Singapore needs appropriate laws, enforcement mechanisms to handle debacles like Noble bust

NOBLE Group and its enablers insisted that its books were not cooked, and threatened to take legal action against whistleblowers and journalists who suggested otherwise.

On Aug 24, the Monetary Authority of Singapore, the Accounting and Corporate Regulatory Authority (Acra) and the Commercial Affairs Department (CAD) said in a joint statement that a unit of Noble had applied “incorrect accounting treatment” to marketing agreements with mine owners and coal producers that had the effect of inflating the group’s reported profits and net assets from 2016 to 2018.

Many investors may feel that Noble’s comeuppance has come too late, though.

By the time investigations into Noble started in late 2018, its once-high-flying shares had already collapsed. It was also more than 3 years after Iceberg Research began raising concerns about the commodity supplier’s financial statements.

On the face of it, the penalties meted out also seem less than adequate.

MAS will impose a civil penalty of S$12.6 million on Noble for publishing misleading information in its financial statements.

Acra has issued “stern warnings” to 2 former directors of a unit of Noble for failing to prepare and table annual financial statements that are in compliance with Singapore’s accounting standards.

In addition, the Public Accountants Oversight Committee (PAOC) has “issued orders” against unnamed auditors at Ernst and Young (EY) in relation to Noble’s financial statements from 2012 to 2016.

“The PAOC determined that it was appropriate for the auditors to be subject to a peer review on 3 audit engagements, attend specific courses, and submit a remediation plan to Acra,” said a spokesperson at Acra, when asked about the nature of the orders.

But no action has been taken against EY as a firm, the spokesperson added.

While it is tempting to blame this seemingly flaccid response to Noble’s collapse on a lack of determination on the part of Singapore’s market regulators, the real problem may be that Singapore lacks appropriate laws and enforcement mechanisms to deal with modern financial market chicanery.

There might also be too much reliance on independent directors and external auditors to keep companies honest.

One reason regulators did not move more quickly on Noble was that its auditors had signed off on its books – so, where was the crime?

Acra also does not currently have the power to inspect accounting firms to ensure compliance with quality control standards. The Ministry of Finance and Acra held a public consultation late last year on amendments to the Accountants Act that will address this, among other things.

Furthermore, the civil penalty regime does not appear to be delivering – in this instance, at least – punishments that fit the crime. The S$12.6 million imposed on Noble seems minuscule compared to the billions of dollars in market value that evaporated as investors lost confidence in the company.

It could be time for Singapore to consider setting up a single law enforcement agency to deal with corporate and financial market crimes.

While MAS has expanded its investigation powers over the past decade to fill that role, it has many other very important jobs – crucially, the regulation of banks and management of monetary policy.

The kind of wrongdoing that leads to collapses we have seen at Noble as well as Hyflux and Eagle Hospitality Trust tends to involve a wide variety of enablers – including independent directors, auditors, corporate finance advisers and even investor relations professionals and analysts.

A single agency with the necessary powers and mandate to actively hunt for wrongdoing and bring the black sheep in these different spheres to book could be what the Singapore market needs now.