HKEX Requirements for Sponsor Communication Records During the Listing Application

The SFC’s 2024 enforcement report recorded 12 actions against sponsor firms for deficient due diligence, with a significant portion of findings centering on failures to document the timing, substance, and participants of oral communications with listing applicants. This pattern has intensified scrutiny on the adequacy of communication records maintained during the listing application process. For sponsors holding SFC Type 6 (advising on corporate finance) and Type 6A (sponsor) licences, the HKEX’s expectations under the Listing Rules, particularly Main Board Rule 3A.02 and GEM Rule 6A.02, combined with the SFC’s Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (the “Code of Conduct”), now demand a forensic standard of record-keeping for every substantive interaction with an applicant, its directors, and its professional advisers. The 2025 update to the HKEX’s “Guidance for Listing Applicants and their Sponsors” (GL57-13) has further codified these expectations, making the absence of contemporaneous, verifiable records a near-automatic trigger for additional enquiries from the Listing Division. This article examines the specific regulatory requirements, the mechanics of compliant record-keeping, and the practical consequences of non-compliance, drawing on recent Listing Committee decisions and SFC disciplinary outcomes.

The Regulatory Framework for Sponsor Communication Records

The Convergence of HKEX Listing Rules and SFC Codes of Conduct

The obligation to maintain comprehensive communication records derives from a dual regulatory framework. Under HKEX Main Board Rule 3A.02, a sponsor must exercise “reasonable skill, care and diligence” in performing its duties, which the HKEX has consistently interpreted to include the creation and preservation of a complete audit trail of all material interactions with the applicant. This is reinforced by the SFC’s Code of Conduct, Paragraph 17.1, which requires licensed persons to “keep proper books and records” that are “sufficient to explain the transactions and dealings of the licensed corporation” and to enable the SFC to ascertain compliance with all relevant ordinances, rules, and codes.

The SFC’s 2019 “Guidance Note on the Due Diligence Obligations of Sponsors” (the “Sponsor Guidance Note”) at paragraph 3.4 explicitly states that sponsors should “maintain a written record of all material communications with the listing applicant, its directors, and its professional advisers.” The HKEX’s GL57-13, updated in January 2025, at paragraph 4.2.1, requires that “all material discussions, including but not limited to those concerning the business model, financial projections, and key risk factors, shall be documented in a manner that is contemporaneous, complete, and attributable to specific individuals.”

The Definition of “Material Communication” in Practice

The regulatory framework does not limit “material communication” to formal meetings or written correspondence. The HKEX’s Listing Committee, in its decision dated 15 March 2024 (HKEX-LD-2024-003), held that telephone calls, instant messaging exchanges, and even informal conversations during site visits constitute “material communications” where they relate to the listing application. The Committee emphasised that the test is whether the communication “could reasonably be expected to influence a reasonable investor’s decision to subscribe for or purchase the securities of the applicant.”

This interpretation has practical implications. A sponsor’s compliance team must now treat every interaction with the applicant’s CFO, CEO, or key operational personnel as potentially subject to the record-keeping requirement. The SFC’s 2023 disciplinary action against Sponsor A (SFC Enforcement News, 12 September 2023) cited the failure to record 14 telephone calls with the applicant’s chief financial officer over a three-month period as a contributing factor to the HKD 10 million fine imposed.

The Timing and Retention Requirements

The HKEX requires that communication records be created “contemporaneously” with the communication itself. GL57-13 at paragraph 4.2.3 states that notes prepared “more than 48 hours after the communication” will be treated as non-contemporaneous and may be given reduced evidentiary weight in any subsequent regulatory enquiry. The retention period for these records is no less than seven years from the date of the listing application’s withdrawal or the commencement of dealings in the applicant’s securities on the Exchange, as specified under the Securities and Futures (Keeping of Records) Rules (Cap. 571I, Section 3).

Practical Mechanics of Compliant Record-Keeping

Structuring the Communication Log

A compliant communication record system must capture, at a minimum, the following data points for each material interaction: date and time (including time zone), participants (full names and roles), medium (in-person meeting, telephone, video conference, email, instant message), the specific topics discussed, any decisions or action items arising, and the identity of the person preparing the record. The SFC’s Sponsor Guidance Note at paragraph 3.4.2 recommends that the record be “signed or initialled by the person who prepared it and, where practicable, reviewed by a second person within the sponsor team.”

The HKEX’s Listing Division, in its 2024 thematic review of sponsor work papers (HKEX-2024-Thematic-Review-03), found that 68% of deficiencies in communication records related to the absence of one or more of these data points. The most common omission was the failure to identify all participants, particularly when external advisers such as legal counsel or accountants were present.

The Role of Technology in Record-Keeping

While the HKEX and SFC do not prescribe specific technology solutions, the use of dedicated case management systems with integrated communication logging functionality is now considered industry best practice. The SFC’s 2022 “Report on Thematic Inspection of Sponsors” noted that firms using manual or spreadsheet-based systems were 3.2 times more likely to receive a deficiency finding in a routine inspection than those using automated systems with mandatory field completion.

