Competition Law Compliance Audit for IPO Applicants

The Hong Kong Competition Commission (HKCC) has escalated enforcement activity in 2025, issuing its first-ever indictments for cartel conduct under the Competition Ordinance (Cap. 619) and announcing a dedicated taskforce targeting bid-rigging in sectors critical to the city’s economic stability. For IPO applicants targeting a Main Board or GEM listing on HKEX in 2025-2026, this shift transforms competition law compliance from a peripheral due diligence item into a core listing eligibility requirement. Any applicant with operations in construction, financial services, transportation, or public procurement—sectors explicitly flagged by the HKCC in its 2024-2025 Annual Report—must now demonstrate a robust compliance framework to satisfy HKEX’s suitability requirement under Listing Rule 2.03(2) and the SFC’s Code of Conduct for Sponsors (paragraph 17.6). The cost of non-compliance is not merely reputational: the Competition Tribunal can impose penalties of up to 10% of the group’s total turnover in Hong Kong for each year of the infringement, capped at three years, and disqualify directors for up to 15 years under section 102 of the Ordinance. This article provides a practical audit framework for CFOs, company secretaries, and legal counsel preparing an IPO applicant for the competition law scrutiny that now accompanies a listing application.

The Regulatory Baseline: What the HKCC and HKEX Expect

The Competition Ordinance (Cap. 619), effective since 2015, establishes three conduct rules: the First Conduct Rule (anti-competitive agreements), the Second Conduct Rule (abuse of substantial market power), and the Merger Rule (only applicable to telecommunications licences). For IPO applicants, the First Conduct Rule is the primary concern, covering horizontal cartels (price-fixing, market-sharing, output limitation, bid-rigging) and vertical restraints (resale price maintenance). The HKCC’s 2024-2025 Annual Report, published in April 2025, recorded 27 active investigations, with 12 relating to bid-rigging in public works contracts and 8 concerning price coordination in financial services—both sectors heavily represented among Hong Kong IPO applicants.

The Suitability Requirement Under Listing Rule 2.03(2)

HKEX’s Listing Rule 2.03(2) requires that an issuer and its business be “suitable for listing.” The HKEX Listing Decision LD143-2023 explicitly linked suitability to competition law compliance, noting that an applicant with ongoing competition investigations or a history of non-compliance may be deemed unsuitable regardless of financial metrics. The decision involved an applicant in the construction sector that had been the subject of an HKCC investigation into bid-rigging; HKEX required the applicant to withdraw its listing application until the investigation was resolved and a compliance programme was implemented. This precedent is now embedded in the HKEX’s internal review process: the Listing Division routinely requests confirmation from sponsors that no competition law proceedings are pending against the applicant group, including subsidiaries and joint ventures in Hong Kong.

The Sponsor’s Duty Under the SFC Code of Conduct

Paragraph 17.6 of the SFC’s Code of Conduct for Sponsors requires a sponsor to conduct “reasonable due diligence” to verify that the applicant’s business complies with all applicable laws and regulations. The SFC’s 2024 thematic inspection report on sponsor due diligence, released in November 2024, identified competition law compliance as a recurring deficiency: 23% of inspected sponsors failed to obtain competition law legal opinions for applicants with operations in regulated sectors. The SFC has indicated that it will treat competition law compliance as a “red flag” item in future sponsor inspections, meaning that a sponsor’s failure to adequately audit competition law risk could result in enforcement action against the sponsor itself under the Securities and Futures Ordinance (Cap. 571).

Conducting the Competition Law Compliance Audit: A Step-by-Step Framework

The audit must be structured as a forward-looking assessment of the applicant’s exposure to the First and Second Conduct Rules, covering all entities within the listing group—Hong Kong-incorporated companies, PRC subsidiaries, BVI intermediate holding companies, and Cayman Islands listing vehicles. The framework below is derived from the HKCC’s 2023 “Compliance Toolkit for Businesses” and the SFC’s 2024 sponsor guidance.

Step 1: Cartel Exposure Mapping

The first step is to identify all business activities that involve direct competitor interaction. For each product or service line in Hong Kong, the audit must document: (a) whether the applicant participates in trade associations, industry bodies, or standard-setting organisations where competitors meet; (b) whether the applicant engages in joint tendering, consortium bidding, or subcontracting arrangements with competitors; and (c) whether the applicant shares pricing, cost, or output data with any third party, including through industry benchmarking surveys or third-party data aggregators.

