Hong Kong IPO bonanza leaves compliance teams struggling to keep up
Control Rooms and Compliance teams in Hong Kong are under pressure. On the one hand, a surge in deal activity has led to a major rise in workload. On the other, the SFC is being increasingly proactive in clamping down on perceived misconduct in securities markets. Together it is a perfect storm.
The resurgence of equity capital markets (ECM) activity in Hong Kong over the past two years has largely put an end to speculation about the city losing relevance in global markets. However, shadowing the rise in capital markets activity has been a less positive development – a rise in SFC enforcement activity for insider dealing, false trading and market manipulation cases.
This has been underlined in dramatic style by the SFC raids of CITIC and Guotai Junan’s Hong Kong securities units this week. While the details of the case(s) under investigation remain to be seen, this underlines the strong steps the SFC is taking to underpin the reputation of Hong Kong’s markets. Firms should consider whether their framework for detecting and preventing market misconduct would pass muster under this heightened scrutiny.
In parallel, new rules introduced in 2022 intended to strengthen controls around the bookbuilding process are facing a stress test. In many firms, these new controls are bedding in at the same time as volumes of activity reach new highs. At this juncture it would be typical to review the implementation of the new regime, and affirm that controls are working as intended. Many firms will struggle to find compliance resource to do so in the current climate.
How ComplyCraft can help
ComplyCraft are experts in designing compliance frameworks for ECM activity. We can assist firms to:
Take practical steps to ensure that the SFCs bookbuilding rules have been implemented fully and are working effectively
Design frameworks to detect and prevent market misconduct in the IPO process
Review individual deals to identify potential control weaknesses