Sponsor Liability Under SFC Code of Conduct Paragraph 17

Paragraph 17 of the SFC Code of Conduct for Persons Licensed by or Registered with the SFC imposes a statutory tort of civil liability on sponsors for prospectus misstatements. Under this section, a sponsor is liable to compensate investors who suffered loss as a result of relying on untrue statements (including material omissions) in a listing prospectus. This liability is strict — it does not require proof of fraud or negligence — although sponsors can raise a due diligence defence by demonstrating they made reasonable enquiries and had reasonable grounds to believe the statements were true. The practical impact of Paragraph 17 has been a material increase in sponsor due diligence costs since its introduction, with law firms and reporting accountants now routinely producing ‘Paragraph 17 workstream’ documentation. The provision has also influenced sponsor selection: banks with stronger sector research capabilities and dedicated forensic accounting teams command a premium, as they are better positioned to build a defensible due diligence record.