Ayondo's disregard of SGX order: What now?

WHEN Ayondo came to the market as the maiden pure-play fintech for the Singapore Exchange's (SGX) Catalist platform, it was a debutante draped in a sparkling assortment of accolades as a financial services provider, trading platform and broker.

But a year after its initial public offering (IPO), the European social trading broker has not only failed to live up to its hype, it has also shown an indifference, verging on outright defiance, to Singapore Exchange Regulation (SGX RegCo) and the listing rules.

On May 7, Ayondo proceeded with an agreement to sell its 99.91 per cent-owned subsidiary, Ayondo Markets Limited (AML), to Netherlands-registered BUX Holdings for £5.7 million (S$10.2 million).

This is despite SGX RegCo ordering Ayondo, in a Notice of Compliance on April 16, to meet various conditions first before the sale could proceed. (see amendment note)

Ayondo has said that tighter regulations in Europe and the United Kingdom, coupled with unfavourable market conditions, have caused AML's business of providing contracts for difference (CFD) trading to deteriorate. The sale of AML will allow the company to focus on growing its social trading platforms instead.

Not surprisingly, the blatant sale prompted the regulator's ire and a warning of a thorough review of the company, including "what transpired at IPO and after listing".

Given Ayondo's history as a listed company, the company's disregard for the regulator does not instill confidence among investors.

For shareholders, who believed in the loss-making fintech upstart, the past year has been a roller-coaster ride of one piece of bad news to another. Compared to its IPO at 26 Singapore cents last March, Ayondo's share price has crashed to 4.8 cents before trading was suspended on Feb 1, 2019 - a whopping loss of over 80 per cent in market value.

Trouble for Ayondo surfaced barely four months after its IPO when chief financial officer Richard Fulton quit in July 2018. Founder and chief executive Robert Lempka followed a few months later, in January 2019.

Trading was suspended on Feb 1 amid friction between the board, Ayondo's controlling shareholder and its former CEO.

It also turned out that KPMG in the UK disagreed with the treatment of certain key items in AML, which is required to maintain a Common Equity Tier 1 (CET1) ratio under UK's financial reporting standards. Had KPMG's treatment been adopted by AML, it would have a negative impact on AML's CET1 ratio.

This came after the fact that during the IPO, Ayondo's independent auditor - EY Singapore - had audited Ayondo and AML and concluded the financial statements reflected a true and fair view of the company's affairs as of Dec 31, 2017.

Ayondo is not the first company to ignore the orders of SGX RegCo, both in the regulator's current autonomous entity and when it was an internal department of the market operator.

YuuZoo Networks Group Corp, whose shares remain suspended from trading, is now in limbo after SGX RegCo found that it did not provide the necessary access and scope for an independent review of the company's accounts. SGX RegCo has recommended the case to criminal investigators, and the probe is ongoing.

In the meantime, YuuZoo shifted its headquarters to Thailand and shut down its Singapore operations.

Before Ayondo and YuuZoo, Singapore also saw defiance among some Singapore-listed China companies, or S-chips.

Part of the problem lies with what SGX RegCo can and cannot do.

When companies and their management or directors can find refuge overseas, territorial problems arise. SGX RegCo has acknowledged the need to address the jurisdictional gap, which can make it difficult to investigate fraud or governance failures that originate outside Singapore.

For S-chips in particular, the regulator is mulling the need for China companies seeking to raise funds by listing in Singapore to rope in state-owned enterprises (SOE) or mainland cornerstone investors.

The effectiveness of enforcement also needs to be improved. SGX's greatest powers - suspension of trading and delisting of listed companies - are double-edged swords that can hurt innocent investors as much as wrongdoers.

Regulators and law enforcement may perhaps get more bang for their buck if they are better at holding individuals accountable. After all, acts of wrongdoing and negligence ultimately boil down to decisions made by people, be they executives, directors or professionals such as IPO managers and sponsors.

Companies and the people who are responsible for running them or marketing their securities to the public cannot be allowed to raise money in Singapore and leverage on the reputation of being listed in Singapore, without regard for local rules and regulations.

Companies and individuals have to be taken to task for calculated indifference to regulators, or Singapore's financial markets may lose their hard-earned credibility.

Amendment note: SGX RegCo has clarified that Ayondo has only signed a sale and purchase agreement, which does not breach conditions set forth under the Notice of Compliance, which states that Ayondo must meet the conditions before it can complete the sale.