RES 4 – Rules, Ethics and Skills for Corporate Finance

Correct: Statement I is correct because financial institutions supervised by MAS (excluding money changers and remittance licenses) are specifically exempted from the requirement to inquire about ultimate beneficial owners. Statement II is correct because entities listed on the SGX that are subject to regulatory disclosure and transparency requirements are also exempted. Statement IV is correct because investment vehicles managed by MAS-supervised financial institutions fall under the categories where such inquiries are generally not required.

Incorrect: Statement III is incorrect because the exemption for MAS-supervised financial institutions explicitly excludes holders of a money changer’s or remittance license. For these specific types of entities, the CMS license holder must still perform the standard identification of ultimate beneficial owners unless other exemptions apply.

Takeaway: CMS license holders are generally not required to identify ultimate beneficial owners for low-risk entities like MAS-supervised FIs and listed companies, provided there is no suspicion of money laundering. Therefore, statements I, II and IV are correct.

Correct: Statement I is correct because Section 253 of the SFA specifically imposes criminal liability on issue managers who are reckless as to whether a statement in the OIS is false or misleading. Statement III is correct because the SFA prescribes a maximum fine of S$150,000 upon conviction for an offence related to a defective OIS.

Incorrect: Statement II is incorrect because the SFA explicitly excludes sub-underwriters from the specific criminal liability provisions that apply to underwriters named in the OIS. Statement IV is incorrect because, unlike Connected Persons, Non-connected Persons (such as issue managers or underwriters) only face criminal liability if elements of intention, knowledge, or recklessness are established.

Takeaway: Under the SFA, criminal liability for a defective OIS distinguishes between Connected and Non-connected persons, with the latter requiring proof of intent or recklessness for a conviction. Therefore, statements I and III are correct.

Correct: Statement I is correct because SGX-ST listing rules mandate that the total number of issued preference shares cannot exceed the total number of issued ordinary shares at any time. Statement III is correct because preference shareholders must be granted the same rights as ordinary shareholders regarding the receipt of notices, reports, and balance sheets.

Incorrect: Statement II is incorrect because preference shareholders typically do not have voting rights except on specific matters affecting their fundamental rights, such as winding up or capital reduction, or when dividends are in arrears for more than six months. Statement IV is incorrect because the alteration of preference shareholders’ rights requires a special resolution or written consent from holders of at least 75% of the preference shares, not 50%.

Takeaway: Preference shares are subject to specific issuance limits and restricted voting rights under SGX-ST rules to balance the interests of different classes of shareholders. Therefore, statements I and III are correct.

Correct: Under Section 254 of the SFA, a person seeking to recover loss or damage from a defective Offer Information Statement (OIS) must prove they suffered actual loss, but they do not need to prove the misleading information was material.

Incorrect: The assertion that materiality must be proven is incorrect because the SFA explicitly states there is no concept of materiality for civil liability under Section 254. The claim that issue managers are automatically liable without the possibility of a reasonable reliance defense is wrong, as Section 255(3) provides a defense if they reasonably relied on information from a non-agent or non-employee. The statement that proposed directors remain liable despite withdrawing consent is false, as Section 255(5) provides a specific statutory defense for those who publicly withdraw their consent to be named.

Takeaway: Civil liability for a defective OIS under the SFA requires proof of actual loss or damage rather than materiality, though defendants may utilize statutory defenses such as reasonable inquiry or public withdrawal of consent.

Correct: The information is confidential, a reasonable person would not expect disclosure, and it concerns an incomplete proposal or negotiation is the right answer because these are the three cumulative conditions required under Exception 2 of the Corporate Disclosure Policy for temporary non-disclosure.

Incorrect: The mention of a board resolution is incorrect as the rules focus on the nature of the information and the three specific conditions rather than internal voting procedures. The claim that a breach of contractual duty allows for non-disclosure is wrong because Exception 1 specifically requires a breach of law, such as the Official Secrets Act, and explicitly states that a breach of contractual duty is insufficient. The reference to a five market day disclosure window is incorrect because the Listing Manual states that a trading halt cannot exceed three market days unless the SGX-ST agrees to an extension.

