By Mak Yuen Teen
In September 2015, SGX announced the establishment of three “independent committees” as part of its adoption of a new disciplinary framework. The three committees are the Listings Advisory Committee (LAC), Listings Disciplinary Committee (LDC) and Listings Appeals Committee (LAC).
On 4 June 2018, I posted a blog titled “SGX watchlist of directors and key officers is good but more is needed” in which I said:
“Today, SGX Regco has enhanced regulatory powers that allow it to publicly reprimand and fine issuers, and to publicly reprimand directors (but not to fine them). SGX Regco also has a disciplinary committee and an appeals committee. When this system of independent committees was introduced, I felt that while due process and natural justice is important, there is a risk that the enforcement process becomes too “bureaucratic”. The disciplinary committee will not want its actions to be regularly or even sporadically overturned by the appeals committee, so there is likely to be an effort to ensure that the two committees are on the same page before any action is taken. This may then require many people to agree to an enforcement action. Add to that the fact that the committees are made up of market practitioners, there is also the risk of conflict, in the sense that they or their friends or acquaintances may be the ones facing possible enforcement actions (some members on the committees may themselves be serving on boards or advising them). Of course, there are conflict of interest procedures in place but such procedures usually deal with only the clearcut conflicts (and the rest is up to the individual member’s own standards and values). I was not confident that the enforcement process would be timely enough or would be used sufficiently to be a real deterrent. “
The members of the different committees, including the disciplinary committee, can be found here: https://www2.sgx.com/independent-committees
I am afraid that my worst fears may have been realised. According to SGX’s website, the last public disciplinary action taken was in November 2018 and the last such action against an issuer and its directors was in July 2018. Information on public disciplinary actions can be found here:
https://www2.sgx.com/regulation/public-disciplinary-actions
Yes, that’s right. In 2019, there has not been a single public disciplinary action taken by the disciplinary committee. What has the disciplinary committee been doing in 2019? How many cases has it considered?
Looking at the composition of the disciplinary committee, the previous concerns with a conflict between the commercial and regulatory roles of SGX, which the establishment of SGX Regco in September 2017 was supposed to address, may now have been replaced by conflicts within the disciplinary committee. How many of these committee members or their firms are providing services to issuers and directors who may be subject to enforcement actions? While I am sure there are conflict of interest procedures in place, how effective would these procedures be if the committee as a whole include many members who are actively providing services to issuers and directors, or who are directors or management of issuers? Some are directors or key management of issuers, including independent directors. Would they support enforcement action against their peers? Incidentally, enforcement actions against issuers and directors are already rare, but when it comes to enforcement actions against independent directors, they are practically “black swan” events.
There is also the issue of SGX Regco not being a statutory regulator and therefore being potentially subject to legal action itself, when it takes action against issuers and directors. Further, since SGX Regco is a subsidiary of a commercial company (SGX), there may be questions of funding for its activities. If SGX Regco becomes embroiled in legal action when it decides to take enforcement action, would there be sufficient funding? Would that curtail its ability to discharge its wider responsibilities? If not, this may act as a deterrent to SGX Regco’s willingness to take enforcement action.
In this regard, I was trying to obtain the audited financial statements and annual report of SGX Regulation Pte Ltd (the full name for SGX Regco) from ACRA through its bizfile services to understand SGX Regco’s resources and activities. I haven’t got them yet but as a separate regulatory subsidiary and an entity of considerable public interest, shouldn’t SGX Regco publish a full annual report of its own each year and make it publicly available?
Such an annual report can not only provide the usual audited financial statements, but also information on its activities, including enforcement actions, and its governance, such as how frequently the board and different committees met, fees paid to each director, and so on. So far, the only information on fees paid to directors of SGX Regco that I can gather is from SGX’s own annual report, which shows that Jane Diplock, who serves on both the SGX and SGX Regco boards, was paid an additional $85,000 for serving on the SGX Regco board in its last financial year. That should suggest that the SGX Regco board is quite active and should be able to oversee enforcement actions. The disciplinary committee may therefore be superfluous, or worse, a hindrance to enforcement action.
