The Monetary Authority of Singapore ("MAS") has on 15 December 2021 published a consultation paper on a proposed Notice to require corporate finance ("CF") advisers to observe certain minimum standards when they undertake due diligence work.
This is part of MAS' efforts to raise the standards of conduct of CF advisers, to strengthen public confidence and to promote informed decision-making by investors.
- Introduction
By way of background, CF advisers provide advice to entities who intend to raise funds or are involved in takeover and merger transactions. Some CF advisers also act as issue managers and advise on initial public offerings ("IPOs") and other public issuances.
CF advisers are presently subject to existing conduct requirements, such as mitigating potential conflicts of interests that may arise from their operations, and maintaining records relating to the monitoring of compliance with their policies and procedures. Issue managers are also subject to criminal liability for any false or misleading statements contained in prospectuses in respect of the public issuances they advise on.
Notwithstanding the above requirements, due to the key role that CF advisers play in ensuring accurate and complete disclosures, MAS is proposing to impose additional requirements to help ensure that investors can rely on information of better quality when making their investment decisions.
- Proposed Notice
A. Scope of proposed Notice
Preliminarily, the proposed Notice will apply to all licensed CF advisers, as well as banks, merchant banks and finance companies who are exempt CF advisers. The requirements in the proposed Notice will apply to CF advisory engagements which are entered into on or after the date of commencement of the Notice. Presently, MAS has not indicated when the Notice is expected to come into effect.
The proposed Notice (given in Annex A of the Consultation Paper) is divided into two Parts, with Part I comprising general requirements that apply to CF advisers when advising on corporate finance transactions and Part II comprising specific requirements that additionally apply when CF advisers are involved in IPOs, reverse takeovers and very substantial transactions (as defined in the SGX Mainboard Rules or Catalist Rules).
B. Requirements when advising on corporate finance
Under Part I of the proposed Notice, CF advisers will firstly have to develop and implement policies, procedures and controls to comply with the proposed Notice, as well as to monitor their implementation and make enhancements where necessary.
Secondly, CF advisers will be required to act with due care, skill and diligence when advising on corporate finance, including but not limited to when they determine the amount of due diligence needed for a transaction, assess and verify information given by their customers, or look out for any contradictory information or developments.
Thirdly, CF advisers will be required to manage conflicts that could arise between their own interests and the interests of their customers. They will also have to manage conflicts of interest that are arise within their CF advisory activities, and other activities which they engage in in relation to the offering process. They will also have to manage the risks of their personnel disclosing confidential or price sensitive information, or dealing in capital markets products using such confidential or price sensitive information. If they are not able to adequately mitigate such conflicts of interest, they would be required to refuse the engagement or refrain from providing further advice on corporate finance (as applicable).
CF advisers will also have to establish a governance framework over the performance of due diligence by staff. This must include ensuring that material issues of non-compliance are reported to senior management, and that staff possess the appropriate knowledge, skills and experience for the relevant transactions they are involved in.
Finally, CF advisers have to keep records evidencing compliance with the Notice and/or evidencing the due diligence work that is performed for customers or any advice that is given to customers. Such records are to be kept for at least 5 years from the date that the corporate finance transaction was completed, terminated or otherwise concluded.
C. Requirements when advising on IPOs, reverse takeovers and very substantial acquisitions
Part II of the proposed Notice sets out requirements that additionally apply to CF advisers who advise on IPOs (including listings via SPACs) on the SGX, and additionally, who advise on reverse takeovers and very substantial acquisitions (as defined in the SGX listing rules) on the SGX.
Firstly, such CF advisers must advise and guide listing applicants on their duties and responsibilities under relevant laws and regulations, including relevant listing rules. This will be subject to the terms of agreement between the CF adviser and the customer.
Secondly, they are required to assess and be satisfied that a listing applicant is suitable for listing. Such due diligence would involve verifying material representations, conducting background checks, monitoring any information or developments relating to the listing applicant or transaction, and due diligence on key business assets, major business customers and other such stakeholders.
The due diligence performed for each listing application will also have to be reviewed by staff of the CF adviser who are independent of the transaction team. To the extent that the CF adviser uses a third party service provider, it must remain responsible for any due diligence work done by the third party service provider. The CF adviser must also investigate any allegations or complaints made against the listing applicant or other relevant parties, if it comes to know of any such allegations or complaints.
As with reliance on third parties, where CF advisers rely on experts, they would also have to ensure that the experts are suitably qualified to provide their opinions and/or reports, and to review the opinions and/or reports to satisfy themselves that it would be reasonable for them to rely on these documents.
Finally, before submitting the listing application and before the listing applicant is admitted on the SGX, the CF adviser would need to have reasonable grounds to be satisfied, among other things, that the due diligence has been performed satisfactorily, that the information submitted in the listing application is complete, that all issues which have been highlighted through independent review have been resolved, and that the listing applicant and other relevant parties are able to comply with the obligations under the listing rules.
- Closing Date of Consultation
The consultation closes on 15 February 2022 and a copy of the MAS consultation paper can be obtained here.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