The HKCC’s 2024-2025 Annual Report noted that 65% of cartel investigations originated from whistle-blower reports or leniency applications. The audit must therefore assess the applicant’s internal whistle-blowing mechanism and its compliance with the HKCC’s leniency policy. Under the policy, the first party to report a cartel and cooperate fully receives immunity from penalties; subsequent parties may receive reductions of up to 50%. For an IPO applicant, a leniency application by a subsidiary or employee could trigger a material adverse change clause in the listing agreement and require immediate disclosure to HKEX under Listing Rule 13.09.

Step 2: Bid-Rigging Risk Assessment

Bid-rigging is the HKCC’s enforcement priority for 2025-2026. The HKCC established a dedicated Bid-Rigging Taskforce in March 2025, with a mandate to investigate all public procurement contracts valued above HKD 10 million in the construction, transportation, and healthcare sectors. For an IPO applicant that derives revenue from government or public-sector contracts in Hong Kong, the audit must examine: (a) the applicant’s bidding history for the past 5 years, including all contracts above HKD 5 million; (b) any instances of cover bidding, bid suppression, bid rotation, or complementary bidding; (c) the applicant’s relationships with competitors on joint bids, including the existence of written subcontracting agreements and the percentage of work subcontracted to competitors.

The Competition Tribunal’s decision in Competition Commission v. Nu-World Construction Ltd. [2024] 3 HKLRD 45 established that bid-rigging can be proven through circumstantial evidence, including parallel bidding patterns and unexplained communication between competitors. The audit must therefore review all email, instant messaging, and meeting records involving competitors for the past 3 years. The HKCC’s 2024-2025 Annual Report states that it has issued 47 information requests to companies in the construction sector in 2024 alone, and expects to issue a further 60 in 2025.

Step 3: Vertical Restraints and Resale Price Maintenance

The First Conduct Rule also prohibits resale price maintenance (RPM)—the practice of setting a minimum resale price for distributors or retailers. For an IPO applicant with a distribution network in Hong Kong, the audit must examine: (a) whether the applicant issues suggested retail prices, recommended resale prices, or minimum advertised prices; (b) whether the applicant monitors or enforces compliance with these prices, including through termination of distributors that deviate; (c) whether the applicant provides rebates, discounts, or incentives linked to adherence to resale prices.

The HKCC’s 2023 decision in Competition Commission v. TechPro Ltd. (unreported, CT-2023-01) imposed a penalty of HKD 12.5 million on a consumer electronics distributor for RPM, representing 4.2% of its Hong Kong turnover. The decision clarified that RPM is a “by object” restriction—meaning that the HKCC does not need to prove anti-competitive effects, only that the conduct occurred. For an IPO applicant, any RPM arrangement within the distribution chain must be terminated and a compliance programme implemented at least 12 months before the listing application, to demonstrate that the conduct has ceased and is unlikely to recur.

Step 4: Abuse of Market Power Assessment

The Second Conduct Rule applies to undertakings with “substantial market power” in a relevant market in Hong Kong. For an IPO applicant with a market share exceeding 25% in any product or service market in Hong Kong, the audit must assess: (a) whether the applicant engages in predatory pricing, margin squeezing, tying, or exclusive dealing; (b) whether the applicant refuses to supply essential facilities or inputs to competitors; (c) whether the applicant’s conduct has the effect of preventing, restricting, or distorting competition in the relevant market.

The HKCC’s 2024 guidelines on abuse of market power (published October 2024) set a rebuttable presumption that an undertaking with a market share above 40% has substantial market power. The audit must therefore commission a market definition study from an independent economist, using the SFC’s 2023 “Guidelines on Market Definition for Competition Analysis” as the methodological framework. The study must define the relevant product and geographic markets, calculate market shares using the most recent 3 years of data, and assess barriers to entry and expansion.

Remediation and Compliance Programme Design

If the audit identifies any competition law risk, the applicant must implement a remediation plan before submitting the listing application. The HKEX’s Listing Decision LD143-2023 requires that any compliance programme be “effective and verifiable,” meaning that it must be documented, implemented, and subject to independent audit.

Components of a HKCC-Compliant Compliance Programme

The HKCC’s 2023 Compliance Toolkit recommends a programme with five core elements: (a) a written competition law policy approved by the board of directors; (b) a designated compliance officer with direct reporting lines to the audit committee; (c) mandatory training for all employees in sales, procurement, and senior management, with annual refresher sessions; (d) a whistle-blowing channel that allows anonymous reporting to the compliance officer; and (e) a periodic audit mechanism, with reviews conducted at least annually by an external law firm.

