The HKEX's Suitability Requirements for Directors and Senior Management

The SFC and HKEX have intensified scrutiny of director and senior management appointments since the 2024 amendments to the Corporate Governance Code (CG Code), which took effect for financial years commencing on or after 1 January 2025. Under the revised CG Code, issuers must now justify in their annual reports and listing documents why any director with a specific term of less than three years is suitable, directly tightening the 2018 requirement that all directors be appointed for a specific term. This shift follows the HKEX’s 2023 consultation conclusions on corporate governance, which cited 142 market responses demanding greater accountability. The practical effect: sponsors and listing applicants can no longer rely on generic “fit and proper” declarations. They must now demonstrate, with documentary evidence, that each proposed director and senior manager satisfies the suitability criteria embedded in Listing Rules 3.08, 3.09, and 3.10A, as well as the SFC’s Code of Conduct for Persons Licensed by or Registered with the SFC (Cap. 571). For Chinese companies pursuing dual listings in Hong Kong and the US, the stakes are higher: the HKEX’s suitability review now cross-references to the SFC’s Guidelines on the Suitability of Directors (2024 revision), which explicitly require consideration of any past regulatory actions in the PRC, including CSRC sanctions or stock exchange criticisms. This article dissects the current regulatory framework, the documentary burden on sponsors, and the specific triggers that can derail a listing application.

The Statutory and Rule-Based Framework

The suitability test for directors and senior management is not a single rule but a layered construct drawn from the Listing Rules, the Securities and Futures Ordinance (SFO), and the SFC’s codes and guidelines. Each layer imposes distinct obligations on the issuer, its sponsors, and the proposed appointees themselves.

Listing Rules 3.08, 3.09, and 3.10A: The Core Standards

HKEX Listing Rule 3.08 requires each director to satisfy the Exchange that they have “the character, experience and integrity” to be a director of a listed company. This is not a one-time assessment at listing. Rule 3.08 applies continuously: any new director appointed post-listing must also satisfy this standard, and the Exchange may require the issuer to provide a written confirmation from the director addressing any specific concerns. Rule 3.09 extends this to senior management, including the chief executive, chief financial officer, and company secretary. The Exchange’s published guidance (HKEX, 2023) clarifies that “character” includes any criminal convictions, regulatory sanctions, or civil judgments in any jurisdiction, not just Hong Kong. For PRC nationals, this means a clean record from the CSRC, the Shanghai and Shenzhen stock exchanges, and the State Administration for Market Regulation (SAMR). Rule 3.10A further mandates that every board must have at least three independent non-executive directors (INEDs), and that at least one of them must have “appropriate professional qualifications or accounting or related financial management expertise.” The Exchange interprets “appropriate” strictly: the INED must hold a recognised accounting qualification (e.g., HKICPA, ACCA, CPA Australia) and have at least five years of post-qualification experience in auditing, financial reporting, or financial management. A generic “finance background” without a recognised certification is insufficient.

The SFC’s Fit and Proper Test Under the SFO

Beyond the Listing Rules, the SFC’s fit and proper test under section 129 of the SFO applies to directors and senior managers of licensed corporations. For issuers that are themselves licensed entities (e.g., securities firms, asset managers), the test is direct. For other listed companies, the test is indirect: the SFC may object to a director’s appointment if it deems them unfit, and the HKEX will generally defer to the SFC’s assessment. The SFC’s Guidelines on the Suitability of Directors (2024 revision) list 12 disqualifying factors, including:

• Any conviction for an offence involving fraud, dishonesty, or corruption, whether in Hong Kong or overseas.
• A history of insolvency, either personal or as a director of an insolvent company, within the past seven years.
• A finding by any regulatory body (including the CSRC, SEC, or FCA) of market misconduct, insider dealing, or false disclosure.
• A failure to comply with any court order or regulatory direction.

The 2024 revision added a new factor: “any adverse finding by a foreign regulatory authority that, in the SFC’s opinion, is equivalent to a finding of unfitness under Hong Kong law.” This explicitly captures SEC cease-and-desist orders, CSRC administrative penalties, and UK FCA prohibition orders. For Chinese companies with US listings, an SEC enforcement action—even a settled one without admission of wrongdoing—now triggers a mandatory suitability review by the SFC upon the company’s Hong Kong listing application.

The Documentary Burden on Sponsors and Issuers

The suitability assessment is not a passive check. The HKEX expects sponsors to conduct independent verification of each director’s and senior manager’s background, and to document the process in the sponsor’s due diligence report. The Exchange’s 2023 consultation conclusions on sponsor regulation (published November 2023) explicitly state that a sponsor’s failure to identify a disqualifying factor will be treated as a breach of the Code of Conduct for Sponsors (Cap. 571, subsidiary legislation).

