SGX to review companies' compliance

Singapore Exchange's chief regulatory officer Tan Boon Gin, speaking at the opening of the 6th Singapore Corporate Governance Week, said he has been "surprised at the number of times the Corporate Governance Code was referred to as optional or best p
Singapore Exchange's chief regulatory officer Tan Boon Gin, speaking at the opening of the 6th Singapore Corporate Governance Week, said he has been "surprised at the number of times the Corporate Governance Code was referred to as optional or best practice" in his first three months at the bourse.PHOTO: SECURITIES INVESTORS ASSOCIATION (SINGAPORE)

Auditing of annual reports aimed at raising corporate governance standards, detecting misconduct

The Singapore Exchange (SGX) will be examining the annual reports of mainboard companies to see if they adhere to the "comply or explain" requirement in the Singapore Code of Corporate Governance.

This is part of a review to raise corporate governance standards and detect any misconduct as early as possible, said chief regulatory officer Tan Boon Gin yesterday.

The review, which is expected to be completed by March, will involve audit firm KPMG checking the annual reports of around 550 companies released in the 12 months to June 30 this year, in areas such as board composition, risk management and internal controls and disclosure on remuneration.

Mr Tan, speaking at the opening of the 6th Singapore Corporate Governance Week of the Securities Investors Association (Singapore), said he has been "surprised at the number of times the Corporate Governance Code was referred to as optional or best practice" in his first three months at SGX.

"Failure to comply or explain is a breach of our (listing) rules," said the former director with the Commercial Affairs Department, who joined the bourse in June.

BUILDING UP TRUST

A well-governed company is more attractive to investors, and in the long term, this translates into better valuations and higher share prices... It builds up reserves of shareholder trust and confidence that it can draw upon should it become the victim of a negative research report or short-selling.

MR TAN BOON GIN, Singapore Exchange's chief regulatory officer

SGX set up three independent listing committees on Oct 7 to strengthen the listing regulatory process.

It can now take stronger action against companies for flouting listing rules, including levying fines and denying them access to the securities market, rather than just issuing public reprimands or delisting them.

The review findings will be published "on a statistical and no-name basis", said Mr Tan.

It will highlight areas that need improvement so investors can get more information to make an informed judgment on whether a firm has given adequate disclosures and meaningful explanations for deviations from the code, he added.

The review follows SGX's introduction of a disclosure guidance document in January to help firms comply with governance aspects.

"A well-governed company is more attractive to investors, and in the long term, this translates into better valuations and higher share prices," said Mr Tan.

Industry watchers welcome the move but views differ on whether such scrutiny could be seen as too stringent.

SGX should balance the review against the growing concern that the regulatory burden of being listed is becoming a disincentive to new listings, said Ms Stefanie Yuen Thio, joint managing director of TSMP Law Corporation.

But she also noted merits in having a periodic review as it will encourage compliance. "There is a temptation among the listed companies to see what others have done, in terms of compliance or disclosure, and simply copy them. This is not true transparency or good governance."

Gibson, Dunn & Crutcher partner Robson Lee noted that companies on the sponsor-supervised Catalist regime are not part of the review.

"This could create an impression that it is an easier market to go to, for there're less compliance costs involved," said Mr Lee.

Lee & Lee senior partner Adrian Tan said the exchange should look at both the "comply" and "explain" parts of the requirement, pointing out that "nobody monitors the compliance part now; it's not enforced, audited nor verified".

A version of this article appeared in the print edition of The Straits Times on October 13, 2015, with the headline 'SGX to review companies' compliance'. Print Edition | Subscribe