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Singapore to propose new law to manage significant investments into critical entities

SINGAPORE: Singapore will propose a new law to regulate significant investments, be it local or foreign, into entities that are critical to the country’s national security interests, the Ministry of Trade and Industry (MTI) said on Friday (Nov 3).

The Significant Investments Review Bill, set to be introduced at next week’s parliament sitting, will require those identified as critical entities to notify or seek approval from the authorities for ownership or control changes, among others.

It will also empower the government to review ownership or control transactions, and take targeted actions at any entity that has acted against Singapore’s national security interests.

The Bill sets out a new investment management regime, which will apply to both local and foreign investments, ensuring “a level playing field for all investors”, MTI said.

Singapore currently relies on sector-specific laws – such as legislative restrictions on foreign ownership and licensing regimes where investors must seek approvals from relevant regulators – to manage entities in regulated sectors. These include telecommunications, banking and utilities.

Most critical entities are already covered by existing laws so the new Bill will likely identify only “a handful of (entities) that are not yet regulated or not adequately regulated”, Trade and Industry Minister Gan Kim Yong told reporters.

Such an entity-based designation approach will help to ensure national security interests are met, while minimising the potential impact on businesses and investors, an MTI spokesperson said in response to queries from CNA.

The new investment management regime is necessary, given an increasingly complex economic landscape, said the minister, reiterating a point he made in August when he first mentioned how the government is exploring “new tools” to manage significant investments into critical entities.

“We have specific legislations … but because of the increasingly complex economic environment, it is important for us to take a broader view on how we can effectively manage the risks that arise from some of these critical entities that may not be covered adequately by existing sectoral legislations, or some of them may not be covered at all at the moment,” Mr Gan said.

“They may be governed from the point of view of licensing regulation or contracting conditions but in a situation where an emergency crisis may arise, it may not be adequate for us … to ensure their continuity.

“It is therefore important for us to relook at the overall landscape and see how we can be more effective in managing the risk that may arise from these significant investments.”

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HOW THE PROPOSED REGIME WORKS

Under the proposed investment management regime, entities can be identified and designated as critical if they are incorporated, formed or established in Singapore, carry out activities in the country, or provide goods and services to people in the country.

Designated entities will have to abide by several ownership and control requirements. 

Firstly, these entities and their investors will have to notify or seek approval for ownership or control changes. Transactions that occur without the necessary approvals will be rendered void.For example, buyers will have to notify the minister when they become a 5 per cent controller of the entity. Approval is needed for other controlling thresholds – 12, 25 and 50 per cent – and acquisitions.Sellers are also required to seek approval when they cease to be a 50 per cent or 75 per cent controller.

Secondly, the entities will have to seek approval for the appointment of key positions, such as the chief executive officer and directors.

Such officers may be removed if they have been appointed without approval or if the conditions of approval are breached. The minister may also remove key officers in the interest of national security.

Thirdly, the entities are subject to other provisions that ensure the security and reliability of their functions. For instance, they cannot be voluntarily wound up or dissolved without the minister’s consent.

Orders can be given to “direct the assumption of control of the designated entities’ affairs, business and property to ensure their continuity” in the event of national security issues or disruptions in the delivery of essential services, MTI said.

Fourth, remedial directions may be issued under certain circumstances, such as an order to a party to transfer or dispose of his equity interests in a designated entity if approval conditions have not been complied with.

The Bill will also allow the minister to review ownership or control transactions involving an entity that was not designated as critical but has acted against Singapore’s national security interests.

In such cases, targeted actions can be taken, such as directing the transacting party to dispose their equity interest in the entity.

Provisions under the Bill do not have retrospective effect, meaning that they will only apply to entities after they have been designated and will not affect current or existing arrangements. 

MTI said the proposed legislation has been developed in consultation with industry representatives to “take into account its potential impact on businesses and investors”.

It is designed to be “business-friendly” and processes will be in place for reconsideration requests and appeals to an independent reviewing tribunal. The latter will consist of three individuals appointed by the President on the Cabinet’s advice, including the chairperson who is a Supreme Court judge.

An office will be set up under MTI as the dedicated touchpoint for stakeholders.

“We will also publish the list of designated entities in the Gazette, which will provide certainty to affected parties,” an MTI spokesperson told CNA.

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In recent years, several countries have introduced or tightened measures to subject foreign investments in strategically important sectors or companies to greater scrutiny.

Even traditionally open economies, such as Ireland and Switzerland, are mulling similar moves, said MTI in a written parliamentary reply in September.

In the United Kingdom, the National Security and Investment Act, which came into force in January 2022, allows the British government to scrutinise and intervene in foreign investments deemed to pose a national security risk.

China restricts or prohibits foreign investments in certain sectors listed on a “negative list” under its Foreign Investment Law. These sectors include mining, nuclear power plants, and the postal service.

More recently, United States President Joe Biden signed an executive order to prohibit new outbound investment into China in sensitive technologies like computer chips and artificial intelligence.

Germany has also said it wants to tighten the process for reviewing foreign investments with a new law that would aim to enhance economic security.

It is critical for Singapore to remain open and connected to the world, said Mr Gan, stressing that the country must continue to strengthen its position as a trusted hub for businesses.

“Over the next few weeks, we will be reaching out (to) engage the various industry stakeholders, particularly the entities that are being considered for designation, to share with them details of this Bill, and to assure them we will be working with them on the implementation details,” the minister told reporters.

“Most of our arrangements with them will be quite bespoke,” Mr Gan added, noting that these will be tailored to the “specific nature of that particular entity”.

SINGAPORE “NOT TURNING PROTECTIONIST”: EXPERT

Observers said the proposed regulation of both local and foreign investments into critical entities signals that Singapore remains welcoming to foreign investments.

“The signalling effect that this law is nationality agnostic is significant and will be appreciated,” said Mr Choi Shing Kwok, director and chief executive officer of the ISEAS-Yusof Ishak Institute.

“It sends the message that Singapore is not turning xenophobic or protectionist even in this current environment.”

The entity-based approach taken by the proposed legislation also offers regulators “greater flexibility” and efficiency, compared with a sectoral approach, he added.

By targeting a limited number of critical entities, investors can also be assured, with any uncertainty about regulatory burden being “relatively confined”, observers said.

The proposed regime is unlikely to impact Singapore’s attractiveness to foreign investors.

This is because businesses would already have due diligence processes in place as they make investment decisions around the world, said Mr Benjamin Ang, head of the Centre of Excellence for National Security at the S Rajaratnam School of International Studies (RSIS).

“I see this as really part of that due diligence process … it could even be beneficial because if the process is clear and transparent, it gives businesses a form of certainty and clarity and that (means) a better environment for investments,” he said.

Echoing that, Mr Kok Ping Soon, CEO of the Singapore Business Federation (SBF), said Singapore’s move is “par for the course” as other countries have also introduced or tightened their investment screening measures.

“You can actually say that such investment screening measures are just par for the course and increasingly very common in the global investment community,” he said. 

“In fact, I will say that the introduction of this regime actually increases investors’ confidence in Singapore, because now we have adequate levers to ensure the security, as well as the reliability of critical entities that are supportive of our Singapore economy.”

That said, Mr Kok noted that further details will be needed on the implementation of the regime, for example, how long it will take for authorities to respond to queries and the criteria for a company to be designated.

“What companies want to look for is certain clarity of the process, certain fairness in the considerations, as well as certainty in the outcome. So we hope in the implementation, the government will continue to take a consultative approach,” he said. 

Additional reporting by Michelle Teo and Nasyrah Abdul Rohim.

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