Hong Kong SFC's Dai Lin: Hong Kong Stock Exchange IPO volume rises but quality declines; enforcement values speed and efficiency.

Hong Kong SFC's Executive Director of Enforcement, Michael Duignan, cautioned that when trading volume climbs rapidly, IPO quality often slips imperceptibly. That is precisely why the Hong Kong SFC issued a circular to sponsors in January this year, identifying the problems while drawing clear boundaries to guard against risks in advance. Explaining why the January circular set out such detailed requirements rather than dealing with issues one by one as they surfaced, Duignan said this reflects a "fast and efficient" regulatory philosophy. Duignan pointed out that weak due diligence leads to poor-quality listing documents, and such issuers can easily become enforcement cases down the road. A "wait-and-see" approach to post-hoc handling is neither fast nor efficient; by the time enforcement actually begins, substantive harm has already been done, which is unfair to the market. By setting out regulatory expectations in writing via an early circular, and by addressing the structural factorscapacity, competence, and incentivesthat give rise to misconduct, regulators can correct the deep-rooted causes of improper behavior, leaving violators with no grounds to plead "surprise" when action is later taken. Duignan admitted the philosophy is "easier said than done." Faced with complex cases, incomplete evidence, competing priorities, and time pressure, enforcers should not rely solely on "head-on confrontation." In Duignan's view, enforcement does not necessarily require wielding a big stickthe smartest and fastest enforcement action is, instead, "not having to take action at all"provided regulators have already made clear to the market where the red lines lie. The Hong Kong SFC's January circular identified 3 major hidden dangers in the new stock market The circular issued by the Hong Kong SFC to sponsors in January this year flagged three major industry hidden dangers: First, formalistic due diligence. The preparation of listing documents becomes a mere "checklist"-style routine, lacking substantive review. Second, excessive stretching of manpower. The number of ongoing transactions handled by key personnel at the same time far exceeds a reasonable workload. Third, loopholes in unauthorized sign-off. In some cases, sign-off was even made by unqualified personnel. Supervising 6 transactions simultaneously constitutes "overburdened" To curb these unhealthy practices, the Hong Kong SFC explicitly raised the competence threshold in the circular, tightened the sponsor licensing examination requirements, and set out a specific timetable. In defining "overburdened," any key personnel simultaneously supervising 6 or more ongoing transactions will be flagged as an "overburdened key personnel." On manpower screening and reporting, sponsors must identify unqualified personnel handling ongoing transactions within 1 week, and report the overall ratio of key personnel to transactions within 2 weeks. On submitting rectification plans, companies flagged as "of concern" must complete an internal review within 3 months and submit a corrective plan signed by the heads of core functions.