Ambiguous Rights and Responsibilities between the Sponsor and the Issuer
The major responsibility of the sponsor is to urge the issuer to perform its information disclosure duty and to be legally responsible for the truthfulness, timeliness, and completeness of the information disclosed. However, there are few provisions about the sponsoring rights of the sponsor. For example, to investigate whether the issuer has a connected transaction problem, a review of the shareholder accounts and the capital account is necessary. According to the current legal framework, the CSRC may review the bank account of a legal person if authorized by the state council. But current laws don't authorize the CSRC to review individual deposit accounts. Regarding connected transactions, even the legally authorized body, the Securities Regulatory Commission, hasn't had much success. If the issuer and its initiator and senior executives intentionally cover up some facts or refuse to cooperate, it is difficult for the sponsor representative to inquire about and verify connected transactions because they are internal affairs of the company. As a result, the sponsor is rarely able to carry out investigations inside the enterprise. The sponsor then has to rely on the information provided by the issuer, leading to an obvious asymmetry of information. If the original materials provided by the issuer to the sponsor were incomplete or inaccurate, or if the sponsor is not informed about a decision, the sponsor representative will be held accountable for false information, even with no means to have known about it. The responsibilities of the two parties must be clearly defined to prevent the issuer from transferring liability to the sponsor.
Ambiguous Rights and Responsibilities between the Sponsor and the Regulator
According to the current Chinese system, the sponsor is required to review various application materials submitted by the issuing company. Securities regulatory authorities are also responsible for conducting material reviews on these documents. Once a problem arises in association with the application materials, however, the sponsor alone will bear the responsibility. This makes the quality of the listed company solely dependent on the overall capability and competence of the sponsor.
Ambiguous Rights and Responsibilities between the Sponsor Institution and Other Intermediary Institutions.
According to the current Chinese system, during the listing process, the sponsor organization should prudently verify professional opinions in the prospectus provided by intermediary agencies and their signatories. The sponsor organization also judges the materials and information disclosed by the issuer. However, accounting, auditing, and legal affairs are highly professional fields. And the audit report and legal opinions themselves have legal effects. Therefore, relevant agencies should take the corresponding legal responsibility by right. To require the sponsor to conduct material verification on professional opinions provided by intermediary agencies is to make the rights and responsibilities between the sponsor and such intermediary agencies ambiguous.