FDI Update in Singapore: Introduction of New Significant Investments Review Bill

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Following other countries which have tightened regulations on foreign investments in sectors sensitive to national security, Singapore has on 3 November 2023 announced the introduction of the Significant Investments Review Bill setting out a new investment screening regime which will apply equally to both Singaporean and non-Singaporean investors in entities considered critical to Singapore's national security interests. For now, these entities have yet to be identified but further clarity is expected with the second reading of the Bill in January 2024. If the Bill is passed, the legislation will come into effect a few months later with the list of entities designated as critical to Singapore's national security interests published in the Gazette.

The Significant Investments Review Bill

The press release by the Ministry of Trade and Industry Singapore on 3 November 2023 was foreshadowed by the Ministry's annual economic dialogue on 28 August 2023, where Trade and Industry Minister Gan Kim Yong (the "Minister") announced that Singapore was exploring "new tools" to "manage significant investments into critical entities". Currently, Singapore relies on a range of sectoral legislation, which include ownership and control safeguards, to monitor and manage certain sectors such as telecommunications, banking and utilities. The new Significant Investments Review Bill (the "Bill"), released on 6 November 2023, will complement existing legislation by regulating entities which are not adequately covered under these legislation and aims to protect Singapore's national security interests by screening significant investments in, and control of, such critical entities.

Designated Entities

Under the new regime, entities that are critical to Singapore's national security interests will be designated as "Designated Entities" and subject to specific restrictions. Notably, the Bill is intended to cover both foreign and local investments in Designated Entities by individuals, corporate and unincorporate bodies. Screening both foreign and domestic investors is not unprecedented and is already applied in the UK and projected in the upcoming Swedish general FDI regime.

Entities that can be designated as a Designated Entity

Entities which are (a) incorporated, formed, or established in Singapore, (b) carry out activities in Singapore, or (c) provide goods and services to any person in Singapore may be designated if the Minister considers the designation necessary in the interest of Singapore's national security.

Procedure for designation as a Designated Entity

Before the Minister designates an entity as a Designated Entity, the Minister must give notice of his intention to the entity concerned and give the entity at least 14 days after the date of the notice to make written representations on the proposed designation. Once a designation is made, the Minister must give notice of the designation without delay.

Regulations applicable to a Designated Entity

The following regulations apply to Designated Entities and in the event of a failure to observe such regulations, the Bill prescribes the following consequences or remedial directions available to the Minister:

Regulations applicable to Designated Entities Details Consequences / Remedial directions available
Changes in ownership and control
  • Investors into Designated Entities are required to notify the Minister after becoming a 5% controller1 and to seek the Minister's approval before becoming a 12%, 25%, or 50% controller2, an indirect controller3, or acquiring as a going concern (parts of) the business or undertaking. The Minister may approve such an application after considering if the potential buyer is a fit and proper person under the Guidelines on Fit and Proper Criteria4.
  • Sellers are required to seek the Minister's approval when ceasing to be a 50% or 75% controller5.
  • Transactions that occur without the necessary approvals will be rendered void, but materially affected parties can apply for validation notices.
  • If conditions of approval have not been complied with or false or misleading information was provided in connection with an application for approval, the Minister may (among others) (a) direct a party to transfer or dispose of all or any of its equity interests held in the Designated Entities or (b) direct that the transfer or disposal of a party's equity interests be restricted.
Appointment of key officers Designated Entities will be required to seek approval for the appointment of key officers such as the chief executive officer, directors, and the chairperson of the board6.
  • Such officers may be removed if they have been appointed without approval or if conditions of approval are breached.
  • The Minister may also remove key officers in the interest of national security.
Cessation of business
  • Designated Entities cannot be voluntarily wound up or dissolved without the Minister's consent.
  • A person seeking to enforce security over the property of a Designated Entity will also be required to notify the Minister.
Special administration order Should the Minister consider it to be in the interest of Singapore?s national security or in the interest of the security and reliability of carrying on the business of a Designated Entity, the Minister may make a special administrative order to direct that the affairs, business and property of that Designated Entity be managed by a person appointed by the Minister. Failure to comply with the special administration order is an offence by the Designated Entity, for which the penalty is the higher of (a) 10% of the annual turnover of the offender's business or (b) S$1 million, and in the case of a continuing offence, a further fine not exceeding S$100,000 a day.

