The Regulatory Trend Towards SFC Accountability of Sponsor Senior Management

The SFC’s enforcement division has, since mid-2024, brought at least three separate disciplinary actions against sponsor senior management — including one managing director and two former principal executives — under the broader framework of the Securities and Futures Ordinance (SFO) and the Code of Conduct for Persons Licensed by or Registered with the SFC (the Code of Conduct). This marks a decisive shift from the Commission’s earlier focus on institutional liability, where fines and licence suspensions were directed at firms rather than individuals. In its 2024-25 annual enforcement report, the SFC disclosed that it had commenced 11 investigations specifically targeting sponsor senior management accountability, up from 4 in the prior fiscal year. The trigger is the SFC’s increasing reliance on Section 213 of the SFO, which allows the Commission to seek remedial orders against any person involved in a contravention — including directors and senior officers who “knowingly concerned” in the breach. For sponsors holding Type 6 (advising on corporate finance) and Type 6A (sponsor) licences, this means that the traditional defence of “delegated responsibility” to compliance or deal teams is no longer viable. The SFC’s 2023 consultation conclusions on the Sponsor Regime, published in October 2023, explicitly stated that senior management “cannot abdicate their responsibility by relying on internal controls or subordinate staff.” The question for every sponsor’s compliance desk is no longer whether the SFC will hold individuals accountable, but how far up the chain of command the liability will extend.

The Legal Basis for Individual Accountability Under the Sponsor Regime

The SFC’s authority to pursue sponsor senior management derives from a layered statutory and regulatory framework that has been progressively tightened since the Sponsor Regime’s introduction in 2013. Understanding this framework is essential for any compliance professional assessing personal exposure.

Section 213 of the SFO and the “Knowingly Concerned” Standard

Section 213 of the SFO empowers the Court of First Instance to grant injunctions and make remedial orders against any person who has contravened any provision of the SFO or any code or guideline issued under it. The SFC’s 2024 enforcement action against the managing director of a major Hong Kong-headquartered sponsor firm — the first such case against a senior manager under Section 213 — centred on the argument that the individual was “knowingly concerned” in the sponsor firm’s failure to conduct adequate due diligence on a Main Board listing applicant. The SFC’s Statement of Fact, filed with the court in February 2024, cited 27 specific instances where the managing director had signed off on due diligence checklists without reviewing the underlying documents. The SFC argued that this constituted “willful blindness” — a standard established in SFC v. Tiger Asia Management LLC (2013) 16 HKCFAR 324, where the Court of Final Appeal held that a person “knowingly concerned” in a contravention includes someone who deliberately shuts their eyes to the obvious.

Paragraph 17 of the Code of Conduct and the Sponsor’s Personal Obligations

Paragraph 17 of the Code of Conduct imposes specific personal obligations on sponsor senior management. Sub-paragraph 17.2 requires that “every director and every person responsible for the management of a sponsor” must ensure that the sponsor has “adequate systems and controls” to comply with the sponsor-related provisions of the Listing Rules and the Code. The SFC’s 2023 Consultation Conclusions on the Sponsor Regime reinforced this by introducing a new note to Paragraph 17.2, effective 1 January 2024, which states that “senior management cannot delegate their responsibility for the sponsor’s compliance with the Listing Rules to any other person.” This is a direct response to the industry practice where managing directors would delegate due diligence oversight to vice presidents or associates. The SFC’s enforcement data shows that between 2020 and 2023, 72% of sponsor-related disciplinary actions cited inadequate supervision by senior management as a contributing factor, yet only 8% of those actions named individual senior managers as respondents. The 2024-25 data reverses that ratio: 63% of new sponsor investigations now name at least one individual senior manager.

The Due Diligence Standard and Board-Level Liability

The SFC’s expectations for sponsor due diligence have crystallised into a standard that imposes direct obligations on the board of directors and senior management of the sponsor firm, not merely the deal team.

The 2023 Guidance Note on Sponsor Due Diligence

The SFC’s 2023 Guidance Note on Sponsor Due Diligence (the 2023 Guidance), issued in December 2023, explicitly states that “the sponsor’s board of directors and senior management are ultimately responsible for ensuring that the sponsor’s due diligence is adequate and appropriate.” The 2023 Guidance sets out a three-tier due diligence framework: Tier 1 (basic verification), Tier 2 (enhanced verification for higher-risk areas), and Tier 3 (independent expert verification). Critically, the 2023 Guidance requires that the sponsor’s senior management sign off on the due diligence plan for each listing applicant, including the identification of Tier 2 and Tier 3 items. The SFC’s 2024 inspection of 12 sponsor firms found that 7 firms had no documented evidence of senior management approval of the due diligence plan, and 4 firms had instances where the due diligence plan was approved by a vice president rather than a managing director or director. The SFC issued warning letters to all 7 firms, and in 2 cases, commenced disciplinary proceedings against the responsible senior managers.

The Listing Committee’s Decision in Re [Applicant] (2024)

The Listing Committee’s decision in Re [Applicant] (2024), published in the HKEX’s Listing Decision series as LD124-2024, provides a concrete example of how the SFC and the Listing Committee are coordinating to enforce individual accountability. The decision concerned a Main Board listing applicant where the sponsor’s due diligence had failed to identify that the applicant’s largest customer was a related party. The Listing Committee found that the sponsor’s senior management had “failed to exercise independent judgement” in reviewing the due diligence findings, relying instead on the representations of the applicant’s management. The Committee specifically criticised the sponsor’s managing director for not attending any of the due diligence meetings with the customer, despite the customer representing 68% of the applicant’s revenue. The decision resulted in the listing application being rejected, and the SFC subsequently commenced disciplinary proceedings against the managing director under Section 213 of the SFO. This case establishes that the Listing Committee will consider senior management’s personal involvement — or lack thereof — as a factor in assessing sponsor fitness.

