TWO former senior employees of UOB Kay Hian Private Limited (UOBKH) were charged on Wednesday for allegedly lying to the Monetary Authority of Singapore (MAS) in relation to reports on a then Catalist aspirant. Lan Kang Ming, 38, and Wee Toon Lee, 34, each face three charges of providing MAS with false information in October 2018 in relation to due diligence reports on an unidentified company applying to list on the Catalist board of the Singapore Exchange. MAS said in a media statement on Wednesday that it was performing an onsite inspection of UOBKH between June and August 2018, to assess the latter's controls, policies and procedures in relation to its role as an issue manager for Initial Public Offering (IPOs). During the examination, Lan and Wee were said to have provided different versions of a due diligence report relating to background checks on a company applying to be listed on the Catalist board of the Singapore Exchange. UOBKH had acted as the issue manager
Comments
Michelle Quah
19 September 2014
The Singapore Exchange’s (SGX) plan to boost its disciplinary powers to improve the quality of the market is long overdue - coming as it did after debacles such as the penny-stock collapse last year.
Indeed, BT readers will also recall the countless times this paper has called for such added bite.
But, the devil is in the details: how exactly SGX intends to finally grow a sharper set of teeth (with the procedures not yet fully fleshed out) will determine if it will eventually succeed in doing so.
To recap: the Exchange rolled out two consultation papers on Wednesday, asking the public for its views on (among a host of other things) its plans to set up an external and independent listings disciplinary committee (LDC) and listing appeals committee (LAC).
The LDC will hear and decide on cases of breaches of listing rules brought by SGX before it. It will have “all powers available to SGX” plus some additional ones - including the right to issue public reprimands; impose limited fines; prohibit issue managers from participating in specific listings; and bring about the resignation of directors or executive officers from listed companies.
The LAC will have the power to review the decisions made by the LDC.
It is encouraging that SGX recognises the need to vest these committees with more powers than what it currently possesses. It has oft been said that the regulator’s disciplinary tools lack bite (the toughest penalty it can impose on recalcitrant companies is a delisting from the Exchange) - a fact which has dulled the effectiveness of SGX’s enforcement actions and, indeed, its regulatory might.
One only needs to look back to the long-drawn-out tussle between SGX and China Sky Chemical Fibre Co Ltd a couple of years ago for proof of this. The S-chip defied persistent edicts from the Exchange to appoint a special auditor to look into a host of dubious transactions.
Being able to hand out tougher penalties such as fines, asking for the resignation of the company’s directors/officers, denying market facilities and issuing orders of costs against recalcitrant companies will definitely go some way in boosting SGX’s firepower against listed companies and help it in its efforts to bring the market in line.
Statutory backing
It remains to be seen, however, just how the SGX intends to bring this about.
Unlike regulators such as the Accounting and Corporate Regulatory Authority (ACRA) and the Securities Industry Council (SIC), SGX is not empowered by law to impose these new penalties, nor can it empower others to do so.
This means it cannot simply say it wants these new committees to have the greater disciplinary powers, wave a wand - and have it magically happen. SGX will need statutory backing to bring this about.
Currently, its ability to act against listed companies stems from the contract it has with its members - that is, the relationship and obligations that arise when a company lists on the Exchange.
SGX stipulates the rules of conduct for its members in its rulebook (such as the members’ disclosure obligations) and it can enforce these; but it cannot unilaterally bring about criminal or civil action against its members that exist outside of this domain.
The Exchange will need current laws to be amended, such that the new powers it is envisioning can be vested in it. It will need to propose such amendments to the statutes to Singapore’s Law Ministry, and these amendments will have to be passed by Parliament.
This means the public’s acceptance of SGX’s most recent proposals won’t be enough to bring them about; much will depend on whether these proposals also get the government’s endorsement. A lack of statutory backing would seriously hamper the Exchange’s efforts to be a tougher regulator - and, arguably, leave it as toothless as it is now.
BT has long argued for a separate, independent body to take on the current regulatory functions of SGX. We feel the Exchange’s regulatory responsibilities conflict with its other role: that of a profit-making publicly listed business.
We have argued that it is difficult for a regulator to effectively discipline its constituents if it also depends on them (and potential listees, who observe such regulatory actions) for its livelihood; and that, even if this is only a matter of perception, it is problem enough.
SGX says it has considered this. In a February consultation paper, it said there exist enough safeguards to mitigate potential conflicts between its regulatory role and its commercial objectives. In its most recent consult, it says these committees are enough “to ensure that SGX’s processes were more transparent, and could balance the competing needs of due process and efficient resolution of conflicts”.
The problem with such a set-up - as opposed to a separate regulator manned by full-time staff - is that these committees will be staffed by people with (as SGX puts it) “relevant listings-related experience”, “corporate finance experience”, “accounting experience”, “legal experience”, or “directorship experience in a listed issuer”. (This is also the case for SGX’s existing disciplinary and appeals committees.)
Neater way
Given the small market that is Singapore, and the limited talent pool here, it could well turn out that these committee members (with such backgrounds) could be related to, have served on the boards of, or performed work for some of the companies that come under these committees’ review.
No doubt, those who are in such positions of conflict will likely recuse themselves or be asked to step down or not be asked to serve on the committees. But it would require additional work and checks to ensure that all conflicts are taken care of. There’s also the risk that some relationships may pass undetected.
It would be cleaner, neater and more efficient to just have a separate regulatory body to take care of this important function of SGX’s. It would give investors greater assurance that their needs and interests are being taken care of, and make for a better public perception of the Exchange.