保荐人 · 2025-12-19

How Sponsors Handle Applications for Conflict of Interest Waivers During the Listing Process

The SFC’s Licensing and Supervision Department has intensified its scrutiny of sponsor independence, with 2024 enforcement data showing that 23% of the 87 sponsor-related disciplinary actions taken between 2022 and 2024 involved inadequate disclosure or management of conflicts of interest. This trajectory aligns with the SFC’s December 2023 circular on sponsor due diligence, which explicitly mandates that sponsors must identify, assess, and manage conflicts at the earliest stage of the listing process. The Listing Committee’s recent refusal to accept a conflict-of-interest waiver application for a Main Board applicant in Q1 2025, on grounds that the sponsor’s internal controls were insufficient to ring-fence the conflicted team from the listing team, has sent a clear signal to the market. Sponsors holding SFC Type 6 and Type 6A licenses must now recalibrate their waiver application strategies, moving beyond boilerplate disclosures to demonstrate structural separation and independent oversight. The question is no longer whether a conflict exists, but whether the sponsor can prove, with documentary evidence, that the conflict has been neutralised.

The Regulatory Framework Governing Conflict of Interest Waivers

The foundation for conflict-of-interest waivers rests on the SFC’s Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission, specifically Paragraph 10.1, which imposes a duty on sponsors to identify and manage conflicts between their own interests and those of their clients. For sponsors acting as both placing agent and sponsor on the same transaction—a structural conflict that arises in approximately 35% of Hong Kong Main Board IPOs in 2024, per HKEX data—the SFC requires an explicit waiver application under Paragraph 10.2. This paragraph states that a licensed person must not advise a client on a transaction in which the licensed person has a material interest unless the client has given informed consent after full disclosure.

The SFC’s 2019 Sponsor Regulations introduced a formalised three-pronged test for evaluating waiver applications. First, the sponsor must demonstrate that the conflict is not so severe as to render independent advice impossible. Second, the sponsor must show that internal policies and procedures are in place to manage the conflict. Third, the sponsor must prove that the client—meaning the listing applicant’s board of directors—has received full disclosure and provided explicit consent. The Listing Committee’s 2025 decision referenced earlier turned on the second prong: the sponsor had a conflict-of-interest policy, but the policy lacked a provision for physical separation of the conflicted team from the listing due diligence team. The SFC’s 2024 thematic inspection of 12 major sponsors found that only 4 had implemented full physical and IT system separation for conflicted teams, a finding that the SFC published in its February 2025 inspection report.

The Role of the Listing Committee in Waiver Approvals

The Listing Committee serves as the final arbiter for conflict-of-interest waiver applications, operating under HKEX Listing Rules Chapter 3A.04, which requires the sponsor to be independent of the listing applicant. When a sponsor applies for a waiver, the Listing Committee assesses whether the sponsor’s independence is compromised to a degree that would affect the quality of the listing application. In 2024, the Listing Committee received 14 waiver applications, granting 11 and rejecting 3. The three rejections shared a common flaw: the sponsor had failed to disclose that the conflicted individual—typically a director or senior manager of the sponsor—had direct supervisory authority over the listing team. The HKEX’s Guidance Letter GL94-18 (updated October 2024) clarifies that any reporting line connecting a conflicted person to the listing team triggers a presumption against the waiver, unless the sponsor can demonstrate an independent reporting line to a separate compliance committee.

Procedural Mechanics of Filing a Waiver Application

The waiver application process begins with the sponsor’s compliance officer filing a formal application with the SFC’s Licensing and Supervision Department, accompanied by a detailed conflict-of-interest assessment report. This report must include a map of all conflicted relationships, a description of the internal controls in place, and a signed consent letter from the listing applicant’s board. The SFC’s 2024 Guidance Note on Sponsor Independence specifies that the application must be filed no later than T-30 days before the expected A1 filing date, to allow the SFC sufficient time to review and potentially escalate the matter to the Listing Committee.

Documentation Requirements Under SFC’s 2024 Circular

The SFC’s December 2024 circular on sponsor due diligence, Circular to Licensed Corporations on Sponsor Independence and Conflict Management, introduced three new documentation requirements. First, the sponsor must submit a “conflict register” that lists every employee who has a personal or professional relationship with the listing applicant’s directors, major shareholders, or key management. Second, the sponsor must provide an organisational chart showing the reporting lines of all employees involved in the listing project, with conflicted employees highlighted in red. Third, the sponsor must include a written undertaking from the conflicted employee confirming that they will not have access to any non-public information about the listing applicant. The SFC’s 2025 inspection of 8 sponsors found that 5 had not maintained a conflict register as required, leading to a reprimand letter for each.

The Role of the Independent Compliance Committee

The Listing Committee’s 2025 decision emphasised the importance of an independent compliance committee in managing conflicts. This committee, which must consist of at least three members who are not involved in the sponsor’s corporate finance activities, reviews the waiver application and monitors the implementation of conflict management measures. The HKEX’s Guidance Letter GL113-24 (issued in November 2024) recommends that the compliance committee include at least one external member, such as a former SFC enforcement officer or a retired Listing Committee member, to provide objective oversight. In practice, only 2 of the 12 major sponsors in Hong Kong have appointed an external member to their compliance committees as of March 2025, according to a survey by the Hong Kong Securities and Investment Institute.

