In the open letter from SGX RegCo, chairman

SGX RegCo’s second year was a busy one as we expended much energy on addressing non-compliance by listed companies to protect investors’ interests while ensuring we listened to and engaged with stakeholders, and learnt to adapt to changes in the market and from where we fell short. Our three strategic pillars – growth with integrity, leveraging the eco-system, and investing in the future – shaped our agenda and programmes for the year and will continue to do so.

On the policy-making front, we implemented our new voluntary delisting rules which aim to strengthen investor interest, enabled the introduction of the new “Trade at Close” session in the securities market, and refined the listing rules for mineral, oil and gas companies to enable them to list at an earlier stage of their life-cycle. All these are supportive of market development and foster trust in the exchange and its listed issuers, creating the right conditions for a fair, orderly and transparent marketplac.

Our approach to market regulation has always been risk-based. We fine-tuned this further during the year by adopting a much more targeted approach on various fronts. Our use of the Notices of Compliance (NOC) expanded as we tailored them to object to the re-appointment of certain individuals as directors and to draw out in greater detail the circumstances behind the resignation of a company’s independent directors at a crucial time for the company.

NOCs and other administrative tools enable us to take a much more surgical approach towards acting against non-compliant companies while at the same time, ensuring we do not over-burden the compliant ones. Another example of the risk-based approach is the Automated Clearance Regime (ACR) which we rolled out in February 2019. ACR enables straight-through processing of certain circulars, and provides issuers with significantly shorter time-to-market for low-risk corporate actions. ACR complements the Fast Track programme introduced last year, which aims to affirm listed issuers that have been publicly recognised for high corporate governance standards and have maintained a good compliance track record, by prioritising clearance for their corporate action submissions to SGX RegCo.

We also undertook a recalibration of the risk-based capital requirements under our trading and clearing rulebooks. In view of stronger global capital requirements imposed on banks following the 2007-2008 financial crisis, we refined our rules to ensure that our admission and continuing capital requirements on bank and remote members still remain robust, without being overly burdensome.

Whilst we are careful in avoiding over-regulation, RegCo takes a hard stance against errant companies and product issuers. RegCo closely monitored issuers with suspected financial irregularities, and issued eight Notices of Compliance and a total of 29 Disciplinary Actions in FY2019.  For more severe breaches, we have not hesitated to take stricter disciplinary action and/or to refer them to relevant industry bodies and authorities.

Leveraging the market ecosystem

As a market regulator, RegCo takes a proactive approach towards supervision. However, we also recognise the substantive role that professionals play in our community. With good market conduct and responsible intermediaries, we can swiftly identify and deal with management failings, rule breaches and other misfeasance.

To enhance quality of valuation performed by professional valuers and improve valuation disclosures by the listed issuers, we signed an MOU in January 2019 under which the Institute of Valuers and Appraisers, Singapore (IVAS) will provide expert advice and support in areas relating to business valuation on referrals made by SGX.  We will be working closely with IVAS to determine if valuation reports are prepared in compliance with applicable standards relating to the practice of business valuation, and to provide the market with guidance relating to valuation and disclosures.

We also published a consultation paper in November 2018 on the roles and responsibilities of issue managers who advise firms seeking to list on the SGX Mainboard. As issue managers can have banking relationships with clients and an interest in their equity securities, there might be potential conflicts of interest to provide impartial advice to listing applicants. To address this, we are proposing that issue managers be independent of their listing applicants, and also have minimum due diligence practices to ensure that they discharge their obligations properly when assessing the suitability of a potential listing applicant.

We are proposing new rules to strengthen regulatory requirements on auditors, to require that all issuers minimally have at least one auditor that is registered with ACRA to oversee audits for their financial statements. For certain listed issuers, the appointment of a second auditor may also be necessary. Going forward, we intend to close the loop on accountability of other professionals that are within RegCo’s regulatory ecosystem.

The current technology landscape, combined with reliable data, presents opportunities for RegCo to enhance the way we conduct our regulatory obligations. Steps have been taken to explore possibilities in a move towards pre-emptive regulation and a deeper use of better data to make more informed and robust decisions.

We have initiated a new project to identify areas for the use of regulatory technology to build our capability analysis and institutionalise knowledge. Work is currently being done by a cross-functional team to bring all corporate action, listing, and member applications onto a common digital platform, RegCo Submission, by end-FY2021. This would allow submitters to track their submissions and communicate with RegCo in a centralised manner. As part of a larger knowledge management initiative, we are also enhancing the use of our knowledge assets by improving the way data is stored and managed by developing a platform that enhances our officers’ access to information across all RegCo platforms.

Priorities for the coming year

In the coming year, we expect to focus on initiatives divided into three areas of which the most crucial will be an increase in regulatory presence across the marketplace. This will include the establishment of a whistle-blowing office for listed companies, a proposed codification of our expectations of property valuers, and the enhancement of new rules governing Issue Managers in all matters to do with an IPO they sponsor.

The second and third focus areas are respectively raising standards and calibrating our rules to ensure their effectiveness. Central to the efforts to raise standards will be our collaborative efforts across the market community.

In our earlier communications on these efforts, we described this as working with the eco-system. We now feel the term “community” is more suitable because a community has a shared purpose and common goal. Members of the community rely on each other and are able to trust one another because they all have a stake in the community. It is with this in mind that we will, over the course of FY2020, propose to increase the accountability of auditors, improve the Association of Banks’ Listings Due Diligence Guidelines, formulate a best practices guide for Independent Financial Advisors and review listed companies’ sustainability reports.

The final focus area – calibrating our rules – will draw heavily on reviewing our frameworks, examining past cases for learning points whilst retaining an emphasis on proactive, transparent and robust regulatory responses to enhance trust in the market. For example, we intend to review the Minimum Trading Price policy for its effectiveness in addressing the risk of excessive speculation. As a “learning organisation”, we recognise that our policies may not be perfect from Day One and that we must continuously improve and learn in order to do better in our regulation and policy work.

Our 2019 SGX Regulatory Symposium, themed “The Market You Want”, drew 260 representatives from the market including auditors, lawyers, company directors, fund managers and brokers. The response to the event has been encouraging, and we look forward to hosting even more of stakeholders at our 2020 SGX Regulatory Symposium. This two-way channel of communication is important to us as we try to strike a good balance for each of our policies and initiatives. We look forward to working closely with you in the year ahead.

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