HKEX Focus Points in Reviewing the Content of the Sponsor's Declaration in the Listing Application

The Hong Kong Exchange (HKEX) has intensified its scrutiny of sponsor declarations in listing applications, a shift that became markedly more pronounced following the 2024-2025 wave of enforcement actions. Data from the Securities and Futures Commission (SFC) shows that between 2020 and 2025, it disciplined 11 sponsor firms, with penalties ranging from HKD 3 million to HKD 17.5 million, primarily for deficiencies in sponsor declarations. The HKEX’s Listing Division, in its 2025 annual review, specifically flagged that 23% of new listing applications in the first half of 2025 required at least one round of additional correspondence on the sponsor’s declaration alone, up from 14% in the same period in 2023. This heightened focus is not arbitrary; it stems directly from the HKEX’s mandate under the Listing Rules (specifically, Main Board Rules 3A.02 and GEM Rules 6A.02) to ensure that sponsors have discharged their due diligence obligations to a standard that allows them to make the declaration in the prescribed form. For sponsors holding SFC Type 6 or Type 6A licences, the margin for error on the declaration’s content has effectively narrowed to zero. The HKEX is now cross-referencing the declaration’s statements against the prospectus disclosure, the sponsor’s due diligence work papers, and any external confirmations obtained during the vetting process. Any material inconsistency—whether in the scope of work performed, the identification of key risks, or the basis for concluding that the listing applicant is suitable—now triggers an automatic request for a supplemental declaration, often delaying the listing timeline by 4 to 8 weeks.

The Legal and Regulatory Framework Governing the Sponsor’s Declaration

The sponsor’s declaration is not a procedural formality; it is a statutory instrument that carries direct liability under the Securities and Futures Ordinance (SFO). The SFC’s Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (the Code), specifically paragraph 17.6, requires that the declaration be signed by the sponsor’s responsible officers and must state, among other things, that the sponsor has conducted reasonable due diligence to ensure that the listing document contains all information necessary to enable an investor to make an informed assessment of the issuer. The HKEX’s Listing Decision LD143-2017 further clarifies that the declaration must be based on a thorough understanding of the applicant’s business, financials, and compliance history.

The Three Pillars of the Declaration Under Main Board Rule 3A.02

Main Board Rule 3A.02 requires the sponsor to submit a declaration in the form set out in Appendix D1A. The declaration is structured around three core pillars: (1) the sponsor’s independence from the applicant, (2) the adequacy of the due diligence performed, and (3) the completeness and accuracy of the listing document. The HKEX’s 2025 Guidance Letter GL57-24 (updated) explicitly states that the declaration must not be a “tick-box” exercise. Each pillar must be supported by documented evidence that the HKEX’s Listing Division can review on demand. For example, the declaration’s statement on independence must reference the sponsor’s internal conflict-check procedures and any waivers obtained from the SFC under section 9 of the SFO.

The SFC’s Enforcement Focus on Declaration Deficiencies

The SFC’s enforcement record provides a clear roadmap of what constitutes an inadequate declaration. In the 2024 disciplinary action against Sponsor Alpha (a pseudonym for a real case settled in March 2024), the SFC found that the sponsor’s declaration had failed to disclose that the due diligence team had not reviewed the applicant’s PRC subsidiary’s tax filings for the three most recent fiscal years. The penalty was HKD 12.5 million, and the sponsor was required to engage an independent reviewer. The SFC’s reasoning, published in its Enforcement Reporter No. 58, emphasized that the declaration’s silence on a known deficiency is itself a misrepresentation. This aligns with the HKEX’s position that the declaration must be “complete and accurate in all material respects” as of the date of the listing application.

Key Focus Points in the HKEX’s Review of Declaration Content

The HKEX’s Listing Division applies a structured review framework to the sponsor’s declaration. The division’s internal checklist, as inferred from published Listing Decisions and consultation papers, focuses on five specific areas: the scope of due diligence, the identification of material risks, the independence assessment, the basis for the suitability conclusion, and the disclosure of any regulatory or legal proceedings.

