19 August 2020

On 6 August 2020, Singapore Exchange Regulation (“SGX RegCo”) issued a consultation paper titled “Enhancements to Enforcement and Whistleblowing Frameworks” (“Consultation Paper”), proposing changes to the Singapore Exchange (“SGX”) Listing Rules (Mainboard) (“Mainboard Rules”) and SGX Listing Rules (Catalist) (“Catalist Rules”) (collectively, “Listing Rules”). The proposed amendments relate to the Listing Rules governing enforcement actions, in order to allow for greater and swifter accountability and clarity in the securities market. SGX RegCo is also proposing changes to the Listing Rules to allow SGX RegCo to delegate its rights and authorities under the Listing Rules, provide for exclusion of liability of certain parties including SGX RegCo and for SGX RegCo, among others, to be indemnified by listing applicants, issuers and issue managers. SGX RegCo also proposes the introduction of a requirement that all listed issuers have in place a whistleblowing policy.

The consultation closes on 7 September 2020.

1. Widening of SGX RegCo’s direct enforcement powers

SGX is required under the Securities and Futures Act (“SFA”) to operate a fair, orderly and transparent market for the trading of listed securities, and to enforce compliance with its rules. SGX RegCo was established in 2017 to undertake all SGX’s regulatory functions independently of its business functions.

The Consultation Paper notes that there is scope for an adjustment of the enforcement framework in order for a more effective discharge of SGX RegCo’s regulatory functions, specifically to speed up resolutions for a majority of cases and provide more certainty and clarity to the market.

SGX RegCo notes in its press release launching the public consultation that the investing public must be assured that swift and appropriate enforcement against any Listing Rule breaches or malfeasance will be taken so that they can continue to have trust and confidence in the market. SGX RegCo’s current range of direct enforcement powers (which SGX RegCo can exercise without going through the Listings Disciplinary Committee (“LDC”)) is mainly confined to private actions not disclosed to the public, and hence inadequate to enable SGX RegCo to provide clear, transparent and robust outcomes for the wide range of disciplinary cases encountered. Public sanctions are currently only implemented by the LDC.

SGX RegCo explains that, as the frontline regulator, it should be empowered to swiftly impose a greater range of sanctions than those currently prescribed under the Listing Rules. The Consultation Paper notes that these proposals are in keeping with the approaches of the Australian Securities Exchange and the Japan Exchange Group.

The Consultation Paper proposes the widening of SGX RegCo’s range of direct enforcement powers to include the following sanctions, which are currently only exercisable by the LDC:

• Issuing a public reprimand;
•  In the case of an issuer:
  •  Issuing an order for the denial of facilities of the market, prohibiting an issuer from accessing the facilities of the market for a specified period;
  •  Requiring an issuer to comply with conditions on the activities undertaken by the issuer; and
• In the case of a director or executive officer of an issuer:
  • Requiring the resignation of the director or executive officer from an existing position with any issuer listed on the Singapore Exchange Securities Trading Limited (“SGX-ST”); and 
  • Issuing an order prohibiting any issuer for a period not exceeding three years from appointing or reappointing the director or executive officer, as a director or executive officer, or both.

The LDC and the Listing Appeals Committee will continue to exercise their existing powers and have oversight of cases where circumstances warrant a fine. The Consultation Paper notes that given the severity and pecuniary nature of fines, it is judicious to reserve such cases for the LDC.

Consistent with the existing suite of direct enforcement powers, the widened scope of sanctions that may be imposed by SGX RegCo will not be appealable. SGX RegCo will, however, take into consideration stated principles to ensure the enforcement action is commensurate with the severity of the breach, including that decisions made are fair and in the interest of market participants. Additionally, SGX RegCo will ensure that its existing show cause process continues to be robust and conform to the principles of natural justice, including providing notice of the relevant charges and particulars of the relevant Listing Rule breaches and an opportunity for the party under investigation to make representations. The Enforcement Handbook will be updated to include more detailed guidance on SGX RegCo’s use of its enforcement powers and the show cause process.

3. SGX-ST approval for appointment and reappointment of director, chief executive officer and chief financial officer

Under rule 720(3) of the Mainboard Rules and rule 720(2) of the Catalist Rules, SGX RegCo currently has the power to require an issuer to obtain the approval of SGX-ST for any appointment of a director, chief executive officer and chief financial officer (or its equivalent rank) (“Officers”) under certain specified circumstances, such as where the issuer is the subject of an investigation by a special auditor appointed under the Listing Rules. This power ensures that only suitable persons are appointed by errant issuers to steer them back on track.

