HKEX Guidance on a Sponsor's Reliance on Expert Reports in the Listing Application

The Hong Kong listing pipeline is entering a period of heightened sponsor liability scrutiny, driven by the SFC’s intensified enforcement focus on due diligence failures in expert report reliance. In 2025, the SFC has already issued two circulars (April and July) explicitly warning sponsors against delegating core verification work to experts without independent assessment, a practice that has led to three enforcement actions in the past 18 months against sponsor firms for deficient work on expert-sourced data. The HKEX, in its Listing Decision LD141-2025 (June), further clarified that a sponsor’s obligation under Listing Rule 21.03(3) to “take reasonable steps to satisfy itself” of an applicant’s compliance cannot be outsourced to a technical expert, even where the expert holds a recognised professional qualification. This guidance arrives as the 2025 IPO pipeline—with 48 new Main Board applications filed in H1 2025, up 22% year-on-year—includes an increasing proportion of biotech, fintech, and infrastructure companies whose prospectuses rely heavily on third-party expert reports for revenue recognition, patent valuation, and environmental compliance data. For sponsors holding SFC Type 6 or 6A licences, the margin for error in expert report reliance has effectively narrowed to zero.

The Regulatory Framework for Expert Report Reliance

HKEX Listing Rules and the Sponsor’s Primary Duty

HKEX Listing Rule 21.03(3) imposes a non-delegable duty on the sponsor to “take reasonable steps to satisfy itself that each statement of fact or opinion in the listing document is accurate and complete in all material respects.” This rule, codified in the 2023 Listing Rule amendments, directly addresses the sponsor’s relationship with expert reports. The HKEX’s Guidance Letter HKEX-GL86-16 (revised March 2024) specifies that reliance on an expert’s report does not relieve the sponsor of its own verification obligations. The sponsor must independently assess the expert’s qualifications, the scope of the expert’s work, and the reasonableness of the expert’s assumptions. In practice, this means the sponsor cannot simply accept a valuation report from a qualified surveyor or a patent portfolio assessment from a licensed IP attorney without conducting its own cross-checks against publicly available data, company records, and industry benchmarks.

SFC Code of Conduct and the “Reasonable Steps” Standard

The SFC’s Code of Conduct for Persons Licensed by or Registered with the SFC (Chapter 17) provides the operational standard for “reasonable steps.” Paragraph 17.6 requires the sponsor to “make reasonable enquiries to verify the information provided by the expert” and to “consider whether the expert’s report is consistent with other information known to the sponsor.” The SFC’s July 2025 circular on sponsor due diligence (SFC/IS/2025/15) reinforced that this includes a duty to challenge the expert where assumptions appear optimistic or inconsistent with historical data. For example, in the SFC’s 2024 enforcement action against a sponsor for a failed biotech listing, the SFC found that the sponsor had accepted a patent valuation expert’s report without verifying that the underlying patents were not subject to pending invalidation proceedings in the PRC. The sponsor was fined HKD 18 million and its Type 6 licence was suspended for six months.

The HKEX Listing Decision LD141-2025: A Defining Precedent

The HKEX’s Listing Decision LD141-2025 (June 2025) provides the most explicit judicial-style guidance to date. The case involved a Main Board applicant in the renewable energy sector whose prospectus relied on a technical expert’s report for revenue projections from a carbon credit trading scheme. The Listing Committee rejected the application, finding that the sponsor had not taken reasonable steps to verify the expert’s assumptions about carbon credit pricing, which were based on a single, unverified broker quote. The Decision states that “a sponsor’s reliance on an expert report is not a substitute for the sponsor’s own independent verification of the underlying data, particularly where the expert’s assumptions are not supported by independent market evidence.” This effectively means that for any expert report containing forward-looking financial projections, the sponsor must test the assumptions against at least two independent sources—a standard that many current sponsors have not consistently met.

Practical Implications for Sponsor Due Diligence

The Three-Layer Verification Model

To comply with the current regulatory standard, sponsors should adopt a three-layer verification model for expert reports. The first layer is expert qualification verification: the sponsor must confirm that the expert holds the relevant professional licence or accreditation in the jurisdiction where the report is prepared. For a PRC-based patent valuation, this means verifying the expert’s registration with the PRC State Intellectual Property Office (SIPO) and their track record in the specific technology sector. The second layer is assumption testing: the sponsor must independently source at least two data points for each material assumption in the expert report. For a revenue forecast based on market share projections, the sponsor should cross-check the expert’s market size estimate against third-party industry reports (e.g., Frost & Sullivan, IDC) and publicly available competitor filings. The third layer is consistency checking: the sponsor must reconcile the expert’s conclusions with other information in the listing document, including the applicant’s own financial statements, management accounts, and any previous valuations conducted by other parties.

