KUALA LUMPUR (March 17): Bursa Malaysia Securities Bhd has publicly reprimanded and fined KAF Investment Bank Bhd RM300,000 for failing to conduct proper due diligence while acting as a sponsor for an ACE Market listing applicant.

In a statement on Tuesday, the stock exchange operator and frontline regulator said KAF IB failed to properly investigate or address non-compliances regarding the building safety permits — specifically the certificates of completion and compliance (CCCs) — for two core manufacturing facilities owned by the applicant.  

KAF IB also failed to ensure the pre-admission consultation pack and draft prospectus were accurate, complete, and free from material omissions or misleading information, said Bursa Securities.

The documentation did not disclose the non-compliances, and that the applicant was in the process of obtaining a new CCC for the two facilities, despite KAF IB knowing the information months before submitting the listing application, the regulator noted. Instead, KAF IB had represented that the applicant was in full compliance with all governing laws and regulations.

According to the regulator, KAF IB had merely relied on "subjective" and "inconclusive" assessment by the due diligence working group on the validity of the old CCCs. It did not conduct independent verification with local authorities, despite the fact that the two plants were the applicant's core assets and their regulatory status was critical to the listing assessment.

The discrepancies came to light following a query from the regulator when it noticed one plant had a newly issued CCC. The resulting probe revealed that both facilities required revised permits due to alterations to their building plans. This forced KAF IB to withdraw the listing application, only resubmitting it after the second plant's permit was finally secured.

The exchange regulator said the breaches of the ACE Market Listing Requirements underscore a lack of transparency and a serious failure of the obligations of the sponsors. It also  undermined "the integrity of the due diligence process and compromised Bursa Securities’ ability to assess the suitability of the applicant for listing".

Aside from the fine and reprimand, Bursa Securities wants KAF IB to table the regulator's decision to its board of directors and conduct a comprehensive review of its internal policies and procedures regarding its role as a sponsor.

The exchange regulator added that it views the breaches seriously, in view of the primary and crucial role played by the sponsors and advisers in the "sponsor-driven" ACE Market, and reminded all sponsors and advisers to maintain the highest standards of accountability and responsibilities.