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Update: UBS faces possible suspension from IPO underwriting in Hong Kong

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UBS Group AG said Hong Kong's securities regulator will take action against the bank and some of its staff in connection with its sponsorship of some initial public offerings in the city.

[HONG KONG] UBS Group AG said it could be fined and suspended from arranging Hong Kong initial public offerings as the city’s securities regulator moves to punish the Swiss bank for its work on some IPOs.

The Securities and Futures Commission has told UBS that it’ll take action against the bank and some employees, the Zurich-based firm said in its quarterly earnings report released Friday. That could result in “financial ramifications” for UBS including fines and restitution orders, it said.

Hong Kong, the second-biggest market for IPOs this year with US$21.4 billion of listings, has been tightening oversight of the banks that underwrite initial share sales after some deals saddled investors with losses in recent years. UBS, which was the top IPO underwriter in the city as recently as in 2012, slipped to 20th this year, data compiled by Bloomberg show.

The city’s securities regulator introduced a new system in October 2013 where the banks that sign off on listings, known as sponsors, will be held accountable if the offer documents contain untrue statements. It has also warned that bankers on such deals can be held criminally liable.

In 2012, the SFC said a stricter regime, with unambiguous criminal and civil liability, was needed to protect investors after a string of accounting scandals involving publicly traded Chinese companies. The regulator wanted to “incentivise sponsors to raise standards, pick the right deals and manage them well, which should in turn reduce risks for investors and all those involved in IPOs,” SFC chief executive officer Ashley Alder said in December that year.

Ernest Kong, an SFC spokesman, confirmed the probe but wouldn’t comment further. Mark Panday, a spokesman for UBS, and Lorraine Chan, a spokeswoman at bourse operator Hong Kong Exchanges & Clearing Ltd, declined to comment.

UBS and other Western bulge-bracket firms have lost business as Chinese investment banks increasingly dominate the Hong Kong equity market. The five top-ranked IPO underwriters in the city this year are all Chinese firms, according to Bloomberg-compiled data. Goldman Sachs Group Inc and Morgan Stanley are the only Western firms in the top 10.

One Hong Kong deal that proved contentious was Tianhe Chemicals Group Ltd’s 2014 share sale, which was sponsored by UBS and Bank of America Corp.

Tianhe, whose stock has been suspended from trading for more than a year, denied fraud allegations in September 2014 from stock research firm Anonymous Analytics. Tianhe was one of a series of Chinese firms targeted by short-sellers.

UBS is not the only foreign firm to encounter problems in the city. JPMorgan Chase & Co was in the spotlight earlier this year when the Hong Kong stock exchange rejected an IPO application prepared by the bank. JPMorgan was the sponsor of Shenhua Health Holdings Ltd’s application to list on Hong Kong’s second board, which was rejected in March, according to the bourse operator’s website.



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