Circular to licensed corporations on prudent risk management in providing IPO subscription services

With relation to the new FINI platform to „streamline and digitalise the IPO settlement process in Hong Kong“ expected to launch on 22 November 2023, the SFC has posted a circular reminding LCs to continuously manage their risks when providing IPO services.
Prudent credit risk management
– Ensuring that clients have sufficient funding to settle IPO obligations
– Setting conservative and realistic credit limits for IPO financing, depending on the financial situation of the client
– In case of any deviations from the standard approach, LCs need to be able to back-up their decision with a written risk assessment signed by the senior management.
Liquidity risk management and safeguarding client subscription deposits
– Cash and/or credit facilities should be discussed and prepared forehand with banks for IPO money settlement
– Credit institutions must have sufficient funds to cover the clients‘ financial needs
– Clients‘ subscription deposits should be safeguarded separately
Financial risk management
– Bank borrowings and granting IPO financing beyond the client’s financial capability should not take place
– All assets and liabilities stemming from the IPO should be taken into consideration
– The impact of the IPO on the firm’s financial situation should be assessed
SFC reminds market participants that the LCs‘ senior management is responsible for implementing these risk controls in the firm.