SINGAPORE – Singapore plans to introduce a new law to regulate significant investments in “a handful of critical entities”.

This would mean these companies have to seek approval when there are certain changes in ownership or leadership.

The move reflects a similar trend globally, where countries are stepping up their scrutiny of investments to protect industries that are crucial to the proper functioning of their economies and societies.

The Significant Investments Review Bill seeks to regulate both local and foreign investments in entities “critical to Singapore’s national security interests”, though these entities have not yet been identified.

The Ministry of Trade and Industry (MTI) said on Friday that entities can be designated under the proposed rules if they are incorporated, formed or established in Singapore; carry out business activities in Singapore; or provide goods and services to people here.

An MTI spokesperson told reporters that the law would apply to individual entities, rather than the entire sector they operate in.

The move is meant to complement existing sector-based legislation, which already imposes ownership and control safeguards on entities in sectors such as telecommunications, banking and utilities. 

The first reading of the Bill will take place when Parliament sits next week.

The second reading is expected in January 2024, and, if the Bill is passed, the legislation is set to come into effect a few months later, said the spokesperson.

Minister for Trade and Industry Gan Kim Yong told reporters that because of the increasingly complex economic environment, it is important for Singapore to “take a broader view on how we can effectively manage the risks that may arise from significant investments in some of these critical entities”.

Although most critical entities here are already adequately covered by existing sectoral legislation, there are some that may not be covered adequately, or may be in sectors not covered by those rules, he noted.

Thus, in a crisis situation, the current legal requirements imposed on these entities may not be adequate to ensure their business continuity, Mr Gan added. 

“We expect only a handful of critical entities to be designated under this Bill,” he said.

Under the proposed investment management regime, critical entities will have to abide by the following requirements:

1. Buyers and sellers have to notify of and seek approval for certain changes in ownership or control.

Buyers have to notify the minister for trade and industry after they become a 5 per cent controller in the entity. They will have to seek approval before becoming a 12 per cent, 25 per cent or 50 per cent controller.

Buyers will also have to seek approval before they become indirect controllers, or when they acquire the business, or parts of it, as a going concern.  

Sellers will need to seek the minister’s approval when they cease to be a 50 per cent or 75 per cent controller.

MTI said that the onus is also on the critical entities to notify the minister after they become aware of any changes in ownership and control.

The minister may direct parties to take remedial actions under various circumstances, such as disposing of a stake in the designated entity, if conditions of approval are not complied with.

2. Critical entities will be required to seek approval for the appointment of key officers. The minister may also remove key officers in the interest of national security.

The MTI spokesperson said that in the case of corporations, key officers refer to the chief executive, directors and chairperson of the board of directors. 

In the case of limited liability partnerships, they refer to the manager and partner, while in the case of partnerships, they refer to the partner, the spokesperson added.

Designated entities will also be subject to other provisions. For example, they cannot be voluntarily wound up or dissolved without the minister’s consent.

To ensure the continuity of critical operations of designated entities, the minister could direct the transfer of a designated entity’s affairs, business, and property, to a prescribed transferee.

These powers will only be used when other remedial measures are deemed ineffective and where there is a real risk to the security and reliability of the designated entity’s critical functions, or in the interests of national security.

The MTI spokesperson said that the provisions under the Bill do not have retrospective effect. 

Ownership or control provisions will apply to entities only after they have been designated and will not affect existing arrangements.

Even entities that have not been designated can have their ownership or control transactions reviewed, if they have acted against Singapore’s national security interests.

The Government can take targeted actions, such as directing an investor to dispose of his equity interest in the entity.

MTI said there will be clear processes for affected parties that wish to request that the minister reconsider his decisions.

Affected parties can also appeal to an independent reviewing tribunal, which will consist of three individuals appointed by the president on the advice of the Cabinet.

These individuals will include a Supreme Court judge as the chairperson, MTI added.

Singapore remains an open economy and trusted hub for investors

Addressing fears that Singapore is turning inwards, Mr Gan said it is crucial for the country to remain open and connected to the world.

Thus, the Republic must continually work on strengthening its position as a trusted hub for businesses to invest with confidence, he said.

Mr Gan said that MTI will engage with the entities that are being considered for designation “to assure them that we will be working with them on the implementation details, so as to address their concerns” and to minimise the overall impact on affected businesses. 

“Most of our arrangements with them will be quite bespoke. We will be tailoring to the peculiar, specific nature of that particular entity,” he added.

Commenting on the proposed legislation, Mr Nicholas Fang, executive director of security and global affairs at the Singapore Institute of International Affairs, said that it serves to align Singapore with global best practices.

Many countries have already built and tightened their own investment screening measures, he said, adding that about 90 per cent of Organisation for Economic Cooperation and Development countries have regulations to screen investments.

Globally, jurisdictions including Australia, China, Ireland, Japan, Britain and the United States have similar investment screening policies.

Mr Fang added that conflicts are happening around the world, and those with ill intent will look to the whole suite of levers or tools at their disposal, including direct military conflict and economic levers, to achieve their aims.

Singapore Business Federation chairman Lim Ming Yan said the new approach is a “balanced one that seeks to meet the Government’s objectives while ensuring that Singapore remains an open and competitive business location”.

Added Mr Lim: “Such measures give Singapore adequate levers to ensure the security and reliability of entities critical to the functioning of our economy. In a counter-intuitive way, it will likely strengthen Singapore’s positioning as a safe and trusted hub for business and investments.”

This article has been edited for clarity.