HKEX Guidance on the Norms for Sponsors Citing Industry Experts in the Listing Application

The Hong Kong Stock Exchange (HKEX) has escalated its scrutiny of industry expert reports in listing applications, issuing a series of private guidance letters and at least two publicly available Listing Decisions in 2024 and early 2025 that signal a material shift in sponsor liability. The Exchange’s Listing Division is now systematically challenging the independence, methodology, and factual basis of expert reports cited in prospectuses, particularly those from third-party market research firms engaged by sponsors. This follows a pattern where the SFC has sanctioned three sponsors in the past 18 months for failures related to third-party expert reliance, with fines totalling HKD 74 million under the Securities and Futures Ordinance (Cap. 571). For sponsors holding SFC Type 6 (advising on corporate finance) and Type 6A (sponsor) licences, the operational risk has become binary: either the internal compliance function validates every data point in an expert report, or the listing application faces a formal return. The HKEX’s 2025 Guidance Letter (GL117-25) on expert reliance, published in February 2025, now mandates that sponsors conduct independent verification of any industry data that constitutes a material assertion in the listing document, effectively nullifying the long-held practice of relying on an expert’s “reputation” as a substitute for due diligence.

The Regulatory Foundation: From Expectation to Mandate

The HKEX Listing Decision LD143-2024 and Its Implications

The HKEX’s Listing Decision LD143-2024, published on 15 August 2024, established a new baseline for sponsor obligations when citing industry experts. The decision arose from a Main Board applicant in the renewable energy sector whose prospectus cited a market size projection from a third-party research firm. The HKEX Listing Division found that the sponsor had not conducted any independent verification of the expert’s methodology, despite the projection representing 38% of the revenue forecast for the next three financial years. The Exchange returned the application under Listing Rule 9.03(3), requiring the sponsor to either re-verify the data or remove the expert citation entirely.

The decision explicitly references the SFC’s Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (the Code of Conduct), paragraph 17.5, which requires sponsors to “exercise reasonable professional care and judgment” when relying on third-party information. The HKEX interpreted this as requiring the sponsor to obtain the expert’s raw data, interview the lead analyst, and cross-reference the methodology against independent sources—not merely review the final report. This decision has materially increased the due diligence burden: sponsors must now budget at least 120-150 additional professional hours per expert report, based on industry surveys conducted by the Hong Kong Sponsor Association in Q4 2024.

The SFC’s Enforcement Trajectory

The SFC’s enforcement actions against sponsors for expert reliance failures have accelerated. In January 2025, the SFC fined a bulge-bracket sponsor HKD 32 million for failing to detect that an industry expert report contained fabricated market share data for a GEM applicant. The SFC’s investigation revealed that the sponsor’s compliance team had only reviewed the report’s executive summary and accepted the expert’s “good industry standing” as sufficient verification. The SFC’s press release of 12 January 2025 specifically cited breaches of the Code of Conduct paragraphs 17.5 and 17.6, which require sponsors to “take reasonable steps to satisfy themselves that the information is accurate and complete.”

This enforcement action followed a pattern: the SFC had previously sanctioned two other sponsors in 2023 for similar failures, with fines of HKD 28 million and HKD 14 million respectively. The cumulative effect is that the SFC now treats expert reliance as a high-risk area in its sponsor inspection programme, which covers all active Type 6A licence holders on a three-year cycle. The SFC’s 2024 Annual Report noted that 67% of sponsor inspections in the year involved specific findings related to third-party expert due diligence, up from 42% in 2022.

Operational Requirements for Sponsors

Independent Verification of Expert Methodology

The HKEX’s GL117-25 mandates that sponsors must now obtain and review the expert’s full methodology document, including the data sources, sample sizes, and statistical models used. The guidance specifies that sponsors must assess whether the expert’s methodology meets the standards of the Hong Kong Institute of Certified Public Accountants (HKICPA) Practice Note 850.1 on the use of experts, which requires that the expert’s work be “objectively verifiable and based on reliable data.”

For practical implementation, the sponsor’s compliance team must now maintain a verification checklist that includes:

• A signed engagement letter from the expert confirming independence from the applicant, its directors, and its substantial shareholders
• The expert’s professional qualifications and relevant experience in the industry being analysed
• The expert’s data sources, including the names of any third-party databases used and the date of the data extraction
• The expert’s methodology for handling data gaps or conflicting sources
• A cross-reference of at least three independent data points from public sources to the expert’s conclusions

The checklist must be documented in the sponsor’s internal compliance file and made available to the HKEX upon request. The Exchange has indicated that it will request these files in a minimum of 20% of new listing applications, based on the HKEX’s 2025 Market Consultation Paper on Sponsor Due Diligence.