Takeaway: Temporary non-disclosure of material information is only permitted if the information is confidential, a reasonable person would not expect disclosure, and it meets specific criteria such as being an incomplete negotiation.

Correct: Statement I is correct because CMS license holders are required to verify the identity of customers before establishing business relations or before conducting transactions exceeding S$20,000 for non-established clients. Statement II is correct because the regulations permit the deferral of verification if it is essential to prevent the interruption of normal business operations, such as securities trades where timing is critical. Statement IV is correct because license holders must manage the risks of deferred verification by imposing limits on the number and value of transactions and employing closer monitoring.

Incorrect: Statement III is incorrect because the regulatory requirement states that the completion of deferred verification must not exceed 30 business days after the establishment of business relations, whereas the statement incorrectly cites 60 business days.

Takeaway: CMS license holders must generally verify client identity upfront but may defer this for up to 30 business days in urgent trading scenarios if appropriate risk controls are implemented. Therefore, statements I, II and IV are correct.

Correct: The requirement for immediate announcement via SGXNET is the correct application of Rule 703, which mandates that a listed issuer must promptly disclose any information concerning itself, its subsidiaries, or its associated companies that is likely to be materially price-sensitive or necessary to avoid a false market.

Incorrect: The suggestion to delay the announcement until the next quarterly report is incorrect because the Listing Manual requires immediate disclosure rather than waiting for periodic reporting cycles. The claim that disclosure is only required for the parent company’s direct operations is wrong because the obligation explicitly extends to subsidiaries and associated companies. The idea that an issuer must wait for specific instructions from SGX-ST before announcing is incorrect, as the issuer has a proactive duty to disclose material information via SGXNET.

Takeaway: Listed issuers must immediately disclose price-sensitive information concerning their entire group via SGXNET to ensure a fair and efficient market for all investors.

Correct: Statement I is correct because the regulatory guidance requires CMS license holders to maintain dynamic scoring systems that can adapt to changes in transaction volumes or other relevant information. Statement II is correct as the Basel AML Index 2015 specifically identifies Singapore and Australia as examples of low-risk countries. Statement IV is correct because Guinea and Kenya are explicitly listed as high-risk countries in the 2015 report extract.

Incorrect: Statement III is incorrect because country risk ratings are not determined solely by transaction volume; they are based on a variety of factors including governance, transparency, and financial sector standards.

Takeaway: CMS license holders must utilize a dynamic risk evaluation matrix that incorporates country-specific factors like governance and transparency to effectively assess money laundering and terrorist financing risks. Therefore, statements I, II and IV are correct.

Correct: Statement I is correct because screening is a mandatory requirement for all customers before establishing a business relationship, regardless of their risk profile. Statement II is correct because the regulations explicitly allow for simplified CDD when the customer is a Singapore government entity or a financial institution supervised by the MAS. Statement IV is correct because the presence of nominee shareholders or shares in bearer form is specifically identified as a high-risk factor that necessitates the performance of Enhanced Due Diligence (EDD).

Incorrect: Statement III is incorrect because the regulatory framework states that while a CMS license holder may rely on certain third parties to perform CDD, such reliance does not diminish the license holder’s ultimate responsibility for fulfilling its regulatory obligations.

Takeaway: CMS license holders must perform universal screening and maintain ultimate regulatory responsibility for due diligence, even when applying simplified measures or relying on third-party intermediaries. Therefore, statements I, II and IV are correct.

Correct: Statement I is correct because for a Catalist Issuer, an ordinary resolution allows for an aggregate issuance limit of up to 100% of the total number of issued shares. Statement II is correct because the limit for equity securities issued other than on a pro rata basis under an ordinary resolution is 50%. Statement III is correct because if the mandate is approved by a special resolution, the limit for both pro rata and non-pro rata issues can be up to 100%.

Incorrect: Statement IV is incorrect because the Listing Manual requires the number of shares in issue to be adjusted for new shares arising from the conversion or exercise of convertible securities that were outstanding at the time the resolution was passed, rather than excluding them.

Takeaway: Catalist Issuers have higher general mandate thresholds than Mainboard Issuers, with the ability to issue up to 100% of shares on a non-pro rata basis if a special resolution is passed. Therefore, statements I, II and III are correct.

