SINGAPORE: More than 400 public queries were issued by the Singapore Exchange’s (SGX) regulatory arm in the financial year of 2018 as part of its monitoring on whether listed companies here complied with disclosure requirements.
This was revealed in Parliament by Education Minister Ong Ye Kung on Wednesday (Feb 13), as he responded to a question on behalf of Mr Tharman Shanmugaratnam, Deputy Prime Minister and minister-in-charge of the Monetary Authority of Singapore (MAS).
Non-Constituency Member of Parliament Leon Perera had asked about the measures taken to minimise risks of SGX-listed companies experiencing a sudden deterioration in financial viability, and whether the Singapore Exchange Regulation, or SGX RegCo for short, has sufficient resources.
In his reply, Mr Ong said Singapore’s regulatory regime “does not, and cannot, dictate” how listed companies make their commercial decisions or seek to prevent business failures.
“What regulation can do is to promote transparency and good disclosure practices so that investors are able to make informed decisions,” he said.
Elaborating, he cited how SGX’s listing rules require listed companies to provide “timely and accurate disclosure” of all material information concerning their business, financial condition and prospects. This includes reporting financial results either quarterly or half-yearly based on their market capitalisation.
If the company’s board sees clear evidence of any significant improvement or deterioration in near-term financial performance, it is obliged to make an immediate announcement.
The SGX RegCo, as the front-line regulator, monitors the compliance of listed companies with these disclosure requirements, Mr Ong said.
“If they are inadequate or lack clarity, SGX RegCo will, either by way of public queries or by directly engaging the listed company, elicit further disclosures.”
It did so by issuing more than 400 public queries in FY2018. For serious disclosure lapses or irregularities, SGX RegCo will investigate and take appropriate enforcement actions, added Mr Ong.
On whether the bourse’s regulatory unit has sufficient resources, the minister said the set-up of RegCo “did not start from scratch” given how the unit “took over all the existing regulatory functions and resources of SGX”.
A separate board with a majority of independent directors was then formed with the sole responsibility of overseeing SGX RegCo’s performance, he added.
“This was aimed at ensuring the independence and dedicated focus of SGX’s regulatory functions. SGX RegCo also remains supervised by MAS.”
Like most reputable regulators, SGX RegCo adopts a risk-based approach in determining where to focus its efforts and resources – a “right approach”, according to Mr Ong.
“Under its new Fast Track programme, companies which maintain a good history of compliance and corporate governance standards will enjoy faster processing times for company submissions, such as circulars, and share issuance applications, while those with poor compliance records will be subject to increased scrutiny,” he said.
“Its efforts to respond in a timelier manner to potential cases of corporate malfeasance have also been well-received by the market.”
SGX RegCo will continue to build up its capabilities and strive to ensure that listed companies abide by high standards of corporate governance and disclosure practices, he added.
NOBLE'S CIRCUMSTANCES “PECULIAR”
Mr Perera, in his string of supplementary questions, asked if there was a robust mechanism in place to listen and investigate concerns raised by third parties.
He also wanted to know if there are timelines set for such investigations, whether SGX RegCo and MAS are committed to imposing penalties for non-disclosure of information that could be price-sensitive, as well as the measures taken by the bourse to engage its stakeholders.
“There have been a number of cases in recent years of SGX-listed firms which have seen a sudden deterioration in financial viability, leading to investors losing huge sums of money, including some retail investors,” said Mr Perera.
While some of these may be unavoidable due to factors like global business conditions, he said transparency remains key for investors to be informed of all the risks they face.
“In the past, there have been concerns raised by third parties about the accuracy of accounts or non-disclosure of certain pertinent information, and some of these concerns have been publicised in a few cases long before the deterioration occurred,” he added.
Mr Perera did not specify these cases but Mr Ong, in his reply, said Noble Group is probably what Mr Perera had in mind.
The saga of Noble’s collapse from Asia’s biggest commodity trader began in February 2015 when its accounting practices were questioned by Iceberg Research. To save itself, the company sold billions of dollars of assets, took hefty writedowns and cut hundreds of jobs, while defending its accounting.
Last November, Singapore authorities said they were investigating Noble Group for suspected false and misleading statements, as well as breaches of disclosure requirements under the Securities and Futures Act.
Mr Ong said regulators here have “always taken the allegations levelled by Iceberg Research seriously” and “carefully” reviewed them when they first emerged in 2015.
Elaborating on the “peculiar” circumstances of the case, he said Ernst & Young Hong Kong, the statutory auditor of Noble Group, “has always given clean audit opinions to the company even in the years following the Iceberg Research reports”.
A subsequent independent review of Noble’s accounting, specifically on the company’s mark-to-market valuation approach, by PricewaterhouseCoopers Singapore “again gave it a clean opinion”.
“Like all investigations, you must have some evidence to start with,” said Mr Ong. “In this case, because of all the clean opinions by the auditors (which) are ‘Big Four’ reputable auditors, it was difficult to mount an investigation.”
He added: “But following a substantial writedown of their accounts in late 2017 and early 2018, the authorities now have something to go on and so we probed further and at a certain point … started this overt investigation.”
In concluding, Mr Ong stressed that authorities take allegations seriously and conduct investigations while seeking experts’ advice.
“If there are wrongdoers, they have to face the full force of the law.”