No retrospective effect

Regulations applicable to a Designated Entity will not apply if the relevant transaction was entered into before such entity has been designated.

Entities that have acted against Singapore's national security interests

Even if an entity has not been designated as a Designated Entity, the Bill additionally empowers the Minister to review ownership or control transactions involving entities that have acted against Singapore's national security interests , provided such review is within a period of 2 years from the transaction. The Minister can take, among others, the following targeted actions:

  • direct the transacting party to transfer or dispose of his or its equity interest in the entity;
  • direct that the transfer of or disposal of his or its equity interest in the entity be restricted; or
  • direct the transacting party to transfer or dispose of his or its control of voting power in the entity.

Reconsideration requests and appeals

Consistent with Singapore's business-friendly approach, the Bill also provides investors with the following recourse:

  • Reconsideration requests — A party may apply to the Minister for reconsideration of an initial decision within 14 days from the date on which the initial decision was made. The Minister may wholly cancel his initial decision, substitute the initial decision with another decision or affirm the initial decision. No further reconsideration requests can be made after the Minister's subsequent decision, but such party may make an appeal to the Reviewing Tribunal (see below); and
  • Independent reviewing tribunal — The Reviewing Tribunal will consist of 3 individuals appointed by the President on the advice of the Cabinet, including the chairperson who is a Supreme Court judge. It may dismiss the appeal and confirm the decision appealed against or revoke the decision appealed against. The decision of the Reviewing Tribunal is final.

What's Next?

The Minister will be reaching out to key stakeholders and in particular, entities that are being considered for designation, to share details of the Bill and to work with them on implementation details. It has been indicated that arrangements with such entities, if eventually designated as a Designated Entity by the Bill, will be bespoke and tailored to the specific nature of the Designated Entity, although the Minister does not expect many critical entities to be designated as a Designated Entity under the Bill since most critical entities in Singapore are already covered by existing sectoral legislation.

An Office of Significant Investments Review will also be set up under the Ministry of Trade and Industry as a dedicated one-stop touchpoint for stakeholders.

Final Thoughts

The proposed Bill has been heralded as strengthening the resilience of Singapore's economy and enhancing its national security. Singapore is not an outlier with the introduction of this Bill but is part of a broader movement across the globe. FDI screening based on national security considerations is developing very rapidly around the globe, with new jurisdictions adopting FDI screening mechanisms and expanding the list of sectors subject to review year after year.

The entities that the Bill seeks to regulate which are "critical to Singapore's national security interests" have yet to be identified. We anticipate further clarity in the coming months with the second reading of the Bill expected in January 2024. If the Bill is passed, the legislation will come into effect a few months after. Once enacted, transaction parties will need to consider if the transaction relates to an entity "critical to Singapore's national security interests" and could therefore be subject to the purview of the new regime.

1 The Bill defines a controller as a person who, in relation to a Designated Entity, whether alone or together with the person's associates, (a) holds a certain level of the total equity interests in the Designated Entity or (b) is in a position to control a certain level of the voting power in the Designated Entity.
2 The Minister may also prescribe different percentages in respect of different Designated Entities, different classes of Designated Entities or different Designated Entities within a class of Designated Entities.
3 The Bill defines an "indirect controller" as a person, whether acting alone or together with any other person, and whether with or without holding equity interests or controlling the voting power in the entity, (a) whose directions the directors or officers of the entity are accustomed to follow or (b) who is in a position to determine the policy of the entity.
4 The Guidelines on Fit and Proper Criteria will be published by the Minister on a website and remain available to the public for access.
5 See footnote 2.
6 Once the Minister's approval for an appointment has been obtained, the individual may, without the Minister's approval, be re-appointed upon the expiry of his term of appointment.
7 Currently, the Bill does not define "national security" or provide any examples on actions that are considered to be acting against Singapore's national interests. Further light on this concept might be shed in the final legislation or in practice when applied by the Ministry of Trade and Industry Singapore.

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