Changes to Singapore selling restrictions for the wholesale debt market

The Notice has had an impact on the offer of debentures in the wholesale debt market. This update looks at the concerns and solutions.

The Monetary Authority of Singapore (MAS) issued a Notice on Business Conduct Requirements for Corporate Finance Advisers (Notice) on 21 June 2023 that, among other things, imposes a requirement on relevant persons advising on corporate finance to apply enhanced due diligence measures in certain circumstances, effective for all corporate finance advisory engagements entered into on or after 1 October 2023. The Notice has had an impact on the offer of debentures in the wholesale debt market, and A&O, together with ICMA and other law firms prominent in advising on international wholesale debt market transactions in Singapore, have worked out an approach that is intended to address the concerns raised by the Notice. In this update, we look at the concerns and describe the approach that has been agreed upon. 

Prospectus requirements and exemptions under the SFA

Under the Securities and Futures Act 2001 (SFA), the offer of securities (as defined in the SFA to include, among other things, shares and debentures) in Singapore must be accompanied by a prospectus. Generally, a prospectus must set out all the information that investors and their professional advisers would reasonably require to make an informed assessment of the securities offered. This typically involves a rigorous due diligence process by, among others, the relevant persons advising on corporate finance to the issuer of the securities. The Notice therefore reinforces the requirement in the SFA as to the informational requirements of a prospectus, and the need to ensure the accuracy of this information. 

However, the SFA also provides various safe harbours under which securities may be offered without a prospectus. In the wholesale debt market, debentures are commonly issued pursuant to the prospectus exemption afforded to offers made to institutional investors, and accredited investors and other relevant persons, as well as offers made on terms that the securities may only be acquired at a consideration of not less than SGD200,000 (Section 275(1A) Exemption). As a prospectus is not required for such deals, the market practice that has developed is for the relevant persons involved in such deals, including where they may be advising on corporate finance, to only carry out a more limited due diligence process in connection with the transaction. 

Due diligence requirements and exemptions under the Notice 

The Notice (specifically, paragraph 19) states that a corporate finance adviser which advises on corporate finance must carry out due diligence with reasonable care, skill and diligence, including in (among other things) making an assessment of the accuracy and completeness of material statements, confirmations, and representations made, or other information given, by its customer or other persons in connection with a transaction (collectively, the Information). The requirement in paragraph 19 applies to all such Information and not only to prospectuses. It therefore applies across a wider range of transactions than simply offers of securities that must be accompanied by a prospectus. 

The Notice does however provide certain exemptions to the requirement in paragraph 19. In particular, paragraph 3(a)(ii) of the Notice exempts a corporate finance adviser from the due diligence requirement in paragraph 19 if it is advising concerning any offer of specified products made only to persons who are accredited investors, expert investors or institutional investors. This exemption differs from the prospectus exemptions in the SFA in the following ways: 

• It includes offers made to expert investors. While expert investors are a recognised class of investors in the SFA, they are relevant for the purposes of SFA licensing exemptions and not for the purposes of the SFA prospectus exemptions. 
• The exemption does not cover offers made pursuant to the Section 275(1A) Exemption. 
• The exemption does not cover offers made to relevant persons under Section 275(1) of the SFA who are not accredited investors. 

The concerns for wholesale debt market deals 

As noted earlier, in the wholesale debt market, it is common for debentures to be offered not only to accredited investors and institutional investors, but also to relevant persons under Section 275(1) of the SFA who are not accredited investors and pursuant to the Section 275(1A) Exemption. These might therefore include offers to customers who do not qualify as accredited investors or who have not opted to be treated as accredited investors but can afford to or wish to invest in such high value debentures. 

While the MAS has clarified that financial institutions will not be subject to the Notice when acting as bookrunner, placement agent or underwriter or other roles, so long as they are not advising on corporate finance, it may be difficult in practice to clearly segregate when one is carrying out the regulated activities of dealing in capital market products or advising on corporate finance.  

Furthermore, as the market practice is for financial institutions providing services on these transactions to only carry out a more limited due diligence process, with the issuance of the Notice there is now a need to mitigate against the risk of a potential and inadvertent breach of the paragraph 19 due diligence measures and requirements. Industry participants are therefore moving to an approach where the default position is to confine marketing and offering efforts for such debentures only to institutional investors and accredited investors. Accordingly, unless the relevant financial institutions agree otherwise, they will not be relying on the Section 275(1A) Exemption nor will they be offering to relevant persons who are not accredited investors. 

This has necessitated changes to a more restrictive form of selling restrictions for Singapore that needs to be included in the offering document or information memorandum issued to investors for wholesale debt market transactions. In the context of a programme, the new draft wording adopts a “switch on/switch off” approach where alternative wording has been provided for deals where marketing will be confined only to institutional investors and accredited investors, and deals where the wider suite of prospectus exemptions will be relied upon. Expert investors have not been referred to as a class of investors in the draft selling restrictions wording, reflecting the fact that they are not a recognised class of exempted investors for the purposes of the SFA prospectus exemptions. The draft is still in the process of being finalised. If more information or advice is required, we will be happy to discuss this in greater detail with you.