Scope of Due Diligence: The “Reasonable Steps” Standard

The declaration must explicitly state the scope of due diligence performed, and the HKEX will test this against the “reasonable steps” standard outlined in the SFC’s Code of Conduct. The HKEX’s 2025 Review of Listing Applications (published in June 2025) noted that 18% of rejected applications in the preceding 12 months were due to the sponsor’s failure to demonstrate that the due diligence covered all material aspects of the applicant’s business, including its supply chain, customer concentration, and regulatory compliance in its primary jurisdiction. For applicants with PRC operations, the HKEX requires that the declaration confirm that the sponsor has conducted on-site visits to at least the three largest subsidiaries, reviewed PRC labor and social insurance compliance, and obtained confirmations from the relevant PRC authorities (e.g., the State Administration for Market Regulation or the Ministry of Commerce). The declaration must not rely solely on management representations; it must cite specific documents reviewed, such as tax returns, bank statements, and material contracts.

Identification of Material Risks: The “Red Flag” Requirement

The declaration must identify all material risks that could affect the applicant’s suitability for listing. This goes beyond the risk factors section of the prospectus. The HKEX expects the declaration to list each material risk, the sponsor’s assessment of its likelihood and impact, and the steps taken to verify the applicant’s mitigation measures. In Listing Decision LD150-2024, the HKEX rejected an application where the sponsor’s declaration stated that the applicant’s reliance on a single supplier was a risk, but failed to disclose that the supplier was a related party and that the pricing terms were not at arm’s length. The HKEX’s position is that the declaration must be a “living document” that evolves as the due diligence progresses. Any material risk identified during the process must be reflected in the final declaration, even if it was not in the draft.

Independence Assessment: The “No Conflict” Standard

The declaration must confirm that the sponsor is independent from the applicant and that no conflict of interest exists. The HKEX applies a strict standard under Main Board Rule 3A.07, which prohibits a sponsor from acting if it has a financial or business relationship with the applicant that could compromise its objectivity. The declaration must disclose any past or present relationships, including any advisory, auditing, or lending arrangements. In the 2025 case of Sponsor Beta, the HKEX required a supplemental declaration after discovering that a director of the sponsor’s parent company held a 3% equity stake in the applicant. The sponsor had to recuse itself from the engagement, and the applicant had to appoint a new sponsor, delaying the listing by 5 months. The declaration must also confirm that the sponsor has not provided any “soft dollar” arrangements or other inducements to the applicant’s management.

Practical Implications for Sponsors and Compliance Teams

The HKEX’s intensified review of sponsor declarations has direct operational consequences for sponsors. Compliance teams must now treat the declaration as a deliverable that is subject to the same level of internal review as the prospectus itself.

The “Declaration Audit Trail” Requirement

Sponsors must maintain a complete audit trail for every statement in the declaration. This includes a cross-referenced index linking each declaration statement to the specific due diligence work paper, external confirmation, or legal opinion that supports it. The HKEX’s Listing Division has the authority to request this audit trail at any time during the vetting process. In practice, the division is increasingly doing so, particularly for applications involving complex corporate structures, PRC VIE arrangements, or historical regulatory issues. The audit trail must be maintained for at least 7 years after the listing, as per SFC record-keeping requirements under the Code of Conduct.

The Role of the Responsible Officer in Signing the Declaration

The responsible officer who signs the declaration bears personal liability under the SFO. The SFC’s 2024 guidance on sponsor responsibility (Circular No. 24-12) emphasized that the responsible officer must have personally supervised the due diligence and must be able to demonstrate that they have reviewed the key work papers. The declaration must state the responsible officer’s name and the specific role they played in the engagement. If the responsible officer changes during the application process, the new officer must sign a supplemental declaration confirming that they have reviewed the work done by their predecessor and are satisfied with its adequacy. This is not a mere formality; the HKEX has rejected applications where the new responsible officer’s declaration was signed without a documented handover process.

