Regulation of Sponsors and Independent Financial Advisers Joint HKEx / SFC Press Conference

1. Regulation of Sponsors and Independent Financial Advisers Joint HKEx / SFC Press Conference 19 October 2004

2. Today, we are pleased to announce: consultation conclusions rule amendments (commence 1 Jan 2005 – subject to transitional arrangements)

3. Introduction • Ashley Alder, SFC Agenda: • Detail: • process • key objectives • key aspects

4. THE PROCESS: • In conjunction with May 2003 consultation paper Conclusions informed by extensive market consultation • Conclusions and rule amendments approved by SEHK and Commission

5. Sponsors play an important role in HK. Variance of expectations KEY OBJECTIVES: • To address expectation gap: • clear framework for role of sponsors, compliance advisers and IFAs • make it abundantly clear what is expected of them and issuers that appoint them

6. WILL codify current expectations KEY ASPECTS: Conclusions and amended rules: • WILL clearly set out: • when sponsors, CAs and IFAs must be appointed • when sponsors, CAs and IFAs must be independent and what is independence

7. role of sponsors, CAs and IFAs including due diligence KEY ASPECTS: (cont’d) • role of issuers in assisting sponsors and CAs

8. KEY ASPECTS: (cont’d) • WILL make it clear that sponsors, CAs and IFAs can only do what is reasonable and appropriate • WILL NOT expect sponsors to verify expert reports/ be experts • WILL allow engaging of 3rd party professionals (but sponsor must ensure work not substandard) • WILL NOT shift obligations from directors/experts to sponsors

9. Ashley Alder Executive Director Corporate Finance Division Securities and Futures Commission

10. Patrick Meaney Vice President Listing Enforcement Listing Division Hong Kong Exchanges and Clearing Limited

11. To implement policy, rules amended to: • include new chapter re sponsors and CAs THE RULE CHANGES: • include new rules re IFAs • include new PN re due diligence by sponsors • address incidental amendments

12. appointment THE RULE CHANGES: (cont’d) Rule amendments will cover: • (at least) one sponsor to assist new applicant with IPO • if > one sponsor, all responsible

13. listed issuers must appoint CA from initial listing to: - MB: 1+ year THE RULE CHANGES: (cont’d) - GEM: 2+ years • SEHK may direct appointment of a CA at other time

14. impartiality and independence • sponsors, CAs and IFAs must perform duties impartially THE RULE CHANGES: (cont’d) • at least one sponsor and all IFAs must be independent

15. listing documents must disclose whether sponsor is independent and if not, how THE RULE CHANGES: (cont’d) • independence tests = bright-line tests • sponsors and IFAs must give SEHK statement re independence and advise if change

16. role and responsibilities: sponsors • firms must undertake to SEHK to e.g. comply with rules and cooperate in investigation THE RULE CHANGES: (cont’d) • sponsors must: - comply withundertaking

17. - be closely involved in new applicant’s preparation of listing document THE RULE CHANGES: (cont’d) - conduct reasonable due diligence and declare to SEHK re same

18. have regard to new PN re what is reasonable due diligence THE RULE CHANGES: (cont’d) • new PN: - applies onlyto sponsor firms; not CAs/IFAs/individuals - not checklist of minimum steps

19. - is SEHK’s expectations of typical steps - is subject to reasonableness THE RULE CHANGES: (cont’d)

20. declaration will cover due diligence re: • director’s declaration(s) • compliance with basic listing conditions • sufficiency of listing document • new applicant’s systems and controls THE RULE CHANGES: (cont’d)

21. directors’ collective experience, qualifications and competence • directors’ individual experience, qualifications and competence • expert sections of listing document including whether: THE RULE CHANGES: (cont’d)

22. factual information relied on by expert is true and complete (unless verified by expert) THE RULE CHANGES: (cont’d) • all bases and assumptions = fair, reasonable and complete • expert appropriately qualified, experienced and resourced

23. expert scope of work appropriate • expert independent THE RULE CHANGES: (cont’d) • listing document fairly represents expert views

24. role and responsibilities: CAs • firms must undertake to SEHK THE RULE CHANGES: (cont’d) • CAs need only provide advice and guidance if asked by issuer • listed issuers must consult and, if necessary, seek advice from CAs on timely basis in prescribed circumstances e.g. before publication of announcement

25. when CA is consulted, it must e.g. ensure issuer properly guided and advised THE RULE CHANGES: (cont’d)

26. role and responsibilities: IFAs • firms must undertake to SEHK THE RULE CHANGES: (cont’d) • must take all reasonable steps to be satisfied: - reasonable basis for making statements required - no reason to believe any information relied on is not true/omits material fact

27. some limitations re termination and resignation of sponsors and CAs THE RULE CHANGES: (cont’d)

28. TRANSITION TO THE NEW RULES • Press release sets out transitional arrangements Amended rules commence 1 Jan 2005