SGX RegCo: More oversight to boost market confidence

Singapore

LISTED companies can expect the Singapore Exchange Regulation (SGX RegCo) in the coming months to increase its regulatory presence to strengthen investor confidence and deter wrongdoings.

Speaking at the launch of the Singapore Governance & Transparency Index 2019 on Wednesday, SGX RegCo chief executive officer Tan Boon Gin stressed that only a small minority of the 750 companies listed on the Singapore Exchange (SGX) are non-compliant.

"But it only takes a small minority to impact the reputation of the entire market community," Mr Tan said.

"Our regulatory approach is to target the non-compliant companies and to avoid burdening compliant companies unnecessarily with over-inclusive rules that apply across the board," he added.

As at August, the regulator has commenced hearing against three listed companies before the independent listing disciplinary committee, which hears charges brought by the regulator against persons who have breached its listing, trading or clearing rules.

"Enforcement actions are important for two reasons: The first is that wrongdoings must be punished and seen to be punished. Otherwise, confidence in the market will be eroded. Second, the penalties meted out serve as deterrent to others," Mr Tan said at a media briefing sharing initiatives the RegCo is working on for the rest of the year.

A dedicated whistle-blowing office will be set up and breaches related to regulations will be handled directly by relevant persons in the regulation department.

"We want to assure the market that we take whistle-blowing seriously and that we are committed to following up on any information that we receive in accordance with a public policy that we are going to publish on our website that deals with, among other things, how we maintain the confidentiality of the information," Mr Tan said.

Sponsors of firms listed on Catalist will be held to greater accountability because they are "the first line of defence for Catalist companies in terms of governance and oversight".

The regulator already performs regular and thematic inspections of sponsors.

"However, if the answers that we receive are not satisfactory, you can expect us to go in and inspect them immediately off-cycle to check if there are any gaps in their processes that need to be rectified. Such inspections are going to span work at the IPO stage all the way to the company's continuous listing obligations," he said.

In addition, SGX RegCo will undertake a public consultation aimed at a more robust regulatory regime for property valuations.

"This is important for our market where we are recognised as an international centre for real estate investment trusts (Reits)," Mr Tan said.

Regulation of issue managers will also be enhanced.

"Because the issue manager is so crucial in conducting due diligence on companies that it brings to list on the exchange, we have proposed in the case of issue managers to expand how we regulate them to include how they conduct their due diligence and how we can take them to task if they fall short of the standards we are setting for them in terms of due diligence. We have consulted on this and market can expect the new rules to be announced in the coming months," he said.

The RegCo also wants to increase the accountability of auditors. It intends to issue a public consultation on requiring a second auditor in certain exceptional cases and the appointment of Singapore-based auditors for Singapore-based companies to increase its regulatory traction.

Work with the Association of Banks in Singapore will soon start to refresh the listing due diligence guidelines, which were last enhanced in 2016. Mr Tan reckoned it is time to consider further improvements, especially in the areas of internal controls, financial forecast and projections.

The RegCo is working with independent financial advisers (IFAs) on guidance and standards in respect to their opinions on exit offers.

The focus will be on standardising the methodology for IFAs to determine whether an exit offer is fair and reasonable, and where an interested party transaction is concerned, if the transaction is on normal commercial terms.

"By doing this, we hope to achieve greater clarity and consistency for IFAs' opinions in general," Mr Tan said.

Sustainability reporting for listed companies, mandated from financial year ended Dec 31, 2017, will be improved, especially when it comes to linking business strategy with sustainability reporting.

As part of the regulator's effort to "calibrate our rules for efficiency and effectiveness", Mr Tan said SGX RegCo will be reviewing the minimum trading price (MTP) policy, quarterly reporting and retail bonds framework.

On MTP, Mr Tan said new and more effective tools like trade with caution alerts, and members' surveillance guidebook and dashboard have been developed to detect manipulation risks. It has also observed certain unintended consequences from MTP. For example, when a company consolidates its shares, in theory its market capitalisation should remain the same.

"But in practice, once companies have actually done the consolidation, we have observed that their share price has fallen post-consolidation and their market value has further declined.

"We are prepared to go as far as to remove the MTP policy if based on the feedback we feel this is the best way forward," Mr Tan said.

Also in the works is the formation of a working group comprising industry professionals, investors and regulators to review the retail bonds framework.

The group will look into ways to provide clarity on the role of trustees and how investors can better exercise their rights in the event of a default like in the case of Swiber Holdings, Noble Group and Hyflux.

Corporate governance advocate Mak Yuen Teen said the SGX RegCo initiatives overall send a positive message from the investors' standpoint.

"It is good that they are keeping closer eye on issuers, having a whistle-blowing system, and holding auditors, sponsors and issuers more accountable," Prof Mak said.

However, the associate professor of accounting at the NUS Business School said he would be concerned if quarterly reporting is rolled back in a significant way, given the "quality" of many companies here at the moment.

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