HONG KONG/SINGAPORE - Hong Kong's stock market regulator has hit Mega Capital, the underwriter of a troubled 2009 listing with some of its toughest enforcement action to date, revoking a corporate finance advisory licence for the first time and imposing a record fine.

The move comes days after sources told Reuters that the regulator will launch a public consultation in the next few weeks on tougher rules for IPO sponsors. It is expected to look at whether sponsors should be held liable for the contents of deal documents.

The Securities and Futures Commission said Mega Capital (Asia), the sponsor of Chinese fabric maker Hontex International Holdings' IPO, had failed to obtain materially important information from Hontex's suppliers and customers and also failed to act independently and impartially.

It imposed a HK$42 million ($5.4 million) fine but added that it had found no evidence that Mega Capital was involved in any fraud.

Hontex went public in December 2009 but its shares were suspended just three months later after the commission alleged it had materially overstated its financial position in its listing prospectus.

In Hong Kong, an IPO's sponsor, usually a bank or smaller corporate finance house, is responsible for preparing a company's listing documents and performing due diligence to ensure they comply with listing rules.

The watchdog said Mega Capital had conducted inadequate and sub-standard due diligence work.

"Given the important role played by sponsors, these failures must be regarded most grimly," said Mark Steward, the commission's director of enforcement.

"The sanctions imposed on Mega Capital should make it clear that the SFC condemns such failure in the strongest terms," he added in a statement.

Mega Capital's parent, Taiwan's Mega Financial Holdings , which is partly state-owned, said in a statement on Monday that it is not ruling out legal action against the auditors in the Hontex listing, but sees no effect from the SFC's penalty on the parent's finances or operations.

Its shares were 1.9 per cent higher in early Monday trade.

The regulator has also taken court action against Hontex, freezing the $128 million in proceeds from its listing. But it is still trying to win the right to return that money to investors, with a court hearing scheduled later this year.

The case is one of a number where the SFC is struggling to take action against offshore companies and investors operating in the Hong Kong market. All of Hontex's executives are believed to be either in mainland China or Taiwan, making it tough for the regulator to launch criminal proceedings against them.

Investment banks worry that stricter rules for IPO sponsors may mean the focus could shift to taking action against them if an IPO runs into trouble, rather than going after the company itself and its directors.