New Regulations On IPO Guidance Link Compacted, Sponsor'S Responsibility Supervision Tightened, Internal Nuclear And Quality Control Department Moved To "Front Of The Stage"

After the strict supervision was moved to the IPO guidance and filing link, the internal control core responsibility of the sponsor institutions became more prominent.

Not long ago, China Securities Regulatory Commission drafted and released the regulation on guidance and supervision of initial public offering and listing (Draft for comments) (hereinafter referred to as the draft for Soliciting Opinions), and solicited opinions from the public《 The appearance of the draft unifies the procedures, methods and contents of the IPO guidance filing and acceptance process of the securities regulatory bureaus. At the same time, it also qualitatively defines the listing guidance, that is, "the guidance acceptance is not the audit procedure for the listing of enterprises".

It is worth noting that the new regulations stipulate that the guidance agencies need to submit a description of the completion of the project when handling the counseling record. According to the reporter's incomplete statistics of the 21st century economic report, similar requirements have not been put forward in the supervision guidelines for the guidance work of listed companies proposed by local securities regulatory bureaus.

"Although it is customary to set up a project first and then report to the tutor for filing, this order was clarified after the new regulations were consulted. This also means that before applying for guidance, the sponsor organization should have a clearer understanding of the quality of the company to be listed, and bear a clearer responsibility. " There are domestic head securities investment bank personnel said.

Project approval first, then guidance

For details, the guidance institution shall submit the following materials when handling the counseling record:

（1） Counseling agreement（ 2） Description of the completion of the project of the guidance organization（ 3） Record report of guidance（ 4） Qualification certificates of the tutoring institution and its staff（ 5） List of all directors, supervisors, senior managers, shareholders holding more than 5% of shares and actual controllers (or their legal representatives) of the tutoring objects（ 6） Other materials needed for guidance record.

For the newly added "explanation on the completion of the project approval of the guidance institution", the staff of the securities companies and investment banks told the reporters of the 21st century economic report that the impact would not be too great.

"We all set up projects first, which means that we have the initial conditions for listing. It is reasonable to set up projects first and then report to guidance and record." There are domestic small and medium-sized securities firms investment banking business related person in charge said.

The investment bank personnel of the above-mentioned head securities companies also said that in theory, after the completion of due diligence, the project can be set up internally for the company to be listed, and the company will set up a project before submitting it for guidance and filing“ Some securities companies will go through the internal filing procedures first and then set up projects after reporting for guidance, which will not have a great impact. In the future, in accordance with the new regulations, projects should be set up first and then counseling will be conducted. It is possible that the cycle for some securities companies to apply for guidance will be correspondingly increased. "

Recently, under the influence of stricter IPO supervision, the number of companies to be listed has increased significantly, and the number of newly accepted companies has decreased. According to the statistics of CITIC Securities, the number of new acceptance companies on the science and technology innovation board and the growth enterprise market decreased significantly in the first quarter of this year. A total of 34 companies were accepted, only 11% of the fourth quarter of 2020.

However, there is no significant increase or decrease in the data of the companies to be listed that have started the counseling filing work. According to the wind data statistics, a total of 78 enterprises have been accepted by the guidance filing registration since the beginning of 2021, among which 23, 16, 21 and 14 enterprises have completed the counseling filing registration in the first four months. In 2020, the average value of the data is 20, which is not much changed.

A senior investment banker in Beijing said that, similar to the IPO market under the approval system, many domestic enterprises also hold the idea of "queuing up first" in the counseling and filing process, and slowly develop in the process of queuing to meet the listing conditions. In recent months, the tightening of IPO audit by the regulatory authorities is mainly reflected in the link from the application for listing to the issuance and examination of enterprises, and has little impact on the guidance and filing process.

However, after the draft for comments specifies that the guidance agency should submit a statement on the completion of the project when consulting and filing, in view of the tightening of the IPO audit by the current supervision, the guidance institution may also improve the requirements of the enterprises to be listed in the project approval process.

"At least not too far from meeting the listing standard deviation. From the current high-pressure attitude of securities companies' internal control over IPO, the cycle and difficulty of enterprise project approval may also increase after the new regulations are issued, and the number of new enterprises in the guidance and filing process may be affected. " The senior investment bank said.

It should be noted that according to the current rules, securities companies need to establish independent working papers for each sponsor project that has completed the project initiation procedure.

