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Requirements for an offering and listing in the U.K., U.S. or Hong Kong

Requirements for an offering and listing in the U.K., U.S. or Hong Kong

United Kingdom United States Hong Kong
Premium Listing Standard Listing
Board Requirements:
  • The U.K. Corporate Governance Code recommends that the Chairman be independent (and not fulfil the role of CEO) and a majority of the board comprise independent non-executive directors (“INEDs”)
  • The size of the board should be proportionate to the size of the Company although at least three INEDs will be required to follow the recommendations on board committees summarised below
No requirements although it is customary to appoint one or more INEDs prior to listing.
  • Audit committee requirements (discussed below) effectively mean that at least 3 directors must be “independent”
  • Other market-driven “best practices” may also be necessary
  • Independent non-executive directors must constitute one-third of the Company’s board, of which at least one such director must have appropriate professional qualifications or accounting or related financial management expertise
  • The Company must have sufficient management presence in Hong Kong10
Board Committees: The U.K. Corporate Governance Code recommends that a company maintain the following three committees:

  • Audit Committee – the board should establish an audit committee of at least three independent non-executive directors, including one director with relevant experience, to monitor and review the effectiveness of the internal audit activities and making recommendations to the board in relation to the external auditor’s appointment
  • Nomination Committee – the nomination committee, comprising a majority of independent non-executive directors, should lead the process for board appointments and make recommendations to the board.

Remuneration Committee – the remuneration committee should comprise at least three independent non-executive directors to set remuneration for executive directors and monitor senior management remuneration

  • A U.K. company with a standard share listing must maintain an audit committee (and, from 2016, all listed companies incorporated in the EU must maintain an audit committee)
  • Currently no requirements for DR issuers, although it is customary to establish at least an audit committee
  • Audit Committee – the Company must have an independent audit committee (with at least 3 “independent” members of the Board (as defined under the Exchange Act), including an audit committee financial expert satisfying specific criteria, (or disclosure of why it does not have such an expert in place) responsible for appointing and overseeing the Company’s independent auditor, pre-approving auditor services and establishing procedures to receive and respond to complaints related to accounting, internal controls or auditing matters
  • Compensation Committee – As required by the U.S. Dodd-Frank Act, companies must have an independent compensation committee with sole authority to engage outside compensation consultants, but foreign private issuers are allowed to follow home-country requirements, so long as differences are disclosed
  • Audit Committee – (a) minimum three members; (b) all non-executive directors with a majority of independent non-executive directors; (c) at least one is an independent non-executive director with appropriate professional qualifications or accounting or related financial management expertise; and (d) chaired by an independent non-executive director
  • Remuneration Committee – the Company must set up a remuneration committee with specific terms of reference, and the committee is to be chaired by, and the majority of members are to be, independent non-executive directors
Accounting / Internal Controls: As noted under “Listing Requirements” above, the Company must maintain adequate procedures and internal controls to enable it to comply with its listing obligations.
  • Disclosure Controls and Procedures – The Company is required to have “disclosure controls and procedures” designed to ensure that the information required to be disclosed by an issuer in its SEC reports (including material non-financial information, as well as financial information) is recorded, processed, summarized and reported in a timely fashion
  • Internal Control Over Financial Reporting – The Company must also maintain “internal control over financial reporting” – a process designed by, or under the supervision of, the CEO and CFO and effected by the board and management to provide the Company with reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements
  • Disclosure – the Company must review and disclose the effectiveness of its disclosure controls and procedures in the CEO and CFO certification and of its internal control over financial reporting in a report to be included in the annual report, attested to by its outside auditors (each discussed above)
  • Compliance adviser – The Company must appoint a compliance adviser acceptable to the HKSE from the listing date until its first financial year’s results are published. The compliance adviser must be licensed or registered under the SFO to conduct business as a sponsor (financial adviser)
  • Internal Control – Under the Code, the board and the audit committee must conduct an annual review of the adequacy of the resources, qualifications and experience of the Company’s accounting department. If the Company does not comply with the Code, it has to provide an explanation in its financial reports
Auditor Independence: Prior to listing, an applicant must take reasonable steps to ensure its auditors are independent and obtain written confirmation from its auditors that they comply with applicable accountancy body independence criteria. As noted under “Ongoing Financial Reporting” above, annual financial statements must be independently audited. As noted under “Ongoing Financial Reporting” above, annual financial statements must be independently audited. Auditors must remain “independent” as defined by the SEC. Auditors may not, for example, provide certain prohibited non-audit services to audit clients and audit partners must rotate every 5 years. Auditors must be “independent” in accordance with the requirements on independence issued by the Hong Kong Institute of Certified Public Accountants.
Legislation is being introduced in the EU (from 2016) to require auditors of listed companies incorporated in the EU to be rotated every 10 years (which may be extended in certain circumstances).

10 This usually means that at least two of its executive directors must be ordinarily resident in Hong Kong. The HKSE will usually grant a waiver from this requirement if the Company’s principal business is not in Hong Kong.

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Posted on

2014-09-16