Correct: Filing a Suspicious Transaction Report with the Commercial Affairs Department and copying MAS within 15 days is the right answer because the regulations mandate reporting when a customer is unable or unwilling to provide CDD information or withdraws an application under suspicious circumstances.

Incorrect: The suggestion to wait for MAS clearance before filing with the police is wrong because the STR must be filed within the 15-day window to both CAD and MAS. The idea of only documenting findings internally is incorrect as the failure to complete CDD or a suspicious withdrawal triggers a mandatory external reporting requirement. The claim that reporting depends on a specific transaction threshold is incorrect because the suspicion arises from the client’s behavior and refusal to comply with due diligence, regardless of the deal size.

Takeaway: CMS license holders must file a Suspicious Transaction Report within 15 days to the CAD and MAS if a client refuses to provide CDD information or withdraws an application suspiciously.

Correct: Statement I is correct because the Listing Manual requires full-year financial statements to be announced no later than 60 days after the relevant financial period. Statement III is correct because for interim financial statements, the board must provide a “negative assurance” confirmation signed by two directors on behalf of the board. Statement IV is correct because selective disclosure is permitted in limited instances, such as when a Listed Issuer needs to engage substantial shareholders for support during a major corporate exercise.

Incorrect: Statement II is incorrect because quarterly reporting is not mandatory for all issuers; it is only required if the auditors have issued an adverse, qualified, or disclaimer of opinion, or if there is a material uncertainty regarding going concern in the latest financial statements.

Takeaway: Listed issuers must adhere to strict financial reporting timelines and maintain a policy of non-selective disclosure, except in specific cases like major corporate exercises or due diligence. Therefore, statements I, III and IV are correct.

Correct: Statement I is correct because according to Rule 816(2), a non-renounceable rights issue may be undertaken under a general share issue mandate provided the discount does not exceed 10% of the weighted average price. Statement II is correct because Rule 872(1) permits a confidential additional listing application for underwritten rights issues to help the issuer and underwriters manage market exposure risks.

Incorrect: Statement III is incorrect because Rule 818 specifies that the force majeure clause in an underwriting agreement cannot be invoked after the commencement of ex-rights trading, not until the final allotment. Statement IV is incorrect because specific shareholders’ approval is not required for placements to substantial shareholders if they have no board representation, the placement uses an independent process like book-building, and their shareholding proportion does not increase.

Takeaway: Listed issuers must comply with specific pricing caps for non-renounceable rights issues and observe strict timelines regarding underwriting protections and shareholder approval exemptions. Therefore, statements I and II are correct.

Correct: Statement I is correct because the Listing Manual stipulates that the issue price for a placement of shares may not be priced at more than a 10% discount to the weighted average price for trades on the SGX-ST for the full market day the agreement is signed. Statement II is correct because Rule 803 specifically requires shareholders’ approval by ordinary resolution for any issue of equity securities that results in the transfer of a controlling interest.

Incorrect: Statement III is incorrect because a listed issuer is expressly prohibited from relying on a general mandate for convertible securities if the maximum number of shares to be issued upon conversion cannot be determined at the time of issue. Statement IV is incorrect because the disclosure requirements for an Offer Information Statement (OIS) are generally substantially less extensive, rather than more extensive, than the requirements for a full prospectus under the SFA.

Takeaway: Listed issuers must seek specific shareholder approval for transactions involving the transfer of controlling interests and must ensure placement pricing does not exceed the 10% discount threshold relative to the weighted average market price. Therefore, statements I and II are correct.

Correct: Conducting further inquiries into the background and purpose of the transaction and documenting the findings is the right answer because the regulations specifically require CMS license holders to give further scrutiny to complex or unusually large transactions that lack a visible economic purpose. This ensures that the customer’s behavior remains consistent with their known risk profile and that information is available for relevant authorities if needed.

Incorrect: The suggestion to immediately terminate the relationship without investigation is wrong because the framework requires initial scrutiny and documentation of findings to determine if the behavior is truly suspicious. Postponing the investigation until a periodic review is incorrect because unusual patterns require immediate attention during the course of business relations, regardless of the client’s risk level. Notifying the client about the internal scrutiny is wrong because it violates the ‘avoid tipping off’ principle, which is a core component of the KYC framework.

