Amid UBS probe, more banks in SFC's sights

UBS could lose its Hong Kong corporate finance licence after a crackdown by the local regulator. But it will not be the only bank threatened with stiff penalties, according to a source familiar with the regulator’s plans.

Hong Kong’s Securities and Futures Commission (SFC) is digging into UBS's role as a sponsor on more than one IPO. That could lead to the Swiss bank being stripped of a licence that allows it to sponsor Hong Kong listings and advise on mergers and acquisitions.

It is not the only bank that faces that risk. The investigation is only the first chapter in a long list of similar probes taking place in Hong Kong, said a person who works with both the regulator and bankers on enforcement issues.

“Everybody is under the microscope,” said the person. “There are around 8 to 12 serious ongoing investigations at the SFC around this topic.”

These investigations come after the SFC hired a tough new head of enforcement. Thomas Atkinson, who started in May, has already made a series of moves to clear through a backlog of cases and has privately said he wants to focus on the “high-impact cases”.

Mega mess 

There is precedent for the SFC stripping a firm of its corporate finance licence. The regulator revoked Mega Capital Asia’s corporate finance licence in April 2012, the result of the firm’s sponsorship of an IPO by clothing company Hontex in 2009.

But that was before the SFC announced a tougher set of rules for sponsors. In October 2013, the regulator told sponsors they needed to do better — and earlier — due diligence of potential IPO candidates, adding potential criminal liability to those firms that did a poor job. Since then, the regulator does not appear to have revoked another firm’s licence.

It remains unclear what IPOs in particular the regulator is investigating. UBS has sponsored only one Hong Kong listing this year — that of Everbright Securities — but it seems likely the investigation goes back a few years. 

Last year, the bank was a co-sponsor on six deals and the sole sponsor of one, from Shanghai Haohai Biological Technology. Since other banks are firmly in the SFC’s crosshairs, UBS may have only been one of several sponsors on the deals under investigation.

Some of the companies UBS brought to the IPO market have faced their own sanctions from the regulator. China Metal Recycling, for instance, faced a wind-up order from the regulator last February. The SFC said the company was “involved in a highly complex, sophisticated and dishonest scheme” to deceive investors. UBS and China Merchants Securities sponsored the 2009 listing, according to Dealogic data.

UBS has generated $112 million of revenue from its ECM business in Asia Pacific so far this year, according to Dealogic. That puts the bank tenth in the league table. Last year, UBS was the third highest-earner in the market, after hauling in revenue of $312 million.

UBS declined to comment. The SFC confirmed the investigation was underway, but did not give any more details than that.

Additional reporting by Anita Lam, Danny Leung and Ray Chan.

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