① The Hong Kong Securities and Futures Commission has once again issued a circular on sponsor‑related work; since January, conditions have improved, with both business concentration and staff workload having declined markedly.
② The regulator has also urged sponsors and other gatekeepers in the IPO process to remain vigilant against opaque arrangements involving both the IPO and post‑listing activities.
More than eight months after the issuance of its circular on January 30, the Hong Kong Securities and Futures Commission has once again released a circular concerning sponsor activities.
On October 13, the Hong Kong Securities and Futures Commission issued a circular, with its key findings falling into two main areas: first, it affirmed that sponsor performance has improved since January this year, as evidenced by enhanced resources and strengthened capabilities among key personnel, along with a marked decline in business concentration and staff workload; second, it urged sponsors and other gatekeepers in initial public offerings (IPOs) to further strengthen their oversight efforts and remain vigilant against opaque practices in both the IPO process and post‑listing activities, including suspected provision of undisclosed subscription funds or guaranteed returns to designated investors, as well as concealment of the identities of ultimate investors.
In stark contrast to the January circular this year, which focused on identifying and addressing gaps by directing sponsors to promptly conduct internal reviews and rectify serious deficiencies in the preparation of offering documents, this latest circular serves as an interim assessment of the effectiveness of corrective measures and, beyond that evaluation, establishes new regulatory red lines.
SFC Chief Executive Officer Leung Fung-yee stated that she welcomes the progress the market has made since January. While most market participants comply with the rules, intermediaries must remain vigilant to various red flags associated with suspicious arrangements and challenge any irregularities. The SFC will not hesitate to take enforcement action against the small number of individuals who seek to undermine market fairness, order, and integrity.
Upon review, this circular features three significant developments that warrant attention.
First, the effectiveness of easing the burden on sponsors is becoming quantitatively evident. The share of pending IPO applications involving the five most active sponsors has declined from 77% in January to 65% in September; between January 30 and September 30, the number of newly approved key personnel increased by 65% year over year, while both the number of sponsors facing excessive workloads and the number of key personnel under such burdens fell by 78%.
Second, regulatory scrutiny has not been relaxed. From January to September this year, the China Securities Regulatory Commission issued additional written inquiries to 11 sponsoring institutions, focusing on the substantive nature of the listing applicants' businesses and whether the sponsors' due diligence and responses adequately addressed these concerns. During the same period, a total of 65 listing applications were placed under suspension, whereas at the time of the circular's disclosure in January, only 16 applications were suspended.
Third, regulators are targeting "opaque arrangements" in IPOs, drawing new red lines. This circular specifically identifies suspicious practices, noting that listing applicants may have provided undisclosed subscription funds or guaranteed returns to designated investors or related parties. Warning signs include significant pre‑ or post‑IPO advances, loans, investments, or other financial transactions that could benefit IPO investors or their affiliates, as well as arrangements that may conceal the identities of ultimate investors.
Developments: Pressure on sponsor resources has eased, and business concentration has declined.
The circular indicates that, since January, there have been signs of improvement in sponsors' resources and the capabilities of their key personnel. Sponsors have implemented constructive measures to alleviate resource constraints and enhance the allocation of responsibilities among key staff.
Data show a marked improvement. According to the Hong Kong Securities and Futures Commission, the distribution of sponsor activities across the market has become more diversified: the share of pending listing applications involving the five most active sponsors has declined from 77% as of January to 65% as of September.
Meanwhile, staffing bottlenecks are also being addressed. The Hong Kong Securities and Futures Commission has accelerated the processing of newly submitted key‑person appointment applications; from January 30 to September 30, the number of approved new key persons increased by 65% compared with the same period in 2025. In addition, the number of active listing applications, sponsors, and signing key persons all rose over the first nine months; the average workload of signing key persons has also eased, with both the number of sponsors reporting excessive burdens on their key personnel and the number of key persons experiencing such burdens declining by 78%.
It is worth noting that the aforementioned changes are directly linked to the stringent requirements set forth in the January circular. At that time, the circular mandated that all sponsors disclose the ratio between their listed sponsorship projects and the number of key personnel; sponsors with six or more ongoing review‑stage projects under their supervision were required to submit corrective action and resource‑allocation plans, and stricter examination requirements were imposed on practitioners.
Developing Story Two: The suspension of review proceedings remains in force, with 65 IPO applications halted through the first nine months.
Despite overall positive indicators, the China Securities Regulatory Commission emphasized that certain listing application documents still contain deficiencies.
The circular disclosed that the Hong Kong Securities and Futures Commission has noted that certain listing application documents still contain deficiencies. Between January and September this year, it issued additional written communications to 11 sponsors, expressing concerns regarding the substantive nature of the applicants' businesses, as well as whether the sponsors' due diligence and responses were adequate.
During this period, a total of 65 listing applications were placed on hold. By contrast, the January circular indicated that as of December 31, 2025, only 16 applications remained suspended. The frequency with which this regulatory tool—"suspension of review"—is employed has increased markedly.
The CSRC reiterated that sponsors should continuously and diligently allocate their resources and capabilities, and place great emphasis on maintaining the quality of their work.
Developing Trend No. 3: Regulators Target Opaque IPO Arrangements, Setting New Red Lines
Compared with the assessment of remediation outcomes, the more significant aspect of this circular lies in the fact that Hong Kong regulators have, for the first time, systematically targeted opaque post‑IPO and post‑listing funding arrangements.
The Securities and Futures Commission of Hong Kong stated that it has identified certain initial public offerings involving suspicious arrangements and is deeply concerned. It appears that the listing applicants may have provided undisclosed subscription funds or guaranteed returns to designated investors or persons connected with them. In the regulator's view, such arrangements distort genuine investor demand, undermine market integrity and stability, and compromise the fairness of the price‑discovery process. Moreover, misleading disclosures and potential post‑listing manipulation of trading activities could harm retail investors.
The circular sets out specific red flags, including instances where a listing applicant makes substantial pre‑payments, loans, investments, or other financial transactions shortly before or after the listing—activities that may benefit the IPO investors or persons connected to them—and arrangements that may conceal the identity of the ultimate investors.
The scope of responsible parties has also expanded accordingly. The CSRC urges sponsors, overall coordinators, and capital market intermediaries to remain vigilant about the aforementioned red flags, requiring gatekeepers to conduct further inquiries when doubts arise, promptly report any concerns, and, where appropriate, notify both the CSRC and the Stock Exchange of Hong Kong. This means that the duty of "gatekeeping" is extending from the sponsorship stage to the underwriting stage, with all types of intermediaries along the issuance chain now brought into the network of responsibilities for early warning and reporting.
Edited by melody