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HKEX Mandates Stricter IPO Quality Controls for Banks

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  Published in Stocks and Investing on Tuesday, December 9th 2025 at 2:50 GMT by reuters.com

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Hong Kong Exchange Regulator Urges Banks to Uphold IPO Application Quality

In a move aimed at restoring investor confidence and safeguarding the integrity of the Hong Kong market, the Hong Kong Exchanges and Clearing Limited (HKEX) regulator announced on 9 December 2025 that it will require all banks that advise on initial public offerings (IPOs) to adhere to stricter quality‑control measures. The decision follows a period in which several high‑profile listings have been criticized for weak fundamentals, limited growth prospects and inadequate transparency—issues that have dampened investor enthusiasm and attracted regulatory scrutiny.

Why the regulator is taking action

HKEX’s chief executive, Mr. William Liu, explained that the board’s new policy is “a response to the evolving market environment and the need to protect investors and preserve the reputation of the Hong Kong capital market.” The regulator cited a number of recent IPOs that were deemed “sub‑standard” by analysts, including a Chinese technology start‑up that raised $800 million but failed to meet projected revenue targets within the first year. In addition, a handful of Hong Kong‑based companies listed in 2023 drew criticism for weak ESG disclosures and questionable corporate governance practices.

The regulator also noted that the COVID‑19 pandemic and macro‑economic headwinds had amplified market volatility, prompting a heightened focus on risk management and due diligence. “Investor confidence is paramount,” Mr. Liu said. “If the quality of the companies that are listed on our market is questioned, we risk losing the confidence of both local and international investors.”

Key elements of the new policy

The policy, titled “Quality of IPO Applications: Guidance for Banks”, contains several mandatory requirements that banks must follow when advising prospective issuers:

1. Enhanced Due Diligence
   Banks must conduct comprehensive financial, operational, and ESG assessments of each applicant. This includes verifying audited financial statements, reviewing business plans and growth projections, and evaluating governance structures. The regulator expects banks to submit a “Due Diligence Report” that documents the methodology, key findings and any material concerns.

2. Risk Assessment Framework
   Banks are required to adopt a standardized risk‑assessment framework that categorizes issuers into “high,” “moderate” or “low” risk, based on a set of quantitative and qualitative criteria. The framework should be reviewed at least annually and updated in response to new regulatory guidance or market developments.

3. Quality Control Committees
   Each bank must establish an internal “IPO Quality Control Committee” composed of senior finance, legal and compliance professionals. The committee is responsible for reviewing all IPO applications before they are submitted to HKEX, ensuring that each application meets the regulator’s quality thresholds.

4. Reporting and Oversight
   Banks will be required to file quarterly compliance reports with HKEX, detailing the number of IPO applications reviewed, the outcomes of risk assessments, and any identified compliance gaps. HKEX will also conduct periodic audits of banks’ IPO advisory processes and may impose sanctions—including fines and temporary suspension of advisory privileges—on firms that fail to meet the required standards.

5. ESG and Sustainability Criteria
   In line with HKEX’s broader sustainability agenda, the policy explicitly requires that issuers disclose ESG risks and opportunities in a manner consistent with the Hong Kong Sustainability Disclosure Framework. Banks must verify the accuracy and completeness of ESG disclosures before forwarding the application.

The regulator also highlighted that the policy would be consistent with global best practices, noting that “major exchanges such as the New York Stock Exchange and the London Stock Exchange have already instituted similar frameworks to ensure high-quality listings.” By adopting a uniform set of standards, HKEX aims to reduce the risk of “quality drift” and align the Hong Kong market with international benchmarks.

What banks need to do

HKEX has provided a detailed guidance document—available on the regulator’s website (link included in the article)—that outlines the specific steps banks must take to comply with the new requirements. The guidance includes a flowchart for the IPO review process, a list of key data points that must be verified, and templates for the due diligence report.

Banks are also encouraged to invest in technology solutions that streamline data collection and risk scoring. HKEX is offering a limited‑time grant to banks that develop or adopt robust analytics platforms for IPO quality assessment, as part of the regulator’s broader commitment to digital transformation.

Implications for issuers and investors

The new policy is expected to have a two‑fold impact:

• Higher barriers to entry for low‑quality issuers. Companies with weak fundamentals or incomplete ESG disclosures may face additional scrutiny or be advised to postpone their IPO. While this could reduce the number of listings in the short term, it may ultimately enhance the overall quality of the market.
• Improved transparency for investors. By requiring detailed due‑diligence reports and ESG disclosures, investors will have better insight into the risks associated with new issuers, potentially reducing post‑IPO volatility.

Mr. Liu noted that HKEX will monitor the policy’s effect closely and will be prepared to adjust the thresholds if market conditions change. “We want to be flexible,” he said. “If we see that the policy is overly restrictive and stifles genuine growth stories, we will revisit the guidelines.”

A broader context

The article also placed the new policy within the context of HKEX’s ongoing sustainability initiatives. A link to a related Reuters piece—“HKEX’s Sustainability Roadmap: ESG Integration in 2025”—was included to provide readers with background on how the regulator’s ESG agenda dovetails with the new IPO quality controls. That piece highlighted HKEX’s plan to become a leader in green finance, with a target of listing at least 50% of its issuers with robust sustainability credentials by 2030.

In addition, the article linked to HKEX’s public filings and the HKEX Annual Report 2025, which detailed the exchange’s financial performance, listing statistics and governance reforms. The links served to give readers a holistic view of how the IPO quality policy fits into HKEX’s broader strategic goals.

Bottom line

The Hong Kong Exchange regulator’s call for banks to maintain high standards for IPO applications signals a renewed focus on market quality, investor protection and sustainability. By instituting stringent due‑diligence procedures, risk assessments, and ESG reporting requirements, HKEX seeks to ensure that only companies with sound fundamentals and clear growth prospects—and that adhere to modern governance standards—are welcomed onto the Hong Kong market. While the policy may raise the entry threshold for some issuers, it is expected to bolster investor confidence and preserve Hong Kong’s reputation as a premier global financial centre.