Hong Kong regulator fines StanChart, Merrill Lynch, Morgan Stanley over IPO due diligence
18 Mar 2019

Hong Kong’s Securities and Futures Commission (SFC) has penalised leading global lenders over due diligence failures pertaining to a number of initial public offerings (IPOs).

Standard Chartered was fined HK$59.7 million for issues such as failing to make ‘reasonable’ due diligence enquiries regarding the listing of a forestry management firm.

The watchdog found the bank conducted site inspections of the firm’s forests but did not verify the location visited with the location of the Group’s forests as stated in the prospectus, amongst other issues.

Merrill Lynch was fined HK$128 million over listing issues too, in particular over interviews pertaining to a chemicals firm.

“Merrill Lynch did not have direct contact with [the firm’s] customers for the purpose of setting up due diligence interviews or confirming the mode and place of the interviews,” the SFC said in a statement, “on the contrary, [the firm] informed Merrill Lynch which customers were unable to attend face-to-face interviews, and which customers refused to conduct interviews at their business premises.

“There is no evidence that Merrill Lynch had taken any steps to check with the customers as to why they were not amenable to be interviewed at their offices.”

Meanwhile, Morgan Stanley was fined HK$224 million.

“Morgan Stanley did not have direct contact with [the firm’s] customers for the purpose of setting up due diligence interviews or confirming the mode and place of the interviews,” the SFC explained.

“On the contrary, [the firm] informed Morgan Stanley that two customers were unable to attend face-to-face interviews and that one customer would not conduct interviews at its business premises. There is no evidence that Morgan Stanley had taken any steps to check with these three customers as to why they were not amenable to be interviewed at their offices.”

Both Morgan Stanley and Merrill Lynch declined to comment.

Standard Chartered said it welcomed the opportunity to resolve the case with the SFC, and that it ‘remains committed’ to ensuring that it has a ‘robust’ controls framework in place to ensure compliance.

Photo: Standard Charterd Bank

– Irene Madongo

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