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International bodies and national governments have now and again imposed restrictions on certain activities or transactions with targeted jurisdictions, entities and persons, with the primary aim of achieving foreign policy or national security goals. These measures are known as sanctions. The types of sanctions imposed may be wide-ranging, including financial and trade sanctions, freezing of assets, travel bans or arms embargo.
Many SGX-listed issuers have either their principal place of business outside Singapore, or have subsidiaries, assets and/or customers overseas. Any imposition of sanctions could have material adverse implications to some issuers, such as financial losses in the form of potentially severe penalties, reputational damages and disruption to business operations.
This column discusses SGX’s expectations if the issuer, or any person or entity closely associated with the issuer, is exposed to sanctions-related risks. In this column, “issuer” refers to the issuer, its subsidiaries and associated companies, unless the context otherwise requires.
1 Exposure or Nexus to Sanctions-related Risks
1.1 An issuer may be, or may become, exposed to sanctions-related risks through various means. For example, the issuer may have existing business in, or may expand its business into, a country which is subject to sanctions-related law or regulation (“Sanctions Law”) (“Sanctioned Nation”). As another example, an issuer may have existing businesses in a jurisdiction which, due to changes in Sanctions Law, becomes a Sanctioned Nation. The issuer may also be exposed to sanctions-related risks through its nexus with a Sanctioned Nation. Such a nexus may develop if, for example, (a) the issuer’s principal operations, business activities, customers or suppliers; or (b) the issuer or any of its substantial shareholder, director or executive officer (“Relevant Sanction Person”), are located or incorporated in a Sanctioned Nation.
1.2 Internal Controls and Risk Management: Rule 719(1) requires an issuer to have adequate and effective systems of internal controls and risk management systems. Accordingly, SGX expects issuers to have or put in place adequate safeguards to address and mitigate any financial, operating and compliance risks, including sanctions-related risks. It is also critical that issuers provide timely disclosure of all material information pursuant to Rule 703.
1.3 Impact of sanctions on business dealings: An issuer would need to assess if it has exposure or nexus to sanctions-related risks (including dealings with Sanctioned Subjects (as defined below)) on an ongoing basis. It may be appropriate for the issuer’s board of directors (“Board”) to obtain legal advice as to whether the issuer’s dealings may violate any applicable Sanctions Law. Where the issuer assesses, or is aware, that there has been a material change in the issuer’s risk of being subject to sanctions, the issuer should immediately announce the inherent risk exposure on SGXNET in accordance with its continuing disclosure obligations under Rule 703. Where legal advice has been obtained, this should be announced.
The announcement should include an assessment on the impact to the issuer, such as the financial impact and the operational impact (i.e., the impact on its ability to carry out its business operations), including any restrictions imposed by stakeholders (for example, conditions imposed by the bank on financing facilities). In the announcement, the Board should confirm that the issuer has implemented adequate and effective control measures to protect the issuer’s interests in relation to any sanctions-related risks. The audit committee should also confirm that these control measures implemented are adequate and effective in respect of the issuer’s exposure to any sanctions-related risks. Where appropriate, the Board including the audit committee should seek independent advice to ensure that its controls are adequate and effective. If such control measures have yet to be implemented due to the issuer’s recent exposure or nexus (or awareness) to sanctions-related risks or material change to its risk of being subject to sanctions, the issuer must disclose its implementation plan instead and follow up with the requisite confirmations when action is completed to ensure compliance with Rule 719(1).
SGX may query or require the issuer to take steps to address the sanctions-related risks including suspension of the issuer’s securities. Where the impact is material or affects the issuer’s ability to operate as a going concern, or where sanctions risks cannot be remediated within a reasonable period of time, the issuer should suspend trading in its securities.
1.4 Confirmation in the annual report: On a yearly basis, for so long as the issuer has exposure or nexus to sanctions-related risks, the Board should provide in its annual report:
(a) a confirmation that there has been no material change in its risk of being subject to any Sanctions Law. If there is any material change, this should be immediately announced on SGXNET, with the appropriate details as set out above; and
(b) the Board’s comment as required under Rule 1207(10) on the adequacy and effectiveness of the issuer’s internal controls and risk management systems must additionally include consideration with respect to any sanctions-related risk. A statement on whether the audit committee concurs with the Board’s comment must also be provided.
1.5 Board and AC responsibility: The issuer should also state in its announcement and annual reports that the Board and the audit committee will be responsible for (a) monitoring the issuer’s risk of becoming subject to, or violating, any Sanctions Law; and (b) ensuring timely and accurate disclosures to SGX and other relevant authorities. The terms of reference of the audit committee should also include an assessment on whether there is a need to obtain independent legal advice or appoint a compliance adviser in relation to the sanctions-related risks applicable to the issuer and continuous monitoring of the validity of the information provided to shareholders and SGX.
