A resounding Yes! to faster SGX RegCo enforcement actions

Singapore

PROPOSED changes by the Singapore Exchange Regulation (SGX RegCo) to speed up its enforcement actions are long overdue as investors clamour for greater and swifter accountability for corporate malfeasance.

In an interview with The Business Times, Tan Boon Gin, SGX RegCo's chief executive officer, shared that public sanction is at the tail end of the regulator's enforcement philosophy covering a spectrum of actions. These include pre-emptive actions to alert the market and disruptive actions to contain a situation.

Pre-emptive tools used to deal with manipulation risk include its "Trade with Caution" alerts, which now carry more details beyond stating that signs of a potential false market had been spotted. Accounts involved in unusual activities can also be restricted.

Surveillance and regulation of the securities market have been more targeted and effective with the application of artificial intelligence (AI) enhancements to its real-time monitoring system. SGX RegCo has also launched initiatives in collaboration with member firms to detect and stop market misconduct, foster good trading practices and maintain a fair, orderly and transparent marketplace.

"If you look at it holistically from a market point of view, you look at what we have today: our trading volumes are up; retail participation is up; (governance) scores for companies, (real estate investment trusts) and business trusts have increased sharply and are now at record highs," Mr Tan said.

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These measures addressing trading misconduct have been in place for a longer period, and the results are noticeable. But those addressing corporate malfeasance have not had the same effect.

"There are really many parts to it. We have been working through the various pieces of the puzzle. But all these things we have been doing haven't really had a chance to come together yet," Mr Tan added.

One example of a measure to address corporate malfeasance is the issue of Notices of Compliance (NOC), which have been increasingly aggressive. The NOC sets out SGX RegCo's concerns and expectations when a company issues a special audit report or independent review. Another example is getting the special auditor to report exclusively to SGX RegCo.

"I am hopeful that once enough time has gone by such that the measures have been put in place for a longer period, then we will see results in the same way we are now seeing results for trading misconduct from measures we have put in place earlier,'' Mr Tan said.

On Thursday, SGX RegCo proposed adding new weapons to its arsenal. Among other things, it is seeking more power to impose various public sanctions, except fines, that are currently under the purview of the Listings Disciplinary Committee (LDC).

The proposal has obtained resounding approval from market watchers.

Stefanie Yuen Thio, joint managing partner at TSMP Law Corp, said giving the SGX RegCo more powers to take immediate action would safeguard the interests of a listed company and give the market greater clarity and confidence that urgent cases are being speedily dealt with.

Mrs Thio said: "Currently, where cases are referred to the LDC, there is no visibility to the market as to which cases are before the LDC, which is important for building market confidence in the oversight and supervision process.

"Also, a resolution by the LDC could take more than six months, which is a long time if the individuals being investigated are still on the board or in the management team. The new powers, if implemented, would allow SGX Regco to require the removal of a director who is under investigation for serious offences, better safeguarding the business and assets of the listco."

Associate Professor of Accounting at the NUS Business School Mak Yuen Teen, who had pointed out the risk of unnecessary bureaucracy when the LDC and the Listings Appeals Committee were first formed, said it was unfortunate that valuable time was lost in the last few years on the enforcement front and hoped that the LDC's 15 pending cases can be heard soon.

Since the formation of the LDC in October 2015, there have been 18 notices of charges but only three heard.

The new rules proposed would allow SGX RegCo to hear cases that do not involve fines.

"The creation of the LDC has led to unnecessary bureaucracy, conflicts between the LDC members and companies/directors, and the LDC holding things up without accountability," he said.

Prof Mak remains concerned about the LDC being the sole party to impose fines. He would prefer the SGX Regco handles this with an advisory panel.

"Maybe having some carefully chosen people who also come from the investors' side to advise RegCo but still have RegCo do it is better. I could imagine leaving fines with LDCs means we won't see them."

He also said it does not make much sense to fine companies, as the shareholders bear the cost.

"So I suspect the LDC will have nothing much to do as far as companies and directors go. They may have some role in disciplining issue managers, sponsors and registered professionals, which also fall within its mandate,'' Prof Mak said, adding that the composition of the LDC needs to be looked at too if it is going to play an effective role.

Adrian Chan, head of the corporate department and a senior partner at law firm Lee & Lee, said "justice delayed is often justice denied''.

"There is much to be said for the ability of the authorities to speedily take control of cases where there were findings of fraud, dishonesty or serious market or regulatory lapses that prejudice or threaten the interests of shareholders.

"That can only inject more confidence into the systemic robustness of our capital markets framework," he said.

Sometimes a board can be split or divided when there are suspicions of fraud or other serious offences, and unable to muster up the majority necessary to act quickly to shore up shareholders' interests.

"In these cases, the LDC as an industry-led committee made up of a broad range of representatives may not be able to operate decisively to arrest the risk of erosion of shareholder value or market failure. The SGX RegCo is much better placed to do that," Mr Chan said.

READ MORE: SGX RegCo to get more powers to speed up disciplinary action