Singapore is introducing a new law to regulate investments in “a handful of critical entities” in the city-state in a proposed legislative framework that sets out a new investment management regime. The proposed law, put forward by Singapore’s Trade and Industry Minister Gan Kim Yong in August, means companies will have to seek approval when there are certain changes in ownership or leadership.
Introduced in parliament in November, the Significant Investments Review Bill seeks to regulate both local and foreign investments in entities “critical to Singapore’s national security interests”, Singapore’s Ministry of Trade and Industry (MTI) said.
Entities incorporated, formed and established in Singapore or that carry out activities in Singapore or provide goods and services to persons in Singapore can be designated, the MTI said in a press release. The law would apply to individual entities, rather than entire sectors and is meant to complement existing sector-based legislation. Current sector-specific laws regulating the telecommunications, banking and utilities sectors generally apply to investments and acquisitions for critical infrastructure and networks. The new law would apply to critical entities that have not been adequately covered, say Corrine Chew and Benjamin Gaw from Drew & Napier. Chew is co-head of the firm’s competition law and regulatory practice and director of corporate and finance. Gaw is a director of corporate and mergers and acquisitions and heads up the healthcare and life sciences (corporate and regulatory) practice. Designated entities will have to provide notification or approval for specified changes in ownership or for appointments of key executives. MTI will have the power to remove key officers in the interest of national security.
Buyers will be required to notify the Minister after becoming a 5 percent con-troller and seek approval before acquiring equity interests above certain thresholds. They will also have to seek approval before becoming an indirect controller or acquiring parts of designated entities. Sellers will be required to seek approval before disposing of their interests and ceasing to be a 50 percent or 75 percent controller of a designated entity. Designated entities will also be subject to other provisions to ensure the security and reliability of their critical functions, MTI said. They may not be voluntarily wound up or dissolved without consent, and orders can be given to direct the assumption of control of the designated entities’ affairs, business, and property to ensure their continuity.
The proposed law will also empower the Minister to review ownership or control transactions involving an entity that has acted against Singapore’s national security interests, even if the entity has not been designated.
However, at this point, the defini-tions of what could make up a national security risk are vague.
“We may expect that further guidance may be distilled from the upcoming parliamentary discussions on the bill,” Chew and Gaw say.
A challenge is that putting definitions into law is not always easy, and the definitions are even more difficult when it comes to cyber security. Recent tensions between the United States and China have resulted in severe controls over the export of technology from the West to China, which means countries are increasingly looking at the possible risks from trade conflicts and technological barriers.
The bill is expected to go through a second reading in January 2024 and is set to come into effect a few months later if passed.
Singapore is not alone in introducing legislation that regulates and screens investments for national security reasons, with around 90 percent of OECD countries having regulations to screen investments.
“Globally, many countries have introduced or tightened their regulatory regimes to screen investments for national security reasons,” Gan said in a parliamentary reply in September. The proposed law was developed in consultation with industry representatives to consider its potential impact on businesses and investors, MTI said. It is designed to be business-friendly and sets out clear processes for parties that wish to seek reconsideration before an independent tribunal, and an Office of Significant Investments Review will be set up under the ministry as a one-stop touchpoint.
“It is critical for Singapore to remain open and connected to the world, and as such, we must continually strengthen our position as a trusted hub for businesses to invest with confidence,” Gan said in a press release.
