MAS consults on proposed due diligence requirements for corporate finance advisors



Corporate finance advisers (“CF advisers“) play a crucial role in Singapore’s capital markets by advising entities intending to raise funds or entities involved in buyout and merger transactions.

On December 15, 2021, the Monetary Authority of Singapore (“MAS“) issued a consultation paper setting out the proposed due diligence requirements for CF advisers to be set out in a new MAS notice. For the purposes of the notice, CF advisers are defined as (a) holders of a capital markets department (“CMS“) authorization, or (b) banks, investment banks and finance companies exempt from CMS authorization, exercising the regulated activity of corporate finance advice.

Although CF advisers are currently subject to certain regulatory requirements – for example, the general conduct requirements under the Securities and Futures Regulations (licensing and conduct of business) – the proposed regulatory requirements are intended to raise the standards of conduct applicable to them. Examples of new requirements include duties to act with diligence, skill and diligence; manage conflicts of interest; and keep records of due diligence work performed.

These new requirements aim to improve the quality of information provided by entities seeking to raise funds, thereby promoting informed decision-making by investors and strengthening public confidence in the information.

Below, we cover the key points of the proposed new review:

  1. Requirements applying to all CF advisers under Part I of the Notice;
  2. Additional requirements under Part II of the Notice for CF Advisors Acting as Emissions Managers (“instant messages“) for initial public offerings (“IPO“). MAS also proposes to apply Part II to CF advisers advising on reverse takeovers (“RTO“) and very important acquisitions (“VSA“); and
  3. Materiality considerations that apply to the requirements of both sides of the notice.

The consultation ends on February 15, 2022.

Key requirements for all CF advisers

Under the proposed advice, CF advisers will, among other things:

Additional requirements

Part II of the Notice is intended to apply to CF advisers who act as emissions managers (“instant messages“) who advise on initial public offerings (“IPO“) and other public broadcasts. As IMs are responsible for exercising due diligence on the issuer and providing advice to ensure that the information is accurate and complete in all key aspects, they serve as gatekeepers quality in capital markets.

In particular, MAS is also seeking advice on the proposed application of Part II from CF advisers advising on RTOs and VSAs, as these transactions result in significant changes in the activities of listed entities.

In accordance with the additional requirements, affected CF advisers must, among other things:

  1. Advise applicants for registration on their duties and responsibilities under the Securities and Futures Act (“Act“) and other relevant regulatory requirements, including listing rules.
  2. Evaluate and have reasonable grounds to be satisfied that an applicant for registration is suitable for registration, taking into account the material problems identified.
  3. Adhere to minimum due diligence standards, such as verifying material claims with persons of appropriate authority and knowledge, performing background checks and interviews with key persons, undertaking inspections of key physical assets and review relevant underlying records when significant issues are involved. This requirement is also intended to apply to CF advisers who advise on RTOs and VSAs.
  4. Ensure that an independent due diligence review is performed by persons with the appropriate seniority, knowledge, skills and experience. The review should cover specific issues such as the outcome of the due diligence performed, the basis for any opinions, assurances and conclusions that the transaction team has reached, and the identification and resolution of issues to report.
  5. Comply with requirements when engaging third party service providers or experts, such as (i) ensuring that they have the necessary knowledge, skills and experience, (ii) clearly defining the parameters for the scope and extent of the work to be performed, (iii) independently assess whether sufficient due diligence has been performed, and (iv) assess whether the results of the process justify disclosure in the listing application. The CF advisor also remains ultimately responsible for the work performed.
  6. Independently investigate all allegations and complaints made against the candidate for registration and key individuals.
  7. Have reasonable grounds to be satisfied with the knowledge, skills and experience, as well as the qualifications and independence of any expert appointed by the applicant for registration. It should also advise the enrollment applicant on the necessary scope of services to be performed and critically review any work product and compare it to information known to the CF advisor and require follow-up investigations if necessary.
  8. Be satisfied with certain criteria prior to submitting the enrollment request and admitting the candidate for enrollment at the specified approved change, such as:
    1. result of due diligence performed;
    2. the completeness of the information contained in the registration request; and
    3. the applicant’s compliance with all relevant registration requirements.

Materiality requirements

MAS further proposes to introduce materiality considerations for certain requirements. The full list is presented in the consultation document and includes questions such as:

  1. significant conflicts of interest;
  2. material deviations from the proposed due diligence plan; and
  3. significant issues related to non-compliance with the Act or other legal and regulatory issues.

Final remarks

The proposed advice would apply to CF advisory missions that are concluded on or after the effective date of the advice.

For more details on the MAS consultation as well as the submission requirements, please click here to view the MAS consultation document titled “Introduction of Due Diligence Requirements for Corporate Finance Advisers”.


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