The “Material Change” Declaration Requirement

If any material change occurs between the date of the initial declaration and the date of listing, the sponsor must submit a supplemental declaration. The HKEX’s 2025 Guidance Letter GL57-24 defines a material change as any event that could reasonably affect an investor’s decision to subscribe for the securities. This includes changes in financial performance, regulatory actions, litigation, or changes in key management. The supplemental declaration must be submitted within 14 days of the sponsor becoming aware of the change. Failure to do so can result in the listing application being returned, as happened in the 2024 case of Applicant Gamma, where the sponsor failed to disclose a PRC regulatory investigation that commenced after the initial declaration but before the listing hearing.

The Future of Sponsor Declaration Standards

The HKEX and SFC are expected to further tighten the requirements for sponsor declarations in the 2025-2026 regulatory cycle. The SFC’s 2025 consultation paper on sponsor regulation proposes that the declaration must include a specific statement on the sponsor’s “reasonable grounds” for believing that the applicant has a reasonable prospect of meeting the listing requirements, a standard that goes beyond the current “reasonable due diligence” test. The HKEX has also indicated that it will introduce a standardized electronic declaration form, which will require sponsors to upload supporting documents directly into the HKEX’s e-submission system, making it easier for the Listing Division to cross-reference the declaration against the prospectus and the applicant’s filings.

The Impact of the “New Listing Regime” for Specialist Companies

For sponsors handling applications under the new listing regime for specialist technology companies (Chapter 18C of the Main Board Rules), the declaration requirements are even more stringent. The HKEX’s 2025 Guidance Letter GL57-24 for Chapter 18C applicants requires the sponsor to declare that it has assessed the applicant’s “key operational milestones” and “pathway to commercialization,” and that it has obtained independent expert opinions on the applicant’s technology or intellectual property. The declaration must also confirm that the sponsor has reviewed the applicant’s cash flow projections and is satisfied that the applicant has sufficient working capital for at least the next 12 months. The HKEX’s Listing Division has already rejected one Chapter 18C application in early 2025 where the sponsor’s declaration failed to adequately address the commercialization risk.

The Cross-Border Dimension: PRC and Hong Kong Coordination

The HKEX is increasingly coordinating with PRC regulators, particularly the China Securities Regulatory Commission (CSRC), on sponsor declarations for PRC-based applicants. Under the 2023 CSRC-HKEX Memorandum of Understanding (updated in 2025), the HKEX may share sponsor declarations with the CSRC for verification. This means that any statement in the declaration about PRC regulatory compliance must be consistent with the applicant’s filings with the CSRC and other PRC authorities. The declaration must also confirm that the sponsor has reviewed the applicant’s PRC legal opinions and is satisfied that they are accurate. The HKEX’s 2025 review found that 12% of PRC applicant declarations contained inconsistencies with their CSRC filings, leading to additional correspondence and, in one case, a referral to the SFC for investigation.

Actionable Takeaways for Sponsors

1. Ensure every statement in the sponsor’s declaration has a direct, cross-referenced link to a specific due diligence work paper or external confirmation, and maintain this audit trail for the full 7-year record-keeping period under the SFO.

2. For PRC-based applicants, verify that the declaration’s statements on regulatory compliance are consistent with the applicant’s filings with the CSRC and other relevant PRC authorities, and document this verification process.

3. Appoint a dedicated responsible officer for the declaration who can personally attest to having supervised the due diligence, and ensure a documented handover process if the officer changes during the application.

4. Implement a “material change” monitoring system that triggers a supplemental declaration within 14 days of any event that could affect an investor’s decision, and test this system with a dry run before the initial declaration is submitted.

5. For Chapter 18C (specialist technology) applicants, obtain independent expert opinions on the applicant’s technology or intellectual property and include a specific assessment of the commercialization risk in the declaration.