2. Sanctioned Subject or Sanctioned Activity
2.1 Suspension of trading: International bodies and national governments have also designated persons or entities on lists published in connection with Sanctions Law (“Sanctioned Subject”) as well as identified activities which are in violation of Sanctions Law (“Sanctioned Activity”). In the event that an issuer is subject to sanctions or engages in a Sanctioned Activity, it should suspend trading in its listed securities, and immediately announce all relevant information, including an assessment on the impact to the issuer, such as the financial impact and the operational impact, including any restrictions imposed by stakeholders (for example, conditions imposed by the bank on financing facilities). The issuer should remain suspended until it has demonstrated to SGX that it is no longer a Sanctioned Subject or it has ceased the Sanctioned Activity. Under exceptional circumstances, where the Board is of the opinion that trading should continue in the issuer’s securities, the detailed basis including justifications and legal advice should be stated. Nonetheless, SGX reserves the right to suspend trading of the issuer’s securities in appropriate cases, pursuant to Rule 1303.
2.2 Trading resumption proposal: When trading in an issuer’s securities is suspended, the issuer should submit a proposal to SGX within 12 months from the date of suspension on the proposed remediation measures (“remediation proposals”), which should be implemented with a view to ceasing to be a Sanctioned Subject or ceasing the Sanctioned Activity. The remediation proposals should be implemented within six months from the date SGX indicates that it has no objection to the remediation proposals. The issuer is expected to provide monthly updates of the milestones in completing the remediation proposals via SGXNET. If the issuer fails to submit its remediation proposals within 12 months from the date of suspension, or if the remediation proposals have not been implemented within six months from the date SGX indicated that it has no objection to the remediation proposals, SGX may remove the issuer from the Official List under Rule 1304. In exceptional circumstances, SGX may also remove the issuer from the Official List at any time under Rule 1305.
2.3 Relevant Sanction Person: Where any of the issuer’s Relevant Sanction Person is a Sanctioned Subject or the issuer or any of its Relevant Sanction Person is controlled by any person, entity or government that is a Sanctioned Subject, the issuer must immediately announce all relevant information known to it. A Sanctioned Subject would not be considered to be suitable for continued appointment as an executive officer or director as it exposes the issuer to sanctions-related risks.
3.1 If the issuer is a Sanctioned Subject or is engaging in any Sanctioned Activity, or if the proceeds raised are likely to be used to benefit any Sanctioned Subject or finance any Sanctioned Activity, SGX will not grant its approval.
3.2 Where an issuer is exposed, or has a nexus, to any sanctions-related risks, SGX may require the issuer to undertake an independent review or obtain external auditors’ confirmation that fundraising proceeds are not used to benefit any Sanctioned Subject or finance any Sanctioned Activity.
4. Cessation of Sanctions-related Risks
4.1 Where the issuer is no longer exposed, nor has a nexus, to any sanctions-related risks, or where the issuer or any Relevant Sanction Person ceases to be a Sanctioned Subject or to be engaged in a Sanctioned Activity, as the case may be (“Cessation”), the issuer must make an immediate announcement, including an assessment on the impact of the Cessation to the issuer, such as the financial impact and the operational impact.
4.2 SGX may require that the issuer obtain and announce legal advice and confirmation from any other relevant parties in relation to whether, following the Cessation, there will be any legal and financial penalties and liabilities (including contingent liabilities) imposed on the issuer. SGX may also require the issuer to confirm the continued validity of any such legal advice and confirmation in its subsequent annual reports. Where there are material updates to the legal advice, the issuer should make timely disclosure of any changes.
5. Conclusion
5.1 SGX wishes to highlight that the scenarios contemplated and safeguards illustrated above are not exhaustive.
5.2 SGX may exercise its powers under Rule 1303 at any time to suspend the trading of the issuer’s securities. The issuer’s suitability for listing may also be an issue in extreme cases and SGX may exercise its powers under Rule 1305 at any time to remove an issuer from its Official List, such as where:
(a) the exposure or nexus to sanctions-related risks has materially undermined the issuer’s business, such as, where it affects the issuer’s ability to operate as a going concern; or
(b) the sanctions-related risks to its shareholders or SGX (and its related entities) are likely to be significant.
Tan Boon Gin
CEO
SGX RegCo
Michael Tang
Head of Listing Policy and Product Admission
SGX RegCo
