Compliance issues for domestic enterprises listing in Hong Kong

The enthusiasm of domestic enterprises to list in Hong Kong has exploded of late. Certain seemingly minor non-compliance matters can, if not properly handled, also have an adverse impact on the implementation of a project. This column proposes some ideas to solve and explore the categorization and requirements of Hong Kong Exchanges and Clearing (HKEx) with regards to the disclosure of non-compliance matters.

Pursuant to its guidance letter, HKEX-GL63-13, HKEx divides non-compliance incidents into three categories, namely material impact non-compliances, systemic non-compliances and immaterial non-compliances. The substantive impact, as well as both rectification and disclosure requirements, etc. vary for the different categories of non-compliance incidents.

Material impact non-compliances. The determination of “material impact” focuses mainly on two aspects. One, the impact on the issuer’s finances; for example, an incident that could result in the issuer’s incurring a huge penalty or compensation. Two, the impact on the issuer’s business operations; for example, it may be unable to engage in its main business due to a failure to secure relevant qualifications or failure to complete environmental protection procedures.

Shen Cheng is a partner and Chen Wei is a senior associate at AllBright Law Offices