SFC issues new guidance to tighten risk controls on IPO financing services

This includes the requirement to collect minimum upfront deposits from clients.

The Securities and Futures Commission (SFC) has issued new guidance to licensed corporations (LCs) on IPO subscription and financing.

In a circular released on 20 March, the SFC outlined enhanced standards of conduct and control measures to better protect investors and maintain the integrity of the market. The move follows a recent review by the regulator, which uncovered deficiencies in the IPO financing activities of certain LCs.

The SFC’s review found some firms accepted IPO subscription orders far beyond their clients’ financial means, focusing more on potential subscription rates than on clients’ ability to repay. This raised concerns about over-leveraging and increased default risks.

In response, the SFC now requires LCs to collect minimum upfront deposits, assess the financial positions of both clients and the firms themselves, and properly segregate client funds. LCs must also comply with investor identification rules under the FINI platform.

“It is of utmost importance to ensure that both licensed corporations and investors are effectively managing their risks when participating in IPO subscription activities,” said Eric Yip, SFC’s executive director of intermediaries. “This circular aims to provide clear guidance on the SFC’s expected conduct, thus promoting continuous healthy growth of our capital markets.”

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