SGX plans to hard-code due diligence banking guidelines into listing rules

Singapore

SINGAPORE Exchange Regulation (SGX RegCo) plans to incorporate the due diligence guidelines issued by the Association of Banks in Singapore (ABS) under its Listing Rules, following a public consultation that will take place by the year end.

Currently, these guidelines for due diligence activities that banks carry out on companies seeking to list on the Singapore Exchange (SGX) are non-binding principles or best practices that do not have the force of law nor are they legally binding on members of ABS.

Tan Boon Gin, chief executive officer of Singapore Exchange Regulation (SGX RegCo), told The Business Times that he wants to formalise the disciplinary framework for greater clarity. This is crucial because issue managers and full sponsors are ultimately responsible for the due diligence on companies and the quality of the companies they sponsor for listing.

"We will by the end of this year propose rule changes that will clearly spell out what we expect from issue managers in terms of their roles and responsibilities. This builds on the Listings Due Diligence Guidelines that we worked on together with ABS in 2016. Issue managers that fall short can expect us to take disciplinary action," Mr Tan stressed.

The regulator is also conscious that time-to-market is of paramount importance to issuers. "We will continue to look at ways and means to make regulatory processes more efficient without compromising on the outcome," Mr Tan assured.

In May 2016, ABS issued its enhanced due diligence guidelines for initial public offers (IPOs) and reverse takeovers (RTOs), taking into account inputs from SGX, auditors, lawyers, banks and corporate finance firms.

The latest move to improve the listings admission process falls under the regulator's plan to leverage the market eco-system, one of the three pillars it will be focusing on over the next year.

In SGX RegCo's FY2018 statement, Mr Tan, together with chairman Tan Cheng Han, said the regulator would "continue to increase our watch over the markets, reducing regulation where possible and enhancing regulation as needed".

"Our energies will be focused on three pillars, namely: investing in the future; leveraging the market eco-system; and growth with integrity. We will therefore roll out initiatives aligned to these purposes and expand on earlier efforts arising from our collaborations across the industry.''

They said the buzz surrounding new technologies and so-called disruptions including crypto-assets and Initial Coin Offerings (ICOs) has not gone unnoticed.

"We are studying the implications of these developments and will pay particular attention to the management of risks and the lines of accountability."

Elaborating on this during the interview, Mr Tan Boon Gin said: "We are aware of the interest expressed by listed companies to issue ICOs. The question is whether the ICO is a security or a utility.

"If it is the former, the SFA ( Securities and Futures Act) applies. If it is a utility, we will require additional disclosures such as how the assets are audited and accounted for in the financial statements, and the impact of the issuance on shareholders. SGX intends to publish soon guidance on the matter."

Apart from issue managers, the regulator wants to work with other gatekeepers like lawyers and auditors under its "growth with integrity" push.

"We want to ensure that they understand what we expect of them and that we will not hesitate to refer them to their industry bodies if they fall short. This will raise standards and improve the quality of the market," said Mr Tan Boon Gin.

But it is not all sticks without carrots to ensure companies abide by the rules and the disclosure-based regime. That was why in April this year, the regulator launched its SGX Fast Track programme which aims to reward companies that have done well on the corporate governance front. This, Mr Tan said, has been well-received, and the regulator is looking at how else it can encourage good behaviour.

The RegCo, established nearly a year ago to undertake all regulatory functions from the SGX, today has a 100-strong team with various regulatory responsibilities reporting to an independent board.