Reed Smith Client Alerts

The Monetary Authority of Singapore has issued a consultation paper proposing regulatory requirements on the conduct of due diligence by corporate finance advisers as part of its ongoing efforts to improve industry standards. These requirements seek to improve the quality of disclosures from entities seeking to raise funds from the public, thereby strengthening public confidence, and to promote more informed decision making by investors thanks to such improved disclosures.

Authors: Matthew Gorman Manoj Purush Gerald Licnachan Hagen Rooke Kohe Hasan Denise Jong Vicky Chan Johnny Lim (Resource Law LLC), Michael Kwan (Resource Law LLC)

1. Background

Corporate finance (CF) advisers, in particular issue managers, have an important role as gatekeepers of quality for the Singapore capital markets. CF advisers are responsible for conducting due diligence on the issuer and providing guidance to the issuer to ensure disclosures are accurate and complete in all material aspects.

As part of the ongoing efforts of the Monetary Authority of Singapore (MAS) to improve industry standards, the MAS has issued a consultation paper proposing to enact a new notice (New Notice), essentially codifying regulatory requirements on the conduct of due diligence by CF advisers. The consultation will close on 15 February 2022.

It is proposed that the New Notice will apply to CF advisers who are holders of a capital markets services (CMS) licence and banks, merchant banks and/or finance companies that undertake the regulated activity of advising on corporate finance but are exempt from holding a CMS licence. 

2. Overview of New Notice

Under the New Notice, CF advisers are required to: 

(i) develop and implement a governance framework for the performance of due diligence, monitor its implementation and enhance it, as necessary from time to time;

(ii) act with due care, skill and diligence when performing due diligence; and

(iii) keep records of the due diligence work performed

Since IPOs involve public fund-raising, CF advisers acting as issue managers   for IPOs are subject to additional requirements. They must:

(i) advise and guide listing applicants on regulatory requirements;

(ii) assess whether, and be satisfied that, listing applicants are suitable for listing; 

(iii) ensure that there is an independent review of the due diligence performed; and

(iv) be satisfied that third parties or experts involved in the IPOs are suitably qualified to perform the work and that the CF advisers’ reliance on the work or opinions of these persons is reasonable.

These requirements would also be applicable to CF advisers advising on reverse takeovers (RTOs) and very substantial acquisitions (VSAs), as these transactions result in significant changes to the business of the publicly listed entity.