New Due Diligence Requirements for Corporate Finance Advisers in Singapore
Corporate finance (CF) advisers in Singapore must implement new due diligence requirements by October 1, 2023. The new requirements are aimed at improving the quality and standards of corporate finance advisers in the city-state.
Singapore’s central bank, the Monetary Authority of Singapore (MAS), has imposed new due diligence requirements for corporate finance advisers working in the city-state under Notice SFA o4-N21. The new requirements aim to raise industry standards of corporate finance advisers and thus help investors make better-informed decisions.
The due diligence requirements will be effective for all corporate advisory engagements in Singapore on or after October 1, 2023. However, MAS has advised CF advisers to start developing and implementing policies to meet these new requirements.
Who do the new business conduct requirements apply?
The new conduct requirements apply to:
- Licensed banks, merchant banks, and finance companies that are exempt from holding a capital market services (CMS) license;
- Holders of a CMS license that advises on corporate finance; or
- Representatives from options a) and b) with respect to advising on corporate finance.
General business conduct requirements
This is one of the new business conduct requirements introduced under Notice SFA o4-N21.
Managing conflicts of interests
The notice requires a corporate finance adviser to mitigate any potential conflict between their interests and the interest of the client. Where the CF adviser is unable to mitigate any material conflict of interest then they must cease to give advice on that particular transaction, or in the case of a new engagement/project, decline to accept it.A CF adviser must have policies, controls, and procedures in place to safeguard price-sensitive information received by the CF adviser’s directors or personnel. This includes restricting access to such sensitive information on a need-to-know basis and separating the roles of those that give corporate finance advice and roles in other activities.
Further, the CF adviser must have policies, controls, and procedures to monitor and prevent insider trading practices. There must also be clear reporting lines for any escalation of issues as well as adequate oversight by CF adviser representatives.
General due diligence requirements
The CF adviser must conduct due diligence with reasonable skill and care. This includes assessing the accuracy and completeness of statements, and confirmations given by customers or other persons connected to the transaction.
Moreover, the corporate finance adviser must monitor, during the transaction, other information in relation to the transaction that brings into question the reliability of the original information received before the transaction.
Advising listing applicants on their regulatory requirements
The CF adviser must ensure that listing applicants are aware of their responsibilities under Singapore’s Securities and Futures Act. Further, the CF adviser must inform the applicants of their obligations after their admission to the Singapore Stock Exchange.
The notice provides that a corporate finance adviser must conduct background checks on the listing applicant, which includes key executives, directors, listing group entities, and controlling shareholders, among others.Singapore corporate finance advisers must also inspect the physical assets of listing applicants, and conduct interviews with major stakeholders, such as creditors and key suppliers. Where material issues are involved, the CF adviser must review supporting documents like invoices, contracts, and title deeds, obtain information from third-party sources, such as public record databases, or appoint a third party to conduct the relevant checks and reviews.
Regarding appointing a third-party service provider, the corporate finance adviser must satisfy themself with the standards and quality of the due diligence performed by the third party.
Finally, the corporate finance adviser must be satisfied that the listing applicant is suitable for listing on the Singapore Stock Exchange. From the completeness of the information provided on the listing application to ensuring that the directors of the listing applicant are qualified to manage the business, the CF adviser is at the forefront of maintaining these due diligence requirements.
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