The system should provide for the attachment of supporting documents—presentation decks, meeting agendas, follow-up correspondence—and should timestamp the entry at the point of creation. The HKEX’s GL57-13 at paragraph 4.2.5 recommends that the system “prevent the backdating of entries and maintain an immutable audit trail of all changes made to the record after its initial creation.”

Handling Oral Communications and Ad Hoc Discussions

Oral communications present the greatest compliance challenge. The HKEX’s Listing Committee, in HKEX-LD-2024-003, held that “the absence of a written record of an oral communication will be presumed, in the absence of compelling evidence to the contrary, to mean that the communication did not occur or that its content was not as subsequently represented by the sponsor.”

This presumption places a heavy burden on sponsors to document all oral communications promptly. The practical approach adopted by leading sponsor firms involves the use of standardised call notes templates that are completed within 30 minutes of the conclusion of a call and circulated to all participants for confirmation. The SFC’s Sponsor Guidance Note at paragraph 3.4.3 states that “where a participant disputes the accuracy of a note, the sponsor should document the dispute and the resolution of the dispute in the record.”

Consequences of Non-Compliance and Recent Enforcement Trends

SFC Enforcement Actions and Penalties

The SFC has demonstrated a consistent willingness to impose significant financial penalties for record-keeping failures, even where the underlying due diligence was ultimately adequate. In the 2023 action against Sponsor A, the SFC imposed a HKD 10 million fine and a 12-month suspension of the sponsor’s licence to act as a sponsor for new listing applications, citing the “systematic failure to maintain proper records of communications with the listing applicant” as the primary aggravating factor (SFC Enforcement News, 12 September 2023).

The SFC’s 2024 enforcement report noted that the average fine for record-keeping failures in sponsor cases had increased to HKD 8.5 million, up from HKD 4.2 million in 2022. The report also highlighted that the SFC had commenced proceedings against two individual sponsor principals for personal liability under Section 213 of the Securities and Futures Ordinance (Cap. 571) for their role in approving deficient record-keeping systems.

HKEX Listing Division Referrals and Listing Committee Decisions

The HKEX’s Listing Division has the power to refer cases of suspected record-keeping failures to the SFC for investigation. In 2024, the Division made 7 such referrals, up from 3 in 2022. The Listing Committee, in its decision dated 10 October 2024 (HKEX-LD-2024-012), refused to allow a listing application to proceed where the sponsor had failed to provide contemporaneous records of 22 meetings with the applicant’s management team over a six-month period, concluding that “the absence of such records prevents the Exchange from being satisfied that the sponsor has discharged its obligations under Main Board Rule 3A.02.”

The practical consequence of such a refusal is significant: the applicant must either engage a new sponsor and restart the application process, or the sponsor must conduct a retrospective reconstruction of the communications, a process that the HKEX has stated will be “viewed with extreme scepticism” and will likely result in additional conditions being imposed on the listing.

The Impact on Sponsor Licensing and Renewal

The SFC’s licensing regime for Type 6 and Type 6A licences now incorporates record-keeping compliance as a specific factor in the fit and proper assessment. The SFC’s “Guidelines on the Fit and Proper Criteria for Licensed Persons” (December 2023 revision) at paragraph 3.2.1 includes “the adequacy of the licensed corporation’s systems and controls for maintaining proper records” as a consideration in determining whether a licence should be granted or renewed.

Firms with a history of record-keeping deficiencies may face enhanced supervision conditions, including mandatory quarterly reporting to the SFC on their record-keeping systems and the appointment of an external compliance consultant at the firm’s expense. The SFC’s 2024 enforcement report noted that 4 sponsor firms were currently operating under such enhanced supervision conditions, with the associated compliance costs estimated at HKD 2-3 million per firm per year.

Practical Recommendations for Sponsor Compliance Teams

Implement a Pre-Approved Communication Logging Protocol

Every sponsor engagement should commence with the establishment of a written protocol, approved by the firm’s compliance officer, that specifies the format, timing, and review process for communication records. This protocol should be shared with the listing applicant and its professional advisers at the outset of the engagement, so that all parties are aware of the record-keeping expectations.

Conduct Periodic Internal Audits of Communication Records

The SFC’s Sponsor Guidance Note at paragraph 3.4.5 recommends that sponsors conduct “periodic internal audits of their communication records to identify any gaps or deficiencies.” A quarterly audit, sampling at least 20% of all recorded communications, is considered industry best practice. Any deficiencies identified should be remediated within 5 business days, with a written report to the firm’s compliance committee.

Train All Team Members on Record-Keeping Obligations

All personnel involved in the listing application process, including junior analysts and administrative staff, should receive annual training on the record-keeping requirements. The training should cover the definition of material communications, the proper use of the firm’s case management system, and the consequences of non-compliance. The SFC’s 2024 thematic inspection report noted that firms with mandatory annual training had a 45% lower rate of record-keeping deficiencies than those without such training.

Retain External Counsel for Record-Keeping System Reviews

Given the increasing complexity of the regulatory requirements, engaging external legal counsel with specialist knowledge of sponsor compliance to conduct a biennial review of the firm’s record-keeping systems is a prudent investment. The review should assess whether the systems are capable of meeting the standards set out in GL57-13 and the SFC’s Sponsor Guidance Note, and should provide a written opinion on any gaps identified.