponsors.

The commission has adopted majority of the proposals and details are set out in the Consultation Conclusions on the Consultation Paper on the Regulation of Sponsors & Compliance Advisers released today. The requirements will be introduced as the Guidelines for Sponsors & Compliance Advisers.

New guidelines

According to the guidelines, a sponsor must:

* have sufficient expertise and resources, and a minimum paid-up capital of $10 million; but professional indemnity is not mandatory;

* have effective internal controls and management supervision to ensure the sponsor's compliance with codes and regulations, while the management is responsible for the firm's sponsor work; and

* appoint at least two principals, while each transaction team should be supervised by at least one principal.

A sponsor must also comply with the following ongoing obligations:

* carry out annual assessments of its internal systems and controls to ensure that they remain effective;

* maintain proper and updated records; and

* staff undertaking sponsor work should have sufficient relevant continuous professional training.

Corporate finance advisory firms must at all times be qualified to act as sponsors under the Guidelines for Sponsors & Compliance Advisers to be eligible to act as compliance advisers.