Singapore passes law to manage significant investments into critical entities: What you need to know

SINGAPORE: A law to scrutinise significant investments, whether local or foreign, into entities that are critical to Singapore’s national security interests was passed by parliament on Tuesday (Jan 9).

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

The Significant Investments Review Bill (SIRA) will complement these existing sectoral safeguards by introducing a new investment management regime for specified entities identified as being critical to national security, said Trade and Industry Minister Gan Kim Yong as he tabled the Bill for a second reading.

Here’s what you need to know:

WHY IS THIS NECESSARY?

The need for an updated regulatory toolkit comes amid an increasingly complex world and an uncertain economic environment, said Mr Gan, citing the occurrence of several global financial crises in recent years and the COVID-19 pandemic that led to border restrictions and supply shortages.

Geopolitical contestations have also triggered more protectionist measures, while military conflicts have brought about disruptions to critical supplies such as energy and food.

“This has led to many countries prioritising domestic and national security considerations, leaning towards ‘near-shoring’, ‘friend-shoring’ and ‘re-shoring’ of supply chains,” he told the House.

“Against this backdrop, it is timely that we update our investment management toolkit to ensure it remains adequate and effective.”

Singapore is not alone in doing so.

At least 37 countries have introduced regulatory frameworks for the screening of investments on national security grounds since the 1990s, according to a 2023 United Nations report.

More recently, countries like China, the United Kingdom and the United States have introduced or tightened their investment management regimes, with more planning to do so, said Mr Gan.

HOW IT WORKS

The new law will apply to entities that are deemed critical and are not yet covered by existing legislation.

One factor in deciding which entity to designate as critical is whether the entity provides a critical function in relation to the country’s national security interests, such as being a key provider of security-related functions where there are limited or no alternatives.

The list of designated entities will be published in the Government Gazette after the law comes into force. Designated entities may be removed from the list if they no longer meet the relevant criteria.

With most critical entities already covered by existing sectoral laws, the new law will likely apply to “only a handful of entities”, said Mr Gan.

Singapore has “deliberately chosen” an entity-based approach, instead of designating by sectors, to reduce regulatory burden and strike a better balance between national security and the impact on businesses, he added.

As part of the new law, entities that are designated will be required to notify or seek approval from the authorities for ownership or control changes. Transactions that occur without the necessary approvals will be rendered void.

Buyers will have to notify the Minister for Trade and Industry within seven days of becoming a 5 per cent controller of an 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.

Additionally, the entities will have to seek approval for the appointment of key positions, such as CEO and director posts. Such officers may be removed if they have been appointed without approval or if the conditions of approval are breached.

These entities also cannot be voluntarily wound up or dissolved without the minister’s consent so as to ensure the security and reliability of their functions. The government can step in if national security issues arise or the delivery of essential services is disrupted.

Separately, the new law also empowers the government to review ownership or control transactions of any entity, including those not designated, if two conditions are met.

First, the entity must have acted against Singapore’s national security interests. Second, the ownership and control transaction must have taken place within the two years prior to the act against national security.

Affected entities can seek reconsideration of decisions by appealing to an independent reviewing tribunal.

The Ministry of Trade and Industry will also set up an office to serve as a dedicated one-stop touch point for stakeholders.

CONCERNS RAISED 

Twelve MPs rose to ask for clarifications during the debate, although only Non-Constituency Member of Parliament Leong Mun Wai objected to the Bill.

Several MPs wanted a clear definition of “national security interest” and raised questions about safeguards against abuse of ministerial powers. They also highlighted concerns that the law would have a dampening effect on foreign direct investments into Singapore.

DEFINITION OF NATIONAL SECURITY

MPs pointed out that the concept of national security was fundamental to the Bill, but had not been explained or defined clearly.

Nominated Member of Parliament Raj Joshua Thomas noted that different legislations have defined national security interests slightly differently.

“While it may appear pedantic, it is important for us to have consistency of definitions across statutes, especially when the use of a particular term or particular similar terms confer wide-ranging powers to the respective minister as it does in this Bill,” he said in parliament. 

A clearer definition would also give guidance to the Office of Significant Investments Review, while helping companies to avoid being “inadvertently caught” by the provisions of the Bill, he added.

NMP Neil Parekh Nimil Rajnikant also asked for clarification on what constitutes national security interests. 

“I ask for this clarification as in many other jurisdictions, the ambiguity surrounding this definition has led to significant losses for investors,” he said, without giving specific examples.

Associate Professor Razwana Begum Abdul Rahim, also an NMP, said it may not be feasible to include a definition given the ever-changing nature of national security. 

However, she asked if the Ministry of Trade and Industry (MTI) would consider developing an “evidence-based, robust and flexible risk-assessment tool” that can be used across ministries to identify what is and is not an issue of national security.

During Mr Gan’s closing speech, he said he initially wanted greater clarity as well, but changed his mind after extensive deliberations internally and with advisers, and after studying legislation introduced overseas.

