SGX RegCo's need for speed

But with a bigger stick, came along the responsibility to be equitable. For every severe enforcement action tak­en, a greater avenue for companies to make a defence and an appeal was required. Moreover, given that SGX is both a commercial for-profit entity and a stock market regulator, better controls and safeguards were need­ed to ensure that checks and balanc­es were sufficiently robust.

Hence, three independent listing committees were formed to balance the enhancement to SGX’s enforce­ment powers. They are the Listings Advisory Committee (LAC), List­ings Disciplinary Committee (LDC) and the Listings Appeals Commit­tee (LApC). The committees con­sisted of independent and experi­enced market professionals, whose appointments weremade in consul­tation with the Monetary Authority of Singapore (MAS).

Now, however, SGX wants to tweak its regulatory approach. This comes three years after the bourse operator established a new subsidi­ary — Singapore Exchange Regula­tion (SGX RegCo) — to undertake all of its regulatory functions. During that period, SGX RegCo introduced new measures and revamped exist­ing ones to better ensure the listing compliance and corporate govern­ance of locally-listed companies. This was in response to a string of corpo­rate scandals that has wiped out a vast amount of shareholder wealth.

CEO Tan Boon Gin says SGX Reg­Co now intends to focus on quicken­ing the pace of taking enforcement on errant companies. This, he says, would play better to SGX RegCo’s strengths as a frontline regulator, given that it has certain limitations to the kinds of enforcement that it can impose at the “exchange level”.

In comparison, other regulators have the statutory authority to impose civil penalties, criminal fines and jail terms, Tan notes. This particularly re­fers to MAS, the Accounting and Cor­porate Regulatory Authority (Acra) and the Commercial Affairs Depart­ment (CAD). Hence, increasing the se­verity of penalties and fines, of which he believes the market is clamouring for, would be better left in the hands of these regulators, he says.

In other words, Tan is convinced that SGX RegCo should prioritise the speed of enforcement rather than its severity. “So my conclusion is that there is always a trade-off between speed and severity of punishment,” he tells The Edge Singapore in an interview on March 24. “[Hence], I think we should be playing to our strengths and complementing the other authorities, who can take more punitive action.”

Swift action

So, how will this look like in prac­tice? Will there be structural changes to SGX RegCo in its role as the front­line regulator?

Tan says SGX RegCo’s swift en­forcement will continue to uphold the protection of shareholder inter­ests. For example, this will be in the form of notices of compliance (NOCs) issued against companies that are showing any irregularities in its operations. “This is what I mean by leveraging on our strengths (that is) speed,” he says.

NOCs will also be issued against sponsor firms that may have been de­linquent in their duties. This comes after SGX RegCo last year widened the scope of responsibility of sponsor companies in their governance and oversight of Catalist-listed companies.

SGX RegCo will now be looking to the sponsors for immediate an­swers, as the latter are the first line of defence. If the answers are not satisfactory, SGX RegCo will inspect the sponsors immediately to check if there are gaps in their processes that need to be rectified. Such inspections will span work at the IPO stage all the way to the company’s continu­ous listing obligations.

Tan notes that SGX RegCo has already issued its first NOC against a sponsor, RHT Capital. On Jan 23, this sponsor was served a NOC to demonstrate how it is able to main­tain independence and avoid conflict of interest despite various services provided by entities under the same RHT Group of Companies.

RHT Capital is currently the con­tinuing sponsor for 24 companies, including Synagie Corp, Metech International, Jubilee Industries Holdings and Accrelist. At the same time, RHT Corporate Advisory is the designated share registrar for Synagie and Metech, while RHT Communi­cations and Investor Relations is the designated investor relations team for Jubilee and Accrelist.

According to SGX RegCo’s NOC, RHT Capital, RHT Corporate Advi­sory, and RHT Communications and Investor Relations are part of the RHT Group of Companies under RHT Lex Ultra. In response to queries by The Edge Singapore on Jan 24, RHT Cap­ital clarified that RHT Corporate Ad­visory is no longer part of the RHT Group of Companies. This was af­ter the corporate advisory unit was sold to In.Corp Global in May 2019, it said. “We have written to SGX to clarify this relationship,” said a RHT Capital spokesman.

Secondly, SGX RegCo will continue to issue public announcements if and when a company releases the find­ings of a special audit. Tan notes that SGX RegCo had on March 3 issued its first such announcement in rela­tion to TEE International, whose ex­ternal investigator Pricewaterhouse­Coopers Risk Services (PwC) had completed an independent investi­gation into the company. PwC was appointed in September last year to look into unauthorised payments to­talling $6.55 million.

According to a summary report by PwC, TEE International made several potential breaches of the Companies Act as well as possible non-compli­ance with SGX’s listing rules and the code of corporate governance. These unauthorised transfers were purport­edly made between TEE Internation­al’s then-Group CEO and controlling shareholder Phua Chian Kin, Oscar Investment, a British Virgin Islands-in­corporated entity wholly and bene­ficially owned by Phua and two of the group’s key engineering subsid­iaries, Trans Equatorial Engineering and PBT Engineering.

Tan says SGX RegCo’s announce­ment has set out the regulator’s ex­pectations for companies to have in place internal controls for material disbursements and monitoring inter­ested party transactions. “We note that the company responded strict­ly positive to the recommendations,” he says. Phua is currently under in­vestigation by the CAD.

Apart from that, Tan says that he will continue to publish regulatory columns on SGX RegCo’s website. This is to explain the latest regula­tory enhancements and changes in order to provide clarity to the mar­ket, he says. Tan notes that his most recent column was on SGX RegCo’s expectations of disclosures involv­ing significant litigation.