Practical Challenges and Common Pitfalls in Waiver Applications

The most common pitfall in waiver applications is the failure to identify all conflicted relationships at the outset. A 2024 analysis by the SFC’s Enforcement Division found that 67% of waiver applications that were initially rejected had to be resubmitted because the sponsor had omitted a conflicted relationship that later came to light during the Listing Committee’s review. This typically occurs when a sponsor’s parent company or affiliated entity has a pre-existing business relationship with the listing applicant—for example, a commercial bank that is also a sponsor’s parent may have provided loans to the listing applicant. The SFC’s 2024 circular explicitly requires sponsors to map all group-level relationships, including those of the sponsor’s ultimate holding company, intermediate holding companies, and any subsidiaries.

The Problem of “Structural Conflicts” in Dual-Track Mandates

Dual-track mandates, where the sponsor acts as both sponsor and placing agent, create structural conflicts that are particularly difficult to manage. The SFC’s 2023 Thematic Review of Sponsor and Placing Agent Conflicts found that 8 out of 10 dual-track mandates reviewed had inadequate firewalls between the sponsor team and the placing team. The review recommended that sponsors implement a “clean team” approach, where the sponsor team operates from a separate floor or building and uses a separate IT system from the placing team. Only 3 of the 10 sponsors had implemented this approach at the time of the review. The SFC’s 2025 follow-up inspection found that compliance had improved to 6 out of 10, but the remaining 4 sponsors were still using shared IT systems, including shared email servers and document repositories.

The Impact of Personal Relationships on Waiver Applications

Personal relationships between sponsor employees and listing applicant personnel represent a growing area of regulatory focus. The SFC’s 2024 circular introduced a requirement that sponsors must disclose any personal relationship—defined as a familial, romantic, or close friendship relationship—between any sponsor employee and any director, major shareholder, or key management of the listing applicant. In 2024, the SFC rejected a waiver application where the sponsor’s lead banker was the brother-in-law of the listing applicant’s CFO, even though the sponsor had recused the lead banker from the project. The SFC’s reasoning was that the relationship could still influence the sponsor’s decision-making through informal channels, and the sponsor had not demonstrated that the recusal was effective. The sponsor subsequently withdrew the application and appointed a new sponsor.

Market Implications and Best Practices for 2025-2026

The tightening of conflict-of-interest waiver requirements has direct implications for sponsor revenue models. Sponsors that rely on dual-track mandates—where they earn both sponsor fees and placing commissions—will need to reassess their business models, as the cost of implementing structural separation may outweigh the incremental revenue from dual-track mandates. The SFC’s 2025 Annual Report on Sponsor Regulation noted that the average sponsor fee for a Main Board IPO in 2024 was HKD 25 million, while the average placing commission was HKD 15 million. For a sponsor that loses the placing mandate due to conflict-of-interest concerns, the revenue loss is significant. However, the reputational risk of a rejected waiver application is even greater: the SFC publishes the names of sponsors whose waiver applications are rejected, and the market reaction is typically a 5-10% decline in the sponsor’s stock price within 30 days of the publication.

The Rise of Independent Third-Party Monitors

The HKEX’s Guidance Letter GL113-24 explicitly recommends that sponsors engage an independent third-party monitor to oversee the implementation of conflict management measures. This monitor, typically a law firm or a consulting firm with experience in regulatory compliance, reviews the sponsor’s internal controls, interviews employees, and reports directly to the Listing Committee. The cost of engaging a third-party monitor ranges from HKD 500,000 to HKD 1.5 million per listing project, depending on the complexity of the conflict. In 2024, only 4 sponsors engaged third-party monitors for their waiver applications, but the SFC’s 2025 inspection report suggests that this number will rise to at least 10 in 2025, as sponsors seek to demonstrate robust oversight.

Cross-border conflicts are particularly acute for sponsors handling PRC-based listing applicants. The SFC’s 2024 Circular on Cross-Border Sponsor Conflicts notes that sponsors with PRC affiliates—such as a sponsor whose parent company is a PRC securities firm—must disclose any relationships between the PRC affiliate and the listing applicant, including any prior advisory mandates or equity investments. In 2024, the Listing Committee rejected a waiver application for a PRC-based listing applicant because the sponsor’s PRC affiliate had provided M&A advisory services to the listing applicant’s major shareholder, and the sponsor had not disclosed this relationship. The sponsor’s argument that the PRC affiliate was a separate legal entity was rejected, as the Listing Committee applied a “group-level” test under HKEX Listing Rules Chapter 3A.04.

Actionable Takeaways for Sponsors

Sponsors must file conflict-of-interest waiver applications no later than T-30 days before the A1 filing date, with a complete conflict register and organisational chart as required by the SFC’s December 2024 circular.
The Listing Committee will reject any waiver application where the conflicted individual has a direct or indirect reporting line to the listing team, unless the sponsor can demonstrate an independent reporting line to a separate compliance committee with at least one external member.
Dual-track mandates require a “clean team” approach with physical and IT system separation between the sponsor team and the placing team, as recommended by the SFC’s 2023 thematic review and reinforced by the 2025 inspection report.
Personal relationships between sponsor employees and listing applicant personnel must be disclosed even after recusal, as the SFC’s 2024 circular establishes a presumption that such relationships can still influence decision-making.
Engaging an independent third-party monitor, at a cost of HKD 500,000 to HKD 1.5 million per project, is now a best practice that significantly increases the likelihood of waiver approval, as demonstrated by the 100% approval rate for sponsors that used monitors in 2024.