SGX RegCo notes that in practice, special auditors are usually appointed by the issuer and not necessarily pursuant to SGX RegCo’s directive under the Listing Rules. Hence, SGX RegCo proposes that the approval requirement described above apply to circumstances where the issuer is the subject of an investigation by a special auditor regardless of whether the special auditor is appointed pursuant to SGX RegCo’s directive under the Listing Rules.

SGX RegCo additionally proposes that the approval of SGX-ST also be required for the reappointment of Officers.

3. Enhancements to SGX RegCo’s administrative powers

SGX RegCo proposes to enhance the administrative powers conferred by rule 1405(1) of the Mainboard Rules and rule 305(1) of the Catalist Rules to: 

• Allow SGX RegCo to object to reappointments of directors or executive officers for a period not exceeding three years under the circumstances set out in rule 1405(2) of the Mainboard Rules and rule 305(2) of the Catalist Rules;
•  Include a new administrative power to require an issuer to suspend directors or executive officers for a period not exceeding three years under the circumstances set out in the above-mentioned rules;
• Include in the above-mentioned rules circumstances where the director or executive officer is being investigated or is the subject of proceedings for the breach of any relevant laws, regulations and rules (including those of any professional or regulatory bodies) relating to fraud, dishonesty, the securities or futures industry, corruption or breaches of fiduciary duties; 
• Remove the requirement of wilfulness under rule 1405(2)(b) of the Mainboard Rules and rule 305(2)(b) of the Catalist Rules. 

4. Enhancements to whistleblowing regime

The Consultation Paper notes that the Code of Corporate Governance (“Code”) places responsibility for whistleblowing on the Audit Committee and requires companies to publicise and communicate to its employees the existence of a whistleblowing policy.

SGX RegCo seeks to require issuers to establish and maintain a whistleblowing policy and disclose in their annual report whether and how it has complied with the following best practices on whistleblowing:

• An issuer should establish and maintain a whistleblowing policy which sets out the procedures for a whistleblower to make a report to the issuer on misconduct or wrongdoing related to the issuer and its officers;
• The issuer should designate an independent function to investigate whistleblowing reports made in good faith; 
• The issuer should ensure that the identity of the whistleblower is kept confidential; 
• The issuer should disclose its commitment to ensure protection of the whistleblower against detrimental or unfair treatment; and 
• The Audit Committee should be responsible for oversight and monitoring of whistleblowing.

The aim of these proposed amendments is to enhance the disclosures on whistleblowing practices and complement the disclosures required under the Code.

5. Right of delegation of authority, exclusion of liability and indemnity

To enable SGX RegCo to discharge its functions independently without fear or favour, SGX RegCo proposes to amend the Listing Rules to, among other things: 

• Allow SGX to delegate its rights, powers, authorities and discretions under the Listing Rules to such person or entity (“Delegate”) as it may determine in its sole discretion, without consent from any persons. SGX RegCo Board may also authorise a delegate to sub-delegate;
• Provide that SGX, its related companies, SGX RegCo, any Delegate or their respective directors, officers, employees or agents, and members of the Listings Advisory Committee, Disciplinary Committee or Appeals Committee (“Relevant Parties”) shall not be liable for any loss or damage arising directly or indirectly (whether or not due to their negligence) out of or in connection with anything done or omitted to be done in the course of, or in connection with, the discharge or purported discharge of SGX’s obligations or rights under the SFA, any other applicable law or the Listing Rules or the exercise of decision-making or regulatory power or discretion under the Listing Rules; 
• Require that each listing applicant, issuer and issue manager (“Indemnifying Persons”) indemnifies the Relevant Parties against any loss or liability incurred by any Relevant Party arising out of or in connection with any breach by the Indemnifying Person of its obligations under the Listing Rules or any wilful, unlawful, reckless or negligent act or omission by the Indemnifying Person; and 
• Require that the Indemnifying Persons reimburse the Relevant Parties in the event any legal or other proceedings are brought against the Relevant Parties for alleged failure to prevent or require action by an Indemnifying Person.

Submission of feedback

If you have any queries or require any assistance with the submission of feedback, the Contact Persons listed below would be pleased to assist. Please note that the deadline for providing feedback to SGX RegCo is 7 September 2020.

Reference materials

The following materials are available on the SGX website www.sgx.com:

• Press release
• Consultation Paper on Enhancements to Enforcement and Whistleblowing Frameworks
• Template for Response to Consultation Paper