Takeaway: CMS license holders must actively monitor transactions for unusual patterns and perform documented inquiries into suspicious activities while ensuring they do not tip off the customer.

Correct: Statement I is correct because the regulation explicitly requires a review of the enterprise-wide risk assessment at least every 2 years or when material trigger events occur. Statement III is correct because the filing of a Suspicious Transaction Report (STR) must be completed within 15 days of the case being referred by the staff to the single reference point.

Incorrect: Statement II is incorrect because senior management must approve the results of the risk assessment review regardless of whether significant changes were found. Statement IV is incorrect because the minimum retention period for STR-related records and supporting documents is 5 years, not 3 years.

Takeaway: CMS license holders must maintain up-to-date enterprise-wide risk assessments and adhere to strict 15-day filing and 5-year record retention timelines for suspicious transactions. Therefore, statements I and III are correct.

Correct: Statement I is correct because tipping-off involves disclosing information to another person that is likely to prejudice an investigation when there is knowledge or suspicion of an investigation under the CDSA. Statement II is correct because the source text explicitly states that money laundering (ML) offences carry fines up to $500,000, whereas tipping-off offences carry a lower maximum fine of $30,000.

Incorrect: Statement III is incorrect because the regulatory requirement for AML/CFT and financial crime training is that it must be refreshed on a yearly basis, not every two years. Statement IV is incorrect because the penalty for failing to maintain a register of all Suspicious Transaction Reports (STR) filed is a fine of up to $10,000, while the $20,000 fine applies specifically to the failure to report a suspicious transaction.

Takeaway: Financial crime regulations in Singapore impose significant personal and corporate liabilities, including specific fines for money laundering and mandatory requirements for annual staff training and record maintenance. Therefore, statements I and II are correct.

Correct: A subsidiary of the listed issuer that is not listed on the SGX-ST or an approved exchange is the right answer because Rule 904(2) of the Listing Manual specifically defines an entity at risk to include the listed issuer and its subsidiaries that are not listed on the SGX-ST or an approved exchange.

Incorrect: The statement about an associated company without control is wrong because associated companies are only considered entities at risk if the listed issuer or its group (including interested persons) has control over them. The statement about a subsidiary listed on an approved exchange is wrong because the definition explicitly excludes subsidiaries that are already listed on the SGX-ST or other approved exchanges. The statement regarding the S$100,000 threshold is wrong because this dollar amount is a materiality threshold for reporting and approval, not a criterion for defining an entity at risk.

Takeaway: An entity at risk includes the listed issuer and its unlisted subsidiaries or controlled associated companies, ensuring that transactions involving these entities are monitored for potential conflicts of interest.

Correct: Statement I is correct because Rule 882 of the Listing Manual limits share buy-backs to 10% of the total number of issued ordinary shares as at the date of the resolution. Statement III is correct because Rule 838 requires Mainboard listed issuers to satisfy the SGX-ST that the daily weighted average price, adjusted for the bonus issue, will not be less than S$0.50.

Incorrect: Statement II is incorrect because the price cap for on-market share buy-backs is 5% above the average closing market price over the preceding 5 market days, not 10%. Statement IV is incorrect because Rule 841/840 prohibits an issuer from capitalising more than 50% of the amount in the revaluation reserve account, making the 75% figure in the statement inaccurate.

Takeaway: Listed issuers must adhere to specific quantitative thresholds regarding share buy-back volumes and price adjustments for bonus issues to maintain market stability and protect shareholder interests. Therefore, statements I and III are correct.

Correct: Statement I is correct because transactions that cannot be reconciled with a customer’s usual activity, such as a sudden shift from penny stocks to blue chips without justification, are flagged as lacking economic sense. Statement II is correct because the guidelines specifically identify cash payments exceeding S$20,000 as a threshold for “large” amounts that warrant suspicion. Statement IV is correct because transfers between a corporate account and the personal accounts of employees or their relatives are considered suspicious activities involving CMS license holders’ accounts.

Incorrect: Statement III is incorrect because the regulatory guidelines explicitly state that immediate withdrawals are suspicious “unless” the customer provides a plausible reason; therefore, a transaction with a plausible explanation does not meet the specific criteria for this red flag.

