Recent enforcements by the Monetary Authority of Singapore (MAS) highlight the need for SGX-listed companies to actively work against conflicts of interest within their organisations and maintain robust corporate compliance processes.
In 2023, we have already seen breaches of Anti-Money Laundering (AML) requirements, false trading and deceit, and insider trading. While some outcomes of these cases include significant financial penalties, others will see actual jail time for offenders.
An organisation’s ability to proactively identify and mitigate conflicts of interest is critical to avoid reputational damage, financial impacts, and criminal penalties for individuals involved.
This article looks at recent enforcement actions placed upon SGX-listed companies and employees. These actions serve as a timely reminder for public companies in Singapore to ensure they have robust corporate compliance processes to help protect against compliance breaches and stay out of their regulator’s spotlight.
Four Individuals Convicted for False Trading and Deceit
Shares of SGX-listed company Koyo International Ltd. increased from its low of $0.16 in August 2014 to its high of $0.40 in January 2016. As it turns out, the false trading and market manipulation activities of Koyo employees affected this substantial share price increase.
The scheme used specific trades to create a false appearance of the Koyo share price. In August 2014, an individual, in collaboration with seven other scheme members, obtained control of 53 trading accounts opened in the name of 15 individuals. These accounts bought and sold Koyo shares at progressively higher prices. The ultimate aim of this scheme was to attract a buyer to acquire the company via a reverse takeover.
After becoming aware of unusual trading activity, Singapore Exchange Securities Trading (SGX-ST) issued a “trade-with-caution” alert on the company.
Koyo’s share price plummeted to $0.056 on 22 January 2016, resulting in account holders incurring losses of approximately S$3.28 million, of which S$1.05 million were borne by brokerages and remisiers.
Four individuals had pleaded guilty to their charges and were sentenced to imprisonment ranging from 42 months to 11 weeks imprisonment.
With the conclusion of the criminal proceedings against these four individuals, all eight persons have been convicted (from February 2020 to July 2023) for their involvement in the market-rigging scheme.
Ms Loo Siew Yee, Assistant Managing Director (Policy, Payments & Financial Crime), MAS, comments in a press release, “The convicted individuals executed a sophisticated market-rigging scheme that resulted in severe market distortion over a prolonged period and significant losses to market participants. MAS will act firmly against such egregious misconduct to preserve the integrity of our capital markets.”
MNPI Used for Personal Gain in Insider Trading Case
Two individuals have been convicted and sentenced to 12 weeks imprisonment and 4 months imprisonment, respectively, for insider trading in the shares of a Singapore-based investment holding company and other offences under the Securities and Futures Act (SFA) and the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA).
In July and August 2016, one individual was made aware of material non-public information (MNPI) by her friend and then-Chief Financial Officer of the investment firm. The MNPI used concerned the sale of businesses, and ahead of the company’s announcement that it had entered into a conditional sale and purchase agreement to sell two of its businesses, the two individuals purchased shares of the firm.
One individual purchased 1.1 million shares for her father, 930,000 for herself and 300,000 for her brother and sister-in-law, later selling the shares for a profit of S$188,895, of which S$77,906 was profit. In April 2023, the individual was sentenced to four months jail for two counts of insider trading under the Securities and Futures Act (SFA). The second individual involved also received three months and two weeks jail for their illicit trading activity.
The case highlights the substantial personal impact of penalties imposed for the misuse of MNPI for personal gain through insider trading activity.
Singapore Financial Institutions’ Breaches of Anti-Money Laundering Requirements
In June 2023, the Monetary Authority of Singapore (MAS) imposed composition penalties to the sum of S$3.8 million against four global banks for breaches of the central bank’s anti-money laundering (AML) requirements.
MAS conducted examinations of these financial institutions (FIs) following news of irregularities in a payment processing firm's financial statements and the alleged involvement of Singapore-based individuals and entities in the matter.
The CEO of the payment processing firm is currently on trial in Germany for fraud, market manipulation, and false accounting offences. The now-insolvent Germany-based firm had significant operations in Singapore, piquing MAS’ concern about conducting FI examinations.
Breaches of AML regulatory requirements were found in the four FIs mentioned, including one SGX-listed firm, though MAS did not find wilful misconduct by any staff of these organisations.
All FIs have taken prompt remedial actions to address the deficiencies identified by MAS. These include enhancements to their procedures and processes, and training to improve staff’s vigilance in detecting and escalating risk concerns.
Recording and Maintenance of Insider Lists Are Essential for SGX-Listed Companies
A list of people with access to MNPI (material non-public information) is called an “insider list”. Employees, contractors, and anyone outside your organisation (such as advisors, accountants, and resources coming in contact with MNPI during business dealings) should be placed on your insider list to know who has access to MNPI, when they gained this access, and when it was relinquished.
These lists are vital in identifying and actively monitoring potential risks and responding to requests for information from regulatory bodies during market surveillance activities.
How Public Companies Can Prevent Trading Activity from Becoming Insider Trading
While not all employee trading is likely to result in cases of insider trading, proactive monitoring and management of personal trading activity is critical to prevent conflicts of interest from arising. SGX-listed companies can employ the following steps to reduce risk significantly.
Have Robust Corporate Compliance Policies and Procedures in Place
As part of your corporate compliance policy, define acceptable and unacceptable behaviour when employees engage in personal trades. Policies should clearly state how monitoring and reporting will occur for personal trading activities, and how you will regulate securities trading by key management personnel, directors, executives, and anyone with access to MNPI.
Help Employees Understand Their Obligations with Ongoing Training
Although defined policies and processes create a strong foundation, ongoing training ensures employees are kept up-to-date with policy and regulatory changes - and provides the opportunity to raise questions and create dialogues about ethical and compliant trading behaviours. Within your training regimes, focus on helping employees understand the consequences of insider trading and how they can avoid conflicts of interest. Also, provide employees with information about reporting potential conflicts and the confidentiality of “whistleblower” identities.
Clearly Communicate Blackout Periods
Take the opportunity to remind staff about blackout periods regularly and when they are likely to happen, e.g. before the release of publicly-traded company earnings reports, M&As, or strategic investment activities.
Communicate when blackout periods and trading windows will start and finish to prevent anyone possessing MNPI from making personal trades at times when that information is likely to create unfair gains from transactions.
Have a Defined Pre-Clearance Process in Place
A documented pre-clearance process enables employees to request permission to make personal trade transactions of the organisation’s securities and ensures that personal trades avoid conflicts of interest.
Your pre-clearance process will enable the relevant organisational authority, e.g. chief compliance officer, chief financial officer, or other senior officers, to properly evaluate whether the personal trading activity should be approved or denied. The MyComplianceOffice (MCO) Personal Trade Manager (PTM) module helps listed companies automate the pre-clearance process with employee approval or denial of trade activity based on your defined business rules.
SGX-Listed Companies Must Build a Culture of Compliance
While robust corporate compliance processes can help minimise the risk of trading violations, SGX-listed companies and their compliance teams must also encourage self-regulation of trading activities, starting with building solid ethical foundations.
The 2022 Global Business Ethics Report reveals that a shocking 54% of employees in small, 71% in medium, and 55% in large organisations have observed misconduct. More specifically, looking at conflicts of interest, these figures show 23% (small), 40% (medium), and 22% (large) of employees observing these activities.
As identified in the same report, ECI research shows that organisations with high-quality E&C (Ethics & Culture) programs are more likely to have strong ethics cultures while having a noticeable impact on the four major ethics outcomes in the following ways:
- Less observed misconduct.
- Less pressure to compromise ethical standards.
- More reporting of misconduct observed.
- Less retaliation for reporting.
Employee compliance with trading policies (both corporate compliance and evolving regulatory policies) is vital. Just as important, however, is helping employees make ethical decisions by driving organisation-wide ethics and culture programs.
Protecting Your Public Company from Regulatory Compliance Breaches
Regulators are applying heavy pressure on companies to comply with market abuse regulations - and enacting vigorous enforcement where they fail to do so. The nature of operating an SGX-listed company also places a spotlight on company operations. It demands that directors, executives, and employees fully understand what constitutes market abuse offences, conflicts of interest, applicable regulations, and how to monitor and safeguard MNPI.
Ongoing third-party risk management is also essential for public companies to actively work against external parties bringing reputation damage to the company by association. A strong Know Your Third Party (KYTP) framework can be established through multiple activities, including the use of in-depth questionnaires, the screening of third parties against external databases such as World-Check, Dun and Bradstreet for financial standing and the scheduling and documenting of activities such as on-site visits, phone interviews, and regular reviews. Access your in-depth whitepaper with the strategies to build a dynamic third-party risk management solution.
Additionally, Regulatory Technology (RegTech) solutions, such as MCO’s Personal Trade Manager (PTM), can be implemented to automate the monitoring, detection, and automatic alerts of suspicious trade activity. Compliance resources can save significant time while ensuring full audit trails of all transactions by using a compliance management software solution instead of manual processes.
MyComplianceOffice (MCO) provides the leading RegTech solution in Singapore and the Asia-Pacific region. It enables SGX-listed companies to more effectively manage regulatory compliance, mitigate risk, and stay out of their regulator’s spotlight.
Learn more about Corporate Compliance for Listed Companies in Singapore.
Also, access your in-depth eBook - The Ultimate Guide to Conflicts of Interest.
