Minimising Risks when SGX-listed Companies Experience Sudden Deterioration in Financial Viability

The financial performance of companies depends on many factors, such as the global business conditions, competition, performance of specific projects, and also its own business decisions. That is why investing in listed companies entails risks. Investors in search of returns must understand that returns come with risks.

Our 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.

Under SGX's listing rules, listed companies are required 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, depending on their market capitalisation. Further, if the board sees clear evidence of significant improvement or deterioration in the company’s near-term financial performance, it is obliged to make an immediate announcement.

As the frontline regulator, SGX RegCo monitors listed companies’ compliance with disclosure requirements. 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. For example, in FY2018, it issued more than 400 public queries. For serious disclosure lapses or irregularities, SGX RegCo will investigate and take appropriate enforcement actions.

As to the question on whether SGX RegCo is sufficiently resourced, RegCo did not start from scratch. When it was constituted last year, it 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 of its regulatory functions. This was aimed at ensuring the independence and dedicated focus of SGX's regulatory functions. SGX RegCo also remains supervised by the MAS.

SGX RegCo, like most reputable regulators, takes a risk-based approach in determining where to focus its efforts and resources. This is the right approach. 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. 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.

I thank the Minister for his detailed response. 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. Of course, some of this is unavoidable and it is due to business conditions, and so on. So, the key is really about the transparency, the disclosure, so that investors can know all the risks that they are facing.

In this regard, 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. So, I just have a few supplementary questions.

Firstly, whatever view one takes on concerns that are raised by third parties about listed companies, does the Government believe that there is a robust mechanism to really listen to these concerns, investigate them if they are reasonably credible, to impose penalties and to take very firm action? There had been cases of non-disclosure of information, negligence in preparation and release of financial statements, and so on. That is the first question.

The second question is really about timeliness. In the understanding of SGX RegCo and MAS, are there clear timelines that are set as an expectation to investigate concerns and complaints that are raised?

Thirdly, are SGX RegCo and MAS very committed to imposing penalties for non-disclosure of information that could be price-sensitive, that could affect the share price, when it is revealed that certain information was not disclosed? Because there have been concerns raised by commentators that this was not done at certain times and certain instances in the past.

Lastly, what does SGX do to engage stakeholders, such as experts in corporate governance, Investors Association, and so on, to enable them to understand the approach taken by SGX RegCo towards reports of financial irregularities or governance lapses, to ensure that they understand and make use of existing channels, and also to take feedback and improve the process. It would appear to be a continuing concern that, in the words of Prof Mak Yuen Teen, a corporate governance expert, on his blog in October last year, "Often, investors who wrote to me have, in fact, told me that they have received either no replies or boilerplate replies from the regulators. It may be that the regulators are doing something but it is such a black box, and often such a slow process, that it gives the impression that nothing is being done".

There are four questions but I think they are all related. The general answer on timeliness, penalties, whether SGX RegCo engage experts, take feedback, is all yes. But we have to understand the nature of investigations: you can take feedback but there are all kinds. Some not so credible, you may have to put aside; some more credible especially if they put their names behind, and you investigate, but you may not want to reply and talk about it publicly. Usually, investigations, by the nature, are quiet until you get enough evidence, before you mount a more robust investigation. And all, of course, this has to be done in a timely manner. When you need expert advice, you ask for them. If any wrong-doers are caught, of course, they have to face the full force of the law. This has been SGX RegCo's, MAS' and CAD's approach as well.

The Member did mention there were instances where this was not observed, or where there was no follow-up. We need to know what are those instances. Give us specific examples and we will be happy to look into them. But I think the Member may have in mind the case of Noble Group. I am guessing here that when the Member said there were instances, you are thinking of Noble Group.

It was quite a peculiar case. There were reports written by Iceberg Research about the irregularities in accounting practices. We have always taken the allegations levelled by Iceberg Research seriously. The regulators have been working together since 2015 when those allegations came out to carefully review the allegations. But the circumstances of this case are quite different. They are peculiar because Noble Group's statutory auditor E&Y(Hong Kong) has always given clean audit opinions to the company, even in the years following the Iceberg Research reports. Another audit firm, PwC Singapore, independently reviewed Noble Group's accounting practices, specifically on its mark-to-market valuation practices which was highlighted by Iceberg Research, and again, gave it a clean opinion. So, like all investigations, you must have some evidence to start with. In this case, because of all the clean opinions by the auditors – and these are the Big Four, reputable auditors – it was difficult to mount an investigation.

But, following a substantial write-down of their accounts in late 2017 and early 2018, the authorities now have something to go on. And so, they probed further and, at a certain point, the authorities had enough basis to start overt investigation. These are the circumstances surrounding Noble Group, in particular. But I would say, in general, we take allegations seriously, we investigate them, seek expert advice. If there are wrong-doers, they have to face the full force of the law.