“I came to a conclusion that (sometimes) less is more, especially in today’s world where the global landscape changes very quickly,” he said.

“Providing a specific definition of national security or specific examples of such threats would not only constrain our ability to act quickly to address new risks that may emerge over time, but also expose Singapore’s vulnerabilities,” said Mr Gan. 

He said that in the context of this Bill, national security would cover areas critical to Singapore’s sovereignty and security, including its economic security and the continued delivery of essential services. 

He also said that MTI had reached out to all the entities being considered for designation as critical entities over the last few months, and is discussing ways to mitigate the regulatory impact of being so designated.

“I would encourage members not to speculate at this point which particular entity will be designated,” he said.

MINISTER’S POWER

MPs from both sides of the House also flagged concerns regarding the wide-ranging powers given to the Minister for Trade and Industry in the Bill.

Mr Louis Ng (PAP-Nee Soon) pointed to the minister’s ability to issue a review notice to any entity formed in or carrying business in Singapore that has acted against national interests.

“The broad power in this part of the Bill means that such transactions may be unwound within two years after they are concluded. 

“MTI has said that this Bill is designed to be business friendly. However, these broad powers may increase costs and slow down business activities by requiring additional due diligence and monitoring of investments after a transaction has closed,” said Mr Ng, who asked if the minister could share more about the potential impact and how the government will mitigate it.

Mr Gan said key stakeholders generally recognise the need to take action against such entities.

“We do not expect there to be significant economic impact on the vast majority of non-designated entities, which have no proactive obligation to track, monitor or report transactions,” he said.

MP Louis Chua (WP-Sengkang) highlighted a clause in the Bill limiting judicial review, a process where the High Court exercises jurisdiction over a person or organisation that performs public functions and duties.

In the Significant Investments Review Bill, this is not allowed.

“The Workers’ Party believes in the important oversight mechanism played by the role of the courts,” Mr Chua said, noting that there were discussions over judicial review ouster clauses during the Foreign Interference (Countermeasures) Act (FICA) debate.

But where FICA deals with sensitive intelligence and collaboration with foreign counterparts, SIRA has more to do with businesses and investment decisions, he said.

“What is the rationale for disallowing the role of the courts, particularly when our reputation as an international business hub relies heavily on upholding the rule of law itself?” he asked.

NCMP Mr Leong also raised concerns about limiting judicial review, and pointed out that the courts in the United Kingdom are allowed to have oversight over parliament in similar situations.

He said the Progress Singapore Party (PSP) agrees that Singapore can enhance its national security with such a law, but that the powers granted to the minister are very broad.

“PSP believes that – while it is fundamentally in the interest of our national interest to ensure that key entities in critical business sectors remain under some level of domestic control and can maintain business continuity under all circumstances – we can do this without having such sweeping legal powers on the books,” he said.

Mr Gan said it would not be suitable for the courts to serve as an oversight body.

“Decisions under the Bill may involve national security considerations and may indeed rely on evidence from intelligence sources that would be highly sensitive,” he said.

IMPACT ON FOREIGN INVESTMENTS

Several MPs also expressed concerns about the possible impact on Singapore’s attractiveness to foreign investors and, in turn, the country’s economic growth.

MP Yip Hon Weng (PAP-Yio Chu Kang), for one, said the lack of a specific definition for national security under the Bill could create an environment of uncertainty for global investors who thrive on clarity and predictability.

“While we understand the need for discretion, without a clear understanding of the risk assessment methodology, investors might hesitate and this might impede economic growth,” he added.

Echoing that, MP Foo Mee Har (PAP-West Coast) said investors need a clear set of definitions on how entities are designated. Without which, the new regime may risk “being seen as opaque (and) lacking in transparency, and fuel investors’ fear of the application being arbitrary”. 

Mr Yip also raised the issue of regulatory burden on the designated entities, citing how the requirement to seek approval for key appointments may be seen as “intrusive”. 

Noting that “overly stringent” rules could “choke the life out of economic activity”, he said: “We must ensure that the burden placed on designated entities is proportionate to the identified risks, lest we inadvertently stifle the very growth that we seek to protect.”

NMP Mark Lee called for the government to maintain a “consistently open and consultative approach” through means including established timelines for responses and a transparent appeal process.

In his closing speech, Mr Gan noted that the new provisions under the Bill are “largely similar” to those found in overseas investment regimes, and consistent with international trade obligations. 

They are also “quite similar” to existing sectoral guidelines, meaning that most investors will already be familiar with these rules.

Mr Gan said the government will review its list of designated entities and carry out “assessments from time to time as required”, but it does not expect to significantly expand the list in the near future.

“The addition of any entity to the list will be a carefully considered decision which will continue to be based on whether a designation is necessary in the interest of Singapore’s national security,” said Mr Gan.

“The ministry will be judicious in exercising the powers under the Act and set up clear processes where possible to minimise the overall impact on businesses and investors.”