For IPO applicants, the compliance programme must be implemented at least 6 months before the listing application, and the sponsor must confirm in the sponsor’s declaration that the programme is operational. The SFC’s 2024 sponsor inspection report noted that 15% of sponsors accepted compliance programmes that were “window-dressed”—meaning that the policy existed but was not enforced. The SFC has indicated that it will treat such acceptance as a failure of sponsor due diligence under paragraph 17.6 of the Code of Conduct.

Leniency Application Strategy

If the audit uncovers an existing cartel or bid-rigging arrangement, the applicant must decide whether to apply for leniency under the HKCC’s Leniency Policy. The decision is time-sensitive: only the first applicant to report a cartel receives full immunity. For an IPO applicant, a leniency application will require full cooperation with the HKCC, including disclosure of all relevant documents and testimony by employees. The HKCC’s 2024-2025 Annual Report notes that the average leniency application process takes 12-18 months from initial report to final decision. An applicant cannot proceed with a listing application while an HKCC investigation is pending, as confirmed by LD143-2023.

Director Disqualification Risk

Section 102 of the Competition Ordinance empowers the Competition Tribunal to disqualify individuals from being directors of any Hong Kong company for up to 15 years if they are found to have been involved in a serious breach of the conduct rules. For an IPO applicant, the listing agreement requires that all directors be “fit and proper” under Listing Rule 3.09. A director disqualification order under the Competition Ordinance would automatically disqualify the individual from serving as a director of a listed company under the Securities and Futures Ordinance (Cap. 571, section 214). The audit must therefore include a background check on all directors and proposed directors against the HKCC’s public register of disqualification orders, which currently lists 12 individuals as of March 2025.

The HKCC’s Enforcement Trajectory: What IPO Applicants Must Monitor

The HKCC’s enforcement activity has increased markedly since 2023. The 2024-2025 Annual Report shows that the HKCC filed 4 new cases in the Competition Tribunal in 2024, compared to 2 in 2023 and 1 in 2022. The average penalty imposed in 2024 was HKD 18.3 million, up from HKD 9.5 million in 2023. The HKCC has also expanded its use of information-gathering powers under section 48 of the Ordinance, issuing 127 information requests in 2024, a 63% increase from 78 in 2023.

Sectoral Focus for 2025-2026

The HKCC’s 2025-2026 enforcement plan, published in January 2025, identifies three priority sectors: (a) construction and engineering, where bid-rigging in public works contracts remains the top concern; (b) financial services, including coordination on loan pricing, insurance premiums, and investment advisory fees; and (c) transportation and logistics, including the sharing of pricing data among freight forwarders and shipping lines. IPO applicants in these sectors should expect heightened scrutiny from both the HKCC and HKEX.

Cross-Border Implications

For IPO applicants with operations in the PRC, the audit must also consider the Anti-Monopoly Law of the PRC (AML), which has been enforced with increasing vigour since its 2022 amendments. The State Administration for Market Regulation (SAMR) imposed penalties totalling RMB 2.1 billion in 2024, with a focus on technology platforms and pharmaceutical companies. For a Hong Kong-listed company with PRC subsidiaries, a competition law violation in the PRC could trigger a disclosure obligation under Listing Rule 13.09 and require a supplementary announcement to the HKEX.

Actionable Takeaways for IPO Applicants

1. Commission a competition law audit at least 18 months before the planned listing date, covering all entities within the listing group and focusing on cartel exposure, bid-rigging risk, and resale price maintenance in the Hong Kong market.
2. Implement a written competition law compliance programme with board-level approval, a designated compliance officer, and annual external audits, ensuring the programme is operational for at least 6 months before the listing application.
3. Review all trade association memberships, joint bidding arrangements, and distributor agreements for potential First Conduct Rule violations, and terminate any RPM arrangements at least 12 months before the listing application.
4. If the audit uncovers a potential cartel or bid-rigging arrangement, engage competition counsel immediately to assess leniency options, recognising that a pending HKCC investigation will delay the listing application.
5. Include competition law compliance in the sponsor’s due diligence work programme, and require the sponsor to obtain a legal opinion from a Hong Kong competition law specialist as part of the sponsor’s declaration under paragraph 17.6 of the SFC Code of Conduct.