The Cost and Timeline Implications

This enhanced due diligence model carries significant cost and timeline implications for sponsors. A typical expert report review under the three-layer model requires an estimated 80-120 hours of sponsor staff time per report, compared to 30-50 hours under previous practices. For a Main Board IPO with four to six expert reports (valuation, tax, legal, technical, environmental, and market), the additional sponsor work could add HKD 1.2 million to HKD 2.4 million to the sponsor’s internal costs, based on an average billable rate of HKD 3,000 per hour for senior associates. The HKEX’s average vetting timeline for new Main Board applications in H1 2025 was 68 days, up from 55 days in 2024, partly attributable to Listing Division queries on expert report verification. Sponsors should budget for at least two additional weeks in the pre-A1 filing period to complete the enhanced due diligence.

The Role of Internal Compliance Committees

The SFC’s July 2025 circular explicitly recommends that sponsor firms establish an internal compliance committee to oversee expert report reliance. The committee should include at least one director-level officer with no direct involvement in the transaction, a compliance officer with Type 6 licence experience, and a technical specialist (e.g., a chartered engineer or a qualified accountant) who can independently assess the expert’s methodology. The committee should review all expert reports at two stages: first, before the draft prospectus is submitted to the HKEX, and second, after any material changes to the expert’s assumptions during the vetting process. The minutes of these committee meetings must be retained for at least seven years, as required by the SFC’s record-keeping rules under the Securities and Futures (Keeping of Records) Rules (Cap. 571S).

Cross-Border Expert Reports: Jurisdictional Complexities

PRC Expert Reports and the VIE Structure

For PRC-based listing applicants, expert reports on VIE (Variable Interest Entity) structures present particular challenges. The HKEX’s Guidance Letter HKEX-GL94-18 (revised October 2024) requires sponsors to obtain a PRC legal opinion on the legality of the VIE structure under PRC law. However, the SFC’s 2025 enforcement action against a sponsor for a failed VIE-based listing (SFC Enforcement Action No. 2025/12) found that the sponsor had not verified the PRC legal expert’s opinion against the actual operating licences held by the VIE entities. The sponsor accepted the expert’s conclusion that the VIE structure complied with PRC foreign investment restrictions, but the HKEX’s Listing Division discovered that the VIE entity’s ICP (Internet Content Provider) licence had been issued under a different corporate name, rendering the legal opinion invalid. The sponsor was required to withdraw the application and pay a HKD 12 million settlement.

Offshore Jurisdiction Reports: BVI, Cayman, Bermuda

Expert reports from offshore jurisdictions such as the BVI, Cayman Islands, and Bermuda require particular attention to the expert’s qualifications and the scope of their work. The HKEX’s Listing Decision LD139-2025 (March 2025) addressed a case where a sponsor relied on a BVI legal opinion on the validity of a share pledge without verifying that the BVI law firm had conducted a search of the BVI Registrar of Corporate Affairs. The Decision found that the sponsor had not taken reasonable steps because the BVI legal opinion did not reference the search results, and the sponsor had not requested them. The standard for offshore expert reports is now that the sponsor must obtain a copy of the search results or other primary evidence that the expert has verified the underlying facts, not merely opined on the legal conclusions.

The Expert’s Independence Requirement

HKEX Listing Rule 21.03(4) requires that the expert be independent of the applicant and the sponsor. The HKEX’s Guidance Letter HKEX-GL86-16 clarifies that independence means the expert has no financial or other interest in the outcome of the listing application. In practice, this excludes experts who have provided other advisory services to the applicant within the two years preceding the application date, or who have a shareholding in the applicant or its connected persons. The sponsor must obtain a written independence confirmation from each expert, and must also conduct a background check to identify any undisclosed relationships. The SFC’s 2024 enforcement action against a sponsor for a failed healthcare listing (SFC Enforcement Action No. 2024/08) found that the sponsor had not checked whether the expert—a PRC-based patent attorney—had previously represented the applicant in a patent infringement lawsuit, which constituted a material conflict of interest. The sponsor was fined HKD 15 million.

Actionable Takeaways for Sponsors

1. Adopt the three-layer verification model for all expert reports in Main Board and GEM listing applications, with documented evidence of independent cross-checks for each material assumption, as required by HKEX Listing Rule 21.03(3) and the SFC’s July 2025 circular.

2. Establish an internal compliance committee with director-level oversight for expert report reliance, retaining minutes for seven years under the Securities and Futures (Keeping of Records) Rules (Cap. 571S).

3. Verify expert independence through written confirmations and background checks, excluding any expert with financial or advisory relationships with the applicant within the preceding two years.

4. Obtain primary evidence from offshore experts (BVI, Cayman, Bermuda) that they have conducted the underlying factual verification, not merely opined on legal conclusions, as per HKEX Listing Decision LD139-2025.

5. Budget for 80-120 hours of sponsor staff time per expert report and an additional two weeks in the pre-A1 filing period to complete enhanced due diligence, reflecting the current HKEX average vetting timeline of 68 days for new Main Board applications.