Bottleneck

One significant change in the regula­tory process could involve the LDC — and by extension — the LApC. This committee hears the charges brought by SGX against the alleged offenders, who may have breached any of the listing rules. The alleged offenders could be the listed compa­nies themselves, directors, executive officers, issue managers, sponsors and registered professionals.

Under SGX’s trading and clearing rules, the alleged offenders could also include trading or clearing members or any of the member’s directors, trading representatives, approved traders or registered representatives. If the LDC decides that the charges have been established by SGX, it will decide on the appropriate sanction.

But the LDC has become some­thing of a bottleneck. For one, the dis­ciplinary proceedings have become a lengthier process than originally in­tended. As Tan explains, the discipli­nary proceedings start with a notice of charge delivered by SGX against the alleged offender. In response, the alleged offender is given the opportu­nity to make a defence within a span of 14 business days. In response, SGX could take up another 14 business days to counter the alleged offender’s de­fence. This is followed by another 14 business days for the alleged offender to make a second defence.

Only after this process is complet­ed would a notice of disciplinary com­mittee hearing be issued to the alleged offender, who has up to 14 business days to respond to the notice of disci­plinary hearing. After which, the dis­ciplinary committee hearings are con­ducted within a span of seven business days. Thereafter, it may take up to six weeks for the LDC to reach a grounds of decision.

If the alleged offender wishes to ap­peal the decision of the LDC, this can be made to the LApC within a span of 14 business days. The decision of LApC is final.

Overall, the entire disciplinary proceedings should have taken about four months to conclude, according to Tan. But in reality, it has taken up five-to-six months for SGX to de­liver the notice of charge and the alleged offender to make the first defence, he says. This compares to troubled Swiber Holdings, which took three-to-four months to con­clude its disciplinary proceedings — under the previous disciplinary framework, he adds.

Conflicts of interest

That aside, the effort to ensure the independ­ence of the LDC members has also caused de­lays. In particular, new LDC members are need­ed to replace those with conflicts of interests to conduct the disciplinary committee hearing and be brought up to speed, says Tan.

According to the LDC Handbook, the hear­ing requires an initial quorum of five members. They comprise the LDC chairman or deputy and at least one member with legal experience. The remaining members should consist of those with experiences related to accounting, corporate fi­nance and directorship in a locally-listed compa­ny. Subject to the discretion of the chairman (or deputy chairman), a hearing may be concluded with a quorum of three members.

The challenge of finding a suitable replace­ment lies with the fact that the community of corporate executives and professionals in Singapore is small, says Tan. Hence, at some point and degree, many of the LDC members or their firms have conflicts of interests in the form of dealings or engagements with the al­leged offender, he explains. What may con­strue conflicts of interests can also extend to any dealings or engagements with the bank­ers, lawyers, auditors, consultants and other counterparties of the alleged offender, he adds.

“So there have been cases where we’ve fixed a date [for the hearing]. But then at the last minute, someone declares a conflict [of interest] because his or her firm has dealings with not just the listed company, but with any of these parties [that are counterparty to the company],” Tan says. “So we have to start all over again [to secure quorum].”

When asked if there were any LDC members who sat through the hearing but chose not to disclose any conflicts of interests, Tan denies this. “I think our [LDC] members are very sen­sitive about conflicts [of interest]. Therefore, they are very diligent about declaring [them] upfront,” he says.

So will LDC be disbanded and its duties and responsibilities taken over by SGX Reg­Co? After all, this is in line with SGX’s purpose to house all of its regulatory functions under SGX RegCo. Tan stops short of saying that he is keen as he is mindful that SGX RegCo has to consult the market with “concrete” propos­als on whether the stock market regulator has scope “to do more”.

Tan is also considering better ways to penal­ise wrongdoing. While the severity of punish­ment is one thing, the manner of punishment is another. “I talked about taking a targeted ap­proach [before]. So we need to ask ourselves whether fining companies are too blunt a tool because we end up punishing shareholders too,” he says.

Unfortunately, the Covid-19 pandemic has thrown a spanner in the works. Tan says SGX Reg­Co will defer its proposals till “later in the year”.

Adjusting to Covid-19

Tan says that SGX RegCo is keeping a close watch of the regulatory impact resulting from the Covid-19 pandemic. In particular, the global spread of infections and deaths caused by Cov­id-19 have led to cancellations of meetings and conferences. This includes the annual general meetings (AGMs) that companies are required to hold in order for shareholders to approve the financial statements and other resolutions.

To that end, SGX RegCo on Feb 27 announced that it will allow companies with a Dec 31 finan­cial year-end to defer AGMs up until June 30, 2020. The waiver was granted following feed­back from shareholders who want to participate in and vote at AGMs, but are concerned about attending large-group meetings amid the Cov­id-19 pandemic, which is running smack into the peak of the AGM season every April. The time extension applies to these companies irre­spective of their place of business or operations.

Alternatively, SGX RegCo suggested that these companies should consider organising virtual information sessions before their AGMs. This will provide shareholders with a forum to ask questions and engage with management and the board of directors. Other options in­clude allowing shareholders to vote via prox­ies, and thus, avoid having to attend the AGM physically. Moreover, companies may arrange for alternative AGM venues to reduce the con­gregation of a large number of shareholders at any one particular venue.

Still, these alternative suggestions may no longer be feasible. On March 24, the govern­ment limited the number of people in gather­ings outside of school and work to a maximum of 10. Events such as festivals and concerts — which were limited to 250 participants previ­ously — will also have to adhere to the new measures. This may now include AGMs.

Tan says SGX RegCo is monitoring the de­velopments closely. He notes that any regula­tory changes will depend on the measures im­posed by the Ministry of Health. “Our priority right now is to listen to feedback and see what challenges that companies are facing. One of them is definitely AGMs,” he says. “We are evaluating that feedback.”