Takeaway: CMS license holders must identify suspicious patterns including transactions lacking economic sense, cash payments exceeding S$20,000, and unusual transfers between corporate and personal accounts. Therefore, statements I, II and IV are correct.

Correct: Statement I is correct because according to Practice Note 10.1, shareholders’ approval is generally not required for an expansion of the issuer’s existing core business unless the acquisition changes the risk profile. Statement II is correct because Rule 1014 of the Listing Manual defines a major transaction as any transaction where any of the computed relative figures exceeds 20%.

Incorrect: Statement III is incorrect because Rule 1003 states that when consideration is in the form of shares, the value is determined by the higher of the market value or the NAV represented by those shares, not just the market value. Statement IV is incorrect because Rule 1006(i) explicitly states that the comparison of the net asset value of assets against the Group’s net asset value is not applicable to acquisitions.

Takeaway: Transaction classification under the SGX Listing Manual depends on four specific relative figures, and the valuation of share-based consideration must be based on the higher of market value or NAV. Therefore, statements I and II are correct.

Correct: Statement I is correct because the frequent deposit of company cheques into an employee’s personal account is a specific example of a suspicious transaction under Appendix A. Statement III is correct because the use of pseudonyms or numbered accounts by commercial enterprises is flagged as suspicious behavior. Statement IV is correct because reinvesting funds into the original jurisdiction after routing them through a tax haven with poor CDD standards is a red flag for tax-related crimes.

Incorrect: Statement II is incorrect because a transaction that is clearly identified as a bona fide transaction with documented justification does not meet the criteria for a suspicious transaction; the regulation specifically flags cross-border acquisitions that cannot be clearly identified as bona fide.

Takeaway: CMS license holders must monitor for specific red flags involving employee accounts, non-transparent account naming, and circular fund movements through high-risk jurisdictions to detect potential money laundering or tax crimes. Therefore, statements I, III and IV are correct.

Correct: Statement I is correct because Rule 907 of the Listing Manual requires listed issuers to disclose the names of interested persons and the aggregate value of transactions in the annual report, specifically excluding those less than S$100,000. Statement II is correct because shareholders’ approval must be obtained either before the transaction is entered into or, if the transaction is conditional on such approval, before its completion. Statement III is correct because the Listing Manual explicitly prohibits the interested person and any of their associates from voting on the resolution to approve the transaction.

Incorrect: Statement IV is incorrect because while a general mandate can be sought for recurrent transactions of a revenue or trading nature necessary for day-to-day operations, the Listing Manual specifically states that such a mandate cannot be used for the purchase or sale of assets, undertakings, or businesses.

Takeaway: Compliance with Interested Person Transaction rules requires precise timing for shareholder approval, strict voting exclusions for conflicted parties, and adherence to specific disclosure thresholds in annual reports. Therefore, statements I, II and III are correct.

Correct: Statement I is correct because zero coupon bonds do not provide periodic interest payments, which removes the risk of reinvesting such payments at lower future rates. Statement III is correct because an issuer is likely to exercise a call feature to redeem bonds when interest rates fall, which prevents the investor from benefiting from further capital appreciation.

Incorrect: Statement II is incorrect because zero coupon bonds are actually the most volatile type of bond regarding price movements and respond more sharply to interest rate changes than coupon bonds. Statement IV is incorrect because zero coupon bonds are typically sold at deep discounts far below their par value, rather than being issued at par.

Takeaway: Zero coupon bonds eliminate reinvestment risk and offer high price responsiveness to interest rate changes, but they are subject to significant price volatility and potential call risk. Therefore, statements I and III are correct.

Correct: The doubling option is the right answer because it grants the issuer the right to retire twice the amount of debt required by the sinking fund, which effectively functions as an embedded call option for the issuer.

Incorrect: The statement regarding a put option is wrong because put provisions are rights exercised by bondholders to sell bonds back to the issuer, not issuer rights to retire debt. The option regarding doubling the coupon rate is incorrect because sinking funds are mechanisms for principal repayment, not for adjusting interest rates based on credit triggers. The mention of a conversion privilege is wrong because conversion refers to the holder’s option to exchange bonds for ordinary shares, which is distinct from accelerated debt retirement.

