22 December 2021

The Monetary Authority of Singapore (“MAS”) is proposing to introduce due diligence requirements for holders of a capital markets services (“CMS”) licence and banks, merchant banks and finance companies exempt from holding a CMS licence that undertake the regulated activity of advising on corporate finance (“CF advisers”), in a move to improve industry standards and raise the minimum standards of conduct of CF advisers, strengthen public confidence and promote informed decision making by investors through quality disclosures.

In its consultation paper published on 15 December 2021, MAS outlined the proposed due diligence requirements that will be imposed via a new Notice on Due Diligence Requirements for Corporate Finance Advisers. A draft of the new Notice is annexed to the consultation paper. The consultation closes on 15 February 2022.

The proposed requirements set out the minimum standards which CF advisers should adhere to when conducting due diligence on CF transactions. Part I (General Requirements) of the Notice sets out general requirements which apply when CF advisers advise on corporate finance, while Part II (Listing Applicants) sets out additional requirements for CF advisers acting as issue managers (“IMs”) for initial public offerings (IPOs) on the Singapore Exchange Securities Trading Limited (“SGX-ST”) or reverse takeovers and very substantial acquisitions entered or to be entered into by an entity listed on the SGX-ST.

An outline of the key proposed requirements under the new Notice is set out below.

General due diligence requirements

  • Implementing policies, procedures and controls: A CF adviser must develop and implement policies, procedures and controls to meet all the requirements of the Notice, monitor the implementation and periodically consider the need to enhance such policies, procedures and controls. 
  • Acting with due care, skill and diligence: A CF adviser must act with due care, skill and diligence including exercising reasonable judgement in determining the nature and extent of due diligence work to be performed for a transaction and assessing the accuracy and completeness of representations and information made or given by its customer and conducting the appropriate verification of such information.
  • Managing conflicts of interest: A CF adviser must, among other things, identify, mitigate and disclose to its customers potential, actual or perceived material conflicts of interest between the interests of its customers and those of the CF adviser or its related corporation. Where a CF adviser or its related corporations also conduct other activities in relation to the offering process (e.g. issue of research reports) it must, among other things, have in place controls for that other activity. Further, the CF adviser must put in place effective safeguards to prevent the disclosure of confidential or price sensitive information by its directors, employees, or representatives or other agents who receive such information when advising on corporate finance, to personnel carrying on other activities.
  • Governance and supervision: There must be an adequate framework for senior management (the person principally responsible for the day-to-day management of the relevant functions which advise on corporate finance) to have oversight over matters including acceptance of an engagement to act as a CF adviser, appointment of the transaction team, and the proposed due diligence plan for each specific transaction. The CF adviser must also ensure adequate supervision of the performance of the representatives who advise on corporate finance, including their performance of due diligence work for each specific transaction. Matters such as material issues relating to non-compliance with relevant legal and regulatory requirements, conflicting information from a customer or other persons, suspicious circumstances and material issues that may be prejudicial to the transaction must be reported to senior management and there must be clear reporting lines to escalate such reportable matters.
  • Keeping records: A CF adviser must prepare, maintain and retain records of all data, documents and information that it is required to obtain or produce to meet the requirements under the Notice.

Additional due diligence requirements for CF advisers acting as IMs

  • Advising listing applicant on regulatory requirements: Subject to the terms of the agreement between the CF adviser and its customer, a CF adviser must advise and guide listing applicants (including its manager or trustee-manager, where applicable) and their directors as to their duties and responsibilities under the Securities and Futures Act and listing rules and other relevant regulatory requirements.
  • Understanding listing applicant and performing appropriate verification: A CF adviser must be satisfied on reasonable grounds that a listing applicant is suitable for listing, taking into account any material issues identified as relevant for the assessment. At a minimum, the CF adviser must take steps including (a) verifying material representations made by the listing applicant (or its manager or trustee-manager, as applicable) with persons of appropriate authority and knowledge of the listing applicant, trustee or trustee-manager (as applicable), (b) conducting background checks on the listing applicant, its related corporations, directors, executive officers and controlling shareholders, (c) monitoring, during the course of the transaction, information obtained and developments related to the transaction or listing applicant, and assessing the impact of such information or developments on the suitability of the listing applicant for listing, (d) inspecting key physical assets and interviewing major business customers and other stakeholders, and (e) where material issues are involved, reviewing the relevant underlying records and supporting documents (such as invoices, key customer contracts, financial statements, title deeds and regulatory approvals).

In the case of a reverse takeover or a very substantial acquisition, a CF adviser must also perform the due diligence described above, where appropriate, on the entity or trust which will be acquired by the listing applicant, as though the entity or trust were the listing applicant.

  • Review of due diligence: A CF adviser must ensure that there is a review of the due diligence performed for each listing application by persons who are independent of the transaction team and have appropriate seniority, knowledge, skills and experience.
  • Due diligence performed by third party: If a CF adviser engages a third party service provider to perform specific due diligence work, the CF adviser remains responsible for the work done and must, among other things, assess independently whether the third party service provider has the necessary knowledge, skills and experience for the work to be performed, whether sufficient due diligence has been conducted, and whether the results of the work should be set out in the listing application. 
  • Allegations against listing applicant: Where a CF adviser receives or is made aware of allegations or complaints against the listing applicant, its manager or trustee-manager (as applicable) or their directors, executive officers or controlling shareholders, the CF adviser must independently investigate the allegations and assess whether these have a bearing on the accuracy or adequacy of information provided by the listing applicant or affect the suitability of the listing application.
  • Relying on experts: Where an expert is appointed by the listing applicant for the purposes of providing an expert’s opinion in connection with the listing application, the CF adviser must have reasonable grounds to be satisfied with the knowledge, skills and experience, and the qualifications and independence of the expert. Further, the CF adviser must satisfy itself that its reliance on the conclusions or opinions of any report prepared by such an expert is reasonable and must review and advise (to the extent a non-expert could make such an assessment) the listing applicant whether the scope of services proposed by the expert adequately addresses the opinion to be provided by the expert. 
  • Satisfactory due diligence: Prior to submission of the listing application and before the listing applicant’s admission to the SGX-ST, a CF adviser must have reasonable grounds to be satisfied, among other things, (a) with the outcome of the due diligence performed, (b) that the listing applicant is compliant with all relevant listing requirements under the listing rules and has established procedures, systems and controls which on an ongoing basis enable the listing applicant and its directors to comply with the listing rules and other relevant legal and regulatory requirements applicable to the activities of the listing applicant, and (c) that the directors collectively have the experience and qualifications to manage the listing applicant’s business and ensure the listing applicant complies with legal and regulatory requirements.

Reference materials

The following materials are available on the MAS website www.mas.gov.sg via the relevant webpage: