We cannot eliminate fraud: MAS Managing Director

Issuers and investors alike must have confidence that the ground rules are adhered to when they transact in our markets. Constant surveillance and strict enforcement are therefore critical. MAS takes a serious view of any false statement or omission of material information that misleads the market. We will not hesitate to impose stiff penalties on issuers who have made misleading statements in initial public offerings, or IPOs.

But no regulator can totally prevent fraud or misconduct. Take for instance our experience with S-chips, or Chinese companies listed on the SGX. Many of them are reputable companies and add breadth to our equity capital market. But some of them are not. Since 2006, accounting irregularities or outright frauds have been discovered in 14 such companies listed on the SGX. Most of these cases came to light when the auditors were unable to confirm the companies’ cash and account receivables. The counters were suspended pending investigations by special auditors, and investors had to bear the losses. I still get letters from investors who had lost money in these shares. I can understand their frustrations.

Many have asked MAS to do more to bring the full force of our law to bear on the wrongdoers. Let me state the position categorically: MAS will leave no stone unturned to take rigorous action against those who break our laws. But there are real challenges when the fraud is perpetrated by parties outside our jurisdiction. Cross-border investigations and enforcement are intrinsically difficult.

Singapore is not alone in facing challenges with international listings. Co-operation among securities regulators and enforcement agencies in different jurisdictions is therefore critical.

We cannot eliminate fraud. But we can and must ensure that companies that are brought to the market are of good quality. SGX must be rigorous in evaluating the suitability of listing applicants before admitting them. Other stakeholders must play their part too.
• First, directors of the company seeking a listing must exercise adequate oversight of internal controls and ensure the veracity of information disclosed.
• Second, IPO advisers have a legal and professional responsibility to conduct proper due diligence when bringing companies public. They must have a healthy dose of skepticism, and never place their commercial interests above the need to ensure that a company is suitable for a public listing. MAS will not hesitate to take advisers to task for poor due diligence work.

If the regulators, issuers, and advisers each do their jobs well, we can reduce the likelihood of poor quality companies gaining access to our markets.

This brings me to the second component of the capital market ecosystem – investors.
Well-informed and empowered investors are at the core of a well functioning capital market. Investors will lose confidence in a market where disclosure is misleading and where selling practices are irresponsible.

Safeguarding the interests of investors, particularly retail investors, is therefore a key focus of MAS regulation. But this objective has to be balanced against the need for investors to take ownership of their investment decisions. A regulatory approach that requires issuers or intermediaries to bear all the risks and losses will not work. If investors expect their losses to be always made good, there will be moral hazard and it will encourage reckless investing.

MAS safeguards the interests of investors in five ways:
• First, we demand stringent disclosure of information by issuers;
• Second, we require transparency in the information disclosed;
• Third, we set standards for intermediaries who sell investment products to provide quality financial advice;
• Fourth, we promote investor education, so that investors are empowered to make informed decisions.
• Fifth, we provide affordable and accessible dispute resolution mechanisms for investors who feel aggrieved by the investment process.