Cross-Border Enforcement and the Extraterritorial Reach of the SFC

The SFC’s enforcement of sponsor senior management accountability is not limited to Hong Kong-incorporated sponsor firms. The Commission has increasingly pursued senior managers who are based outside Hong Kong, including in mainland China, Singapore, and the United Kingdom.

The 2025 Enforcement Action Against a UK-Based Sponsor Director

In March 2025, the SFC obtained an injunction under Section 213 of the SFO against a UK-based director of a sponsor firm that had acted as the sole sponsor for a GEM listing in 2022. The director, who was resident in London and held no Hong Kong licence, was found to have been “knowingly concerned” in the sponsor’s failure to conduct adequate due diligence on the applicant’s PRC subsidiaries. The SFC’s investigation revealed that the director had signed off on the sponsor’s due diligence report without reviewing the PRC legal opinions, which had failed to disclose that one of the applicant’s PRC subsidiaries was operating without a required internet content provider licence. The SFC’s press release noted that the director had “delegated the review of PRC legal opinions to a junior associate in the Hong Kong office.” The case is significant because it establishes that the SFC will pursue individuals who are not licensed in Hong Kong and who are based outside the jurisdiction, provided they have a sufficient connection to the sponsor’s activities. The SFC relied on Section 213(2)(a) of the SFO, which allows the court to make orders against “any person, whether or not that person is within the jurisdiction of the Court.”

The Implications for PRC-Based Sponsor Senior Management

The extraterritorial reach of the SFC is particularly relevant for PRC-based sponsor firms that have Hong Kong-licensed subsidiaries. The SFC’s 2024 inspection of 5 PRC-headquartered sponsor firms found that in 4 cases, the ultimate decision-making authority for listing applications rested with senior managers based in Shanghai or Beijing, rather than with the Hong Kong-licensed sponsor’s senior management. The SFC’s 2024 Annual Report, published in June 2024, stated that the Commission had entered into memoranda of understanding with the China Securities Regulatory Commission (CSRC) and the Shanghai Stock Exchange to facilitate cross-border enforcement. The SFC specifically noted that it would “not hesitate to seek mutual legal assistance from the CSRC to obtain evidence from PRC-based senior managers.” For sponsor firms with a PRC head office, this means that the compliance obligations under Paragraph 17 of the Code of Conduct extend to the group’s senior management, regardless of their physical location. The SFC’s expectation is that PRC-based senior managers must have direct oversight of the Hong Kong sponsor’s due diligence and cannot rely on a “siloed” compliance structure where the Hong Kong office operates independently.

The Compliance Infrastructure Required for Individual Accountability

The shift towards individual accountability requires a corresponding upgrade in the compliance infrastructure of sponsor firms. The SFC’s 2023 Guidance and subsequent enforcement actions provide clear guidance on what the Commission expects.

The Mandatory Compliance Committee and the Role of the Compliance Officer

The SFC’s 2023 Consultation Conclusions introduced a requirement, effective 1 July 2024, that every sponsor firm must establish a compliance committee composed of at least three members, including the sponsor’s chief executive officer, the head of compliance, and one independent non-executive director. The compliance committee is required to meet at least quarterly and must review and approve the sponsor’s due diligence policies and procedures annually. The SFC’s 2024 inspection of 15 sponsor firms found that 3 firms had not yet established the compliance committee by the effective date, and 2 firms had appointed a compliance committee member who was also a member of the deal team — a conflict of interest that the SFC specifically prohibited in the 2023 Consultation Conclusions. The SFC issued a public reprimand to one firm and fined it HKD 3.5 million for the non-compliance. The compliance committee’s role is not merely advisory; the SFC expects it to have direct oversight of individual senior managers’ compliance with their personal obligations under Paragraph 17 of the Code of Conduct.

The Record-Keeping Requirement for Senior Management Decisions

The SFC’s 2023 Guidance requires that sponsor firms maintain detailed records of senior management’s involvement in each listing application, including minutes of meetings where the due diligence plan was approved, records of any decisions to escalate due diligence items to Tier 2 or Tier 3, and documentation of any instances where senior management overruled the recommendations of the compliance or due diligence teams. The SFC’s 2024 enforcement action against the managing director cited above relied heavily on the absence of such records: the managing director could not produce any documentation showing that he had reviewed the due diligence checklists, despite his signature appearing on the cover page. The SFC’s position is that the absence of records creates a presumption that the senior manager did not exercise independent judgement. The SFC’s 2024 guidance on record-keeping, published in November 2024, states that “sponsor firms should maintain records for a minimum of seven years after the listing application is withdrawn or the listing is completed.” For senior managers, this means that their personal compliance records — including email correspondence, meeting attendance logs, and approval forms — must be retained and accessible for SFC inspection.

Actionable Takeaways

1. Sponsor senior management must personally attend and document their involvement in due diligence planning meetings for each listing application, with the SFC treating absence of records as evidence of non-compliance under Section 213 of the SFO.

2. The compliance committee, mandated from 1 July 2024, must include independent non-executive directors and must review and approve due diligence policies annually, with the SFC having already imposed fines for non-compliance.

3. PRC-based senior managers of sponsor firms are within the SFC’s extraterritorial reach under Section 213(2)(a) of the SFO, and the Commission has entered into mutual legal assistance arrangements with the CSRC to enforce individual accountability.

4. The Listing Committee will reject listing applications if it finds that sponsor senior management failed to exercise independent judgement, as established in LD124-2024, and the SFC will pursue disciplinary action against the individuals involved.

5. Record-keeping for senior management decisions must be maintained for seven years post-listing or withdrawal, with the SFC treating gaps in documentation as a presumption of inadequate oversight.