"The most unsatisfied aspect of the early stage supervision on the recommendation work of securities companies may be that the manuscript is not in place. The draft of project approval before the guidance filing will certainly not understand the quality and problems of the project, which can be improved and supplemented gradually. However, if the quality of manuscripts is not high from the beginning, it is difficult to guarantee that the supervision will not ask questions in the later stage. " The relevant person in charge of the investment banking business of the above-mentioned small and medium-sized securities companies pointed out that, based on the high requirements for working papers, the recommendation institutions may be more cautious about the project approval and due diligence work before the filing of application guidance, and to a certain extent, further lengthen the cycle before the filing of enterprise application guidance.

At the same time, comparing with the current rules of securities regulatory bureaus in different regions, it can be found that the draft does not require the material requirements for financial statements of companies to be listed in the guidance and filing process.

Take Guangdong securities regulatory bureau's newly revised supervision procedures for listing guidance in 2020 as an example, which requires the guidance institutions to provide the financial statements of the companies to be listed in the past three years and another period, and the rest also require the financial statements of the counseling objects in recent two years.

The above-mentioned senior investment bank personage said that in the process of handling the guidance filing process, the financial statements should not be submitted separately, but reflected in the guidance filing report“（《 Draft) clearly defines the function of counseling and acceptance, which is to check the work of the sponsor. In the early stage, it is also about the quality of the filing report rather than the performance of the enterprise.

Internal control of kernel

In the view of industry insiders, no matter whether the project is completed in advance or the guidance filing report is more important than the company's performance, the responsibility of the internal control core of the sponsor institution in the counseling and filing process will be more prominent after the "draft for comments" is implemented in the future.

In the draft for comments, it has been made clear that the acceptance of guidance is to evaluate the implementation and effectiveness of the guidance work of the guidance institution, rather than make a substantive judgment on whether the counseling object meets the requirements of the issuance and listing, focusing on the implementation of the guidance work of the guidance institution.

"It can be said that neither the application guidance nor the guidance acceptance is the examination procedure for the listing of enterprises. However, after the new regulations are officially issued in the future, it means that the trend of strict supervision of IPO has moved forward to the link of guidance and filing." In the view of the senior investment banks mentioned above, the move forward of supervision also puts more audit responsibilities on the "gatekeeper" sponsor in the capital market. At this time, the internal control of the sponsor is more important.

Taking the guidance acceptance process as an example, the guidance acceptance materials submitted by the sponsor institutions to the local securities regulatory bureaus include the minutes of the kernel meeting and the prospectus approved by the kernel meeting. Securities companies need to complete the guidance work through the core program of IPO and listing.

"Strict supervision means strict supervision. Before, due to the tightening of supervision on IPO on-site inspection and supervision, the core departments attached great importance to the application of IPO projects for fear of withdrawal. Now that strict supervision has spread to the guidance period, it is estimated that the core should also be tightened in the guidance acceptance and guidance declaration. " The head of the securities investment bank said.

It is worth mentioning that in the current IPO audit stage, the core quality of sponsor securities companies has been paid more and more attention by supervision.

On April 1 this year, Kunshan Guoli Electronic Technology Co., Ltd. (hereinafter referred to as "Guoli technology") disclosed the first round of inquiry reply announcement, which showed that the exchange raised special questions about the "practice quality of the sponsor institution" of the company, and placed it in the first place of all inquiry contents.

Specifically, the Shanghai stock exchange requires the quality control and core departments of Guoli technology recommendation institutions to explain the main considerations for the issuer to report with the financial data before medical treatment of subsidiaries in accordance with the guidelines on internal control of investment banking business of securities companies and other rules, Analyze whether the quality control process in this application fully pays attention to the problems existing in the application materials such as the prospectus, and whether it is sure that the relevant materials and documents meet the relevant requirements and the contents are true, accurate and complete. The exchange also specially requires the sponsor institution to issue a special instruction document for the above matters and affix its official seal, which shall be signed by the person in charge of quality control and kernel.

In addition to the quality control and core of Guoli technology recommendation agency being questioned, dozens of companies to be listed, such as shengnuoji, Xinba technology, child king, bright moon lens, 3D heaven and earth, are also required to explain the core of relevant matters and the quality control work and relevant conclusions performed by the quality control department. In addition to the traditional revenue and cost, the problems involved also include suppliers, peer competition, identification of actual controllers, correction of accounting errors, related party transactions and other miscellaneous contents.

It can be foreseen that the core and quality control departments of recommendation securities companies are being supervised and pushed to the front of the Taiwan market, and their responsibilities will become increasingly prominent.