The Due Diligence Checklist

In practice, sponsors must obtain and review for each proposed director and senior manager:

• A certified copy of the individual’s passport and any other identity documents.
• A criminal record check from the Hong Kong Police (for Hong Kong residents) or from the relevant PRC public security bureau (for PRC nationals). The PRC check must cover the individual’s entire residential history, not just their current domicile.
• A credit report from the Hong Kong Credit Reference Agency (for Hong Kong residents) or the People’s Bank of China credit reference centre (for PRC nationals). The report must show no outstanding judgments, bankruptcies, or defaults exceeding HKD 100,000.
• A written questionnaire covering the individual’s employment history for the past 15 years, including any resignations under pressure, terminations for cause, or disciplinary actions.
• A declaration of any relationships with other directors, senior managers, or substantial shareholders, to identify potential conflicts of interest. The HKEX’s Listing Decision LD143-2023 (HKEX, 2023) requires that any family relationship between a director and a controlling shareholder must be disclosed in the prospectus and may trigger a suitability review if the relationship creates a “dominance risk.”

The Sponsor’s Independent Verification

The sponsor must not rely solely on the issuer’s representations. The HKEX’s Sponsor Due Diligence Guidelines (2022 revision) require the sponsor to independently verify the individual’s qualifications and experience by:

• Contacting at least three former employers or professional referees directly, not through the issuer.
• Confirming professional qualifications with the issuing body (e.g., HKICPA, Law Society of Hong Kong, CFA Institute).
• Conducting a public records search in all jurisdictions where the individual has resided or worked, including court records, regulatory databases, and news archives.

The sponsor must document all verification steps in a “suitability memorandum” that forms part of the sponsor’s due diligence report. The Exchange’s Listing Committee may request this memorandum during the vetting process. In practice, the Exchange has rejected at least three listing applications in 2024 solely on the grounds of insufficient suitability documentation (HKEX, Listing Decisions Q4 2024 Summary, January 2025).

Special Considerations for PRC Issuers and VIE Structures

For Chinese companies using variable interest entity (VIE) structures or seeking dual listings in Hong Kong and the US, the suitability requirements intersect with the CSRC’s filing regime under the 2023 Provisions on the Administration of Overseas Securities Offerings and Listings by Domestic Companies (CSRC Decree No. 43). The CSRC now requires that all directors and senior managers of the onshore WFOE and the VIE entities be disclosed in the CSRC filing, and that each individual meet the CSRC’s own “fit and proper” standards.

The CSRC’s Overlapping Requirements

CSRC Decree No. 43, effective 31 March 2023, requires that any director or senior manager of a Chinese company seeking an overseas listing must not have been subject to any CSRC administrative penalty within the past three years, nor any criminal penalty for economic crimes within the past five years. The CSRC’s 2024 implementing rules (CSRC Announcement No. 1 of 2024) further require that the onshore sponsor (if any) certify the individual’s suitability. For companies using VIE structures, this extends to the nominee directors of the VIE entities, even if they are not directors of the offshore holding company. The HKEX’s Listing Decision LD145-2024 (HKEX, 2024) confirmed that the Exchange will request a copy of the CSRC filing and the CSRC’s acceptance letter, and will cross-reference the individuals listed in the CSRC filing against those named in the HKEX listing application. Any discrepancy—for example, a director named in the CSRC filing who is not listed in the HKEX application—triggers an automatic suitability review.

The US-Hong Kong Dual Listing Dynamic

For companies already listed on the NASDAQ or NYSE, the HKEX’s suitability review now considers SEC enforcement history. The SFC’s 2024 Guidelines on the Suitability of Directors explicitly state that an SEC administrative proceeding (including a settled cease-and-desist order) is a “relevant factor” in determining fitness. The practical implication: a Chinese company that has settled an SEC accounting fraud case—even without admitting wrongdoing—must disclose that settlement in the Hong Kong listing application and must demonstrate that the directors involved have either resigned or been replaced. The HKEX’s Listing Decision LD146-2024 (HKEX, 2024) involved a dual-listed PRC company whose CFO had been subject to an SEC cease-and-desist order for revenue recognition violations. The Exchange required the company to appoint a new CFO and to implement enhanced internal controls before the listing could proceed. The company’s application was delayed by eight months.

Practical Takeaways

1. Prepare suitability documentation from day one of the listing process. The HKEX’s 2024 CG Code amendments require that the suitability justification for each director be included in the draft prospectus submitted to the Exchange, not just in the sponsor’s due diligence report. Delaying this work until the A1 filing stage will cause at least a 12-week delay.

2. Conduct a full criminal and regulatory records search in all jurisdictions where the individual has resided, including the PRC, Hong Kong, and any Western jurisdiction. The SFC’s 2024 Guidelines now consider foreign regulatory actions as disqualifying factors, and the HKEX will request the search results.

3. For PRC issuers using VIE structures, ensure that the CSRC filing and the HKEX application list the same individuals for the onshore entities. Any discrepancy will trigger an automatic suitability review that can delay the listing by four to six months.

4. Do not rely on generic “fit and proper” declarations from the individual. The HKEX expects the sponsor to independently verify each director’s qualifications and experience by contacting former employers and confirming professional certifications with the issuing body.

5. If any director has a past regulatory action in the US, PRC, or UK, engage the SFC’s pre-application consultation process (SFC, 2024) before filing the A1. The SFC will provide a preliminary view on whether the individual is fit and proper, and the HKEX will generally follow that view. This can save six months of back-and-forth during the formal vetting process.