Takeaway: Although sinking-fund provisions are designed to reduce credit risk, the inclusion of an acceleration clause like a doubling option provides the issuer with an embedded call option.

Correct: Statement I is correct because according to Rule 1014(2) of the Listing Manual, a major transaction must be made conditional upon the approval of the company’s shareholders. Statement II is correct because Rule 1015(1)(a) requires that for a very substantial acquisition, the issuer must announce the latest 3 years of proforma financial information of the assets to be acquired. Statement III is correct because Rule 1017/1016 specifies that SGX-ST normally applies the same assessment criteria used for an Initial Public Offering (IPO) to reverse take-overs.

Incorrect: Statement IV is incorrect because there is a specific exception for non-discloseable transactions; if the consideration is satisfied wholly or partly in securities for which listing is being sought, the issuer is required to announce the transaction as soon as possible.

Takeaway: The SGX-ST Listing Manual imposes tiered disclosure and approval requirements based on the transaction’s impact, with major transactions and reverse take-overs requiring shareholder approval and IPO-level scrutiny. Therefore, statements I, II and III are correct.

Correct: Statement I is correct because the SGX-ST may grant a waiver for the disposal of a non-core asset or business provided it does not affect the nature of the issuer’s main business. Statement III is correct because when a waiver is granted, the board’s opinion on the risk profile and the confirmation from an independent financial adviser (IFA) must be disclosed via SGXNET.

Incorrect: Statement II is incorrect because the SGX-ST explicitly states that the cost and inconvenience of convening a shareholders’ meeting are not valid grounds for granting a waiver. Statement IV is incorrect because an undertaking by substantial shareholders to vote in favor of a transaction is specifically listed as a ground that cannot be used to justify a waiver of the requirement for shareholders’ approval.

Takeaway: While SGX-ST may waive shareholder approval for disposals of non-core or loss-making assets, it strictly prohibits waivers based on administrative convenience or shareholder voting undertakings. Therefore, statements I and III are correct.

Correct: Statement II is correct because a fiscal agent is an agent of the issuer and performs administrative tasks like making payments without owing a duty of care to the bondholders. Statement III is correct because the SGX-ST Listing Manual generally requires the appointment of a trustee (such as a licensed trust company) to represent bondholders’ interests for listed debt securities.

Incorrect: Statement I is incorrect because ownership of registered bonds passes only when the register is amended by the issuer or registrar, whereas physical delivery applies to bearer bonds. Statement IV is incorrect because the minimum principal amount for a series under an MTN programme listed on the SGX-ST is S$5 million, not S$10 million.

Takeaway: Issuers must distinguish between agents acting for the company and trustees acting for bondholders, while adhering to specific SGX-ST listing thresholds and ownership transfer rules. Therefore, statements II and III are correct.

Correct: Statement I is correct because Rule 1207(10) requires the board to provide an opinion, with the concurrence of the audit committee, on the adequacy and effectiveness of internal controls, including financial, operational, compliance, and IT controls. Statement II is correct because Rule 1207(20) mandates a status report on the use of proceeds from an IPO and any offerings under Chapter 8, including whether the use aligns with stated percentage allocations.

Incorrect: Statement III is incorrect because Rule 1207(4) specifies that while a detailed review of financial performance is required, following the Guide for Operating and Financial Review is encouraged but not mandatory. Statement IV is incorrect because the best practice guidelines specify a blackout period of two weeks before the announcement of financial statements for the first three quarters, not one week.

Takeaway: Listed issuers must provide specific disclosures regarding internal control effectiveness and the use of capital proceeds, while adhering to prescribed blackout periods for dealings in securities by directors. Therefore, statements I and II are correct.

Correct: Under Section 269(2) of the SFA, when an issuer requests information from a guarantor for a report, the deadline specified in the notice must not be earlier than 14 days after the notice is given.

Incorrect: The period of 21 days is incorrect as it is not the minimum statutory timeframe required by the SFA. The period of 30 days is wrong because the legislation specifically sets the minimum at 14 days. The period of 60 days is incorrect as it does not reflect the actual legal requirement for the minimum notice period for guarantors.

Takeaway: The SFA requires that a guarantor be given a minimum of 14 days from the date of notice to provide information requested by the issuer for regulatory reporting.