The “Materiality Threshold” Trap

A critical nuance in GL117-25 is the definition of “material assertion” for expert data. The HKEX has adopted a two-pronged test: any data point that (a) appears in the prospectus summary or investment highlights section, or (b) constitutes more than 10% of any financial forecast or valuation metric, must be independently verified by the sponsor. This is a departure from the previous practice where sponsors could rely on the expert’s reputation for data that was not central to the investment thesis.

The materiality threshold has direct implications for the prospectus drafting process. Sponsors must now work backward from the expert report to determine which data points fall within the threshold, then allocate verification resources accordingly. For example, if an expert report states that the applicant holds 25% market share in a specific segment, and that segment represents 12% of the applicant’s revenue forecast, the 25% figure must be independently verified through at least two independent sources—such as government trade statistics, industry association data, or competitor filings.

The HKEX’s Listing Decision LD145-2024, published on 22 November 2024, provides a cautionary example. In that case, the sponsor had verified the applicant’s market share data from the expert report but had not verified the expert’s methodology for calculating the total addressable market (TAM). The TAM figure was used to support a valuation multiple, and the HKEX found that the sponsor’s verification was insufficient because the TAM methodology had not been independently assessed. The application was returned, and the sponsor incurred an estimated HKD 4.5 million in additional costs to re-do the verification work.

Practical Compliance Protocols

The Three-Layer Verification Model

Industry best practice, as articulated in the Hong Kong Sponsor Association’s 2025 Best Practice Guide for Expert Reliance, now recommends a three-layer verification model. The first layer involves the sponsor’s corporate finance team conducting a preliminary review of the expert’s credentials and methodology. The second layer requires the sponsor’s internal compliance function to conduct a detailed verification of the expert’s data sources and methodology, including a written assessment of whether the expert’s work meets the HKICPA Practice Note 850.1 standards. The third layer involves independent external validation, typically through a second expert opinion or a commissioned audit of the original expert’s work.

The three-layer model adds approximately HKD 800,000 to HKD 1.2 million to the total listing costs for a standard Main Board application, based on fee surveys conducted by the Hong Kong Sponsor Association in Q1 2025. This cost must be factored into the sponsor’s engagement letter and budget from the outset. The HKEX has indicated that it will not accept cost as a justification for inadequate due diligence, as stated in the Exchange’s response to the 2025 Market Consultation Paper.

Documentation and Retention Requirements

The SFC’s Code of Conduct paragraph 17.7 requires sponsors to maintain records of all due diligence steps taken, including the verification of expert reports. The SFC has clarified that this includes:

• All correspondence with the expert, including email chains and meeting minutes
• The expert’s engagement letter and independence declaration
• The sponsor’s internal verification checklist and sign-off documents
• Any independent validation reports commissioned by the sponsor
• A written rationale for the sponsor’s conclusion that the expert’s work is reliable

These records must be retained for a minimum of seven years after the listing application is withdrawn or the applicant is listed, as per the SFC’s Record Keeping Guidelines for Licensed Corporations. The SFC has the power to request these records during inspections or investigations, and failure to produce them can result in disciplinary action under the Securities and Futures Ordinance (Cap. 571), Section 193.

Managing Expert Conflicts of Interest

The HKEX’s GL117-25 requires sponsors to assess whether the expert has any conflicts of interest with the applicant, its directors, or its substantial shareholders. The sponsor must obtain a written declaration from the expert confirming that no conflict exists, and must independently verify this declaration by reviewing the expert’s other engagements, shareholdings, and professional relationships.

A particular area of focus is the expert’s relationship with the applicant’s competitors. If the expert has performed work for a competitor within the past two years, the sponsor must assess whether this creates a bias in the expert’s analysis. The HKEX’s Listing Decision LD148-2025, published on 10 March 2025, rejected an application where the expert had conducted a competing market study for the applicant’s largest competitor within the same year, and the sponsor had not considered this as a potential conflict.

Actionable Takeaways for Compliance Teams

• Mandate independent verification of expert methodology for all data points that appear in the prospectus summary or constitute more than 10% of any financial forecast, as required by HKEX GL117-25 and Listing Decision LD143-2024.
• Implement a three-layer verification model that includes corporate finance review, internal compliance assessment, and independent external validation, with documented sign-offs at each layer.
• Retain all due diligence records for a minimum of seven years post-application or listing, including correspondence, engagement letters, verification checklists, and independent validation reports, to satisfy SFC Code of Conduct paragraph 17.7.
• Assess expert conflicts of interest proactively by obtaining a written independence declaration and independently verifying the expert’s relationships with the applicant, its directors, substantial shareholders, and competitors.
• Budget an additional HKD 800,000 to HKD 1.2 million per expert report for the enhanced due diligence requirements, and ensure this cost is reflected in the sponsor’s engagement letter and project budget from the initial mandate stage.