FI Monitor Issue 8, 2024
Can Singapore's Significant Investments Review Act balance investment and national security?
Contributed by Ameera Ashraf at WongPartnership LLP, which is part of the Freshfields StrongerTogether network.
Renowned for its dynamic, business-friendly environment and strategic positioning as a global economic hub, Singapore attracts foreign investors from around the world. As with many other jurisdictions in recent years, investment regulation has become an increasingly relevant consideration in M&A deals and investments, especially as countries seek to protect their critical infrastructure, industries and national resources.
Aligned with this trend, Singapore introduced the Significant Investments Review Act (SIRA), setting out a new investment screening regime to ensure the continuity of critical entities that are not currently adequately covered under other existing sectoral legislation. SIRA reflects a measured approach to national security screening and strikes a balance between the government’s interest in regulating ownership and control of critical entities and maintaining Singapore's position as an open and investor-friendly jurisdiction.
Mitigating global challenges and safeguarding business
Singapore’s existing FDI landscape consists largely of standalone and sector-specific regulations. Industries such as telecommunications, broadcasting, financial services and energy have long been subject to regulatory scrutiny, often accompanied by restrictions on foreign ownership, especially in entities involved in media and telecommunications.
The SIRA was passed in Parliament on 9 January 2024 following its announcement by the Ministry of Trade and Industry in November 2023. Gan Kim Yong, the Minister for Trade and Industry (Minister), indicated at that announcement that Singapore faced "significant challenges" in the global economy and therefore needed "new tools" to "manage significant investments into critical entities." In this spirit, while existing sectoral regulations remain in force and remain the primary method of addressing national security interests, SIRA fills critical gaps by covering vital entities not adequately regulated by sectoral regulations. In this regard, the Minister has also indicated that the SIRA aims to strike a careful balance between protecting Singapore’s national security interests and minimizing any potentially adverse impact on businesses and investors.
SIRA’s key features
At its core, SIRA applies in two main scenarios: (i) to entities designated as critical to Singapore's national security interests (Designated Entity); and (ii) to transactions in which an entity is seen to have acted against national security interests (regardless of whether it involves a Designated Entity or not).
FI Monitor issue 8
Designated Entities
Under SIRA, certain entities deemed critical to Singapore’s national security may be designated by the government as a "Designated Entity." Once designated, these entities, along with their owners and potential investors or acquirers, become subject to notification or approval requirements, which are tied to reaching certain specified ownership or control thresholds in a designated entity. These requirements aim to ensure transparency, accountability and strategic oversight while mitigating risks associated with unfriendly influence in sensitive sectors.
An entity may be designated as a Designated Entity so long as the Minister considers the designation necessary in the interests of Singapore’s national security and:
a) it was incorporated, formed or established in Singapore;
b) it carries out any activity in Singapore; or
c) it provides goods or services to any person in Singapore.
SIRA covers both local and foreign investments in Designated Entities by individuals, corporations, and unincorporated bodies. Minister Gan Kim Yong, speaking in Parliament on January 9, 2024, emphasized that "national security" under SIRA encompasses critical areas for Singapore, including economic security, resilience, and the uninterrupted delivery of essential services. This broad definition allows Singapore to respond promptly to unforeseen circumstances as national security concerns evolve over time.
Before designating an entity as a Designated Entity, the Minister must notify the entity and allow at least 14 days for the entity to provide written representations. Once designated, the Minister must promptly notify the entity.
Designation subjects the entity, its owners and potential acquirers or investors to various notification and approval obligations. For example, prospective investors must:
- notify the Minister within seven days of becoming a 5 percent controller; and
- obtain Ministerial approval before reaching 12 percent, 25 percent, or 50 percent control, becoming an indirect controller, or acquiring part or all of the business of a designated entity as a going concern.
Existing investors must obtain Ministerial approval before dropping below 50 percent or 75 percent control.
Transactions lacking the requisite approval will be automatically rendered void, though the Minister may retrospectively validate them upon application by materially affected persons. Non-compliance with approval conditions could lead to measures such as an order to divest a stake in a Designated Entity.
Designated Entities are also subject to:
- ministerial approval for key officer appointments – unauthorized appointments may lead to removal in the interest of national security;
- ministerial approval for voluntary dissolution; and
- special administrative orders allowing Minister-appointed management if deemed necessary for Singapore’s or the entity’s security and reliability. This is likely to be used only in exceptional circumstances.
Speaking in January 2024, Minister Gan Kim Yong assured that entities under consideration for designation had been contacted, clarifying that entities not approached are not currently considered for designation.
Transaction Review
Beyond designated entities, SIRA grants the Minister the authority to review any transaction involving entities deemed to have acted against Singapore’s national security interests (not merely pose potential threats to Singapore’s national security). This broad mandate allows for the proactive assessment of potential threats, irrespective of specific sectoral regulations. During the review of the transaction, the Minister may at any time issue directions to either the person or entity concerned, which can include, for example, directions to transfer or dispose of any equity interests in the entity or directions directing the entity to restrict disclosure of confidential information to any person.
In determining if an entity has acted against national security, a certificate issued by the Minister charged with the responsibility for internal security, stating that that Minister is satisfied that the entity mentioned in the certificate has acted against the national security interests of Singapore, is conclusive evidence.
Implications and considerations
To facilitate the implementation of SIRA, the Office of Significant Investments Review (OSIR) has been established under the purview of the Ministry of Trade and Industry. Tasked with administering and operationalizing SIRA, OSIR serves as a dedicated touchpoint for stakeholders, providing guidance, oversight and support in navigating the regulatory landscape.
SIRA is expected to impact only a handful of entities operating in Singapore that provide a critical function in Singapore’s national security interests and have not already been covered by existing sectoral legislation. For these entities, if they have been designated by the government, prospective acquirers and sellers of such entities and the entities themselves will be subject to various ownership and control related notification/approval requirements. These entities may also be subject to additional laws which may prevent them from being voluntarily wound up or dissolved without approval.
Foreign investors looking to invest in entities in Singapore should take note of whether such entity has been designated by the government and if so, ensure that the relevant approval or notification requirements are satisfied. However, given that the SIRA will only impact a handful of entities operating in specific sectors in Singapore, it is unlikely that foreign investment into Singapore entities will be significantly affected by the implementation of the SIRA.
While SIRA represents a significant milestone in Singapore’s investment regulation, ongoing discussions and potential amendments may refine its scope and implementation. Complementary regulations, such as the Transport Sector (Critical Firms) Act (Transport Act), passed on May 8, 2024, further underscore Singapore’s commitment to safeguarding essential services and critical infrastructure. The Transport Act seeks to strengthen the resilience of key firms in the air, sea and land transport sectors in Singapore and safeguard their provision of essential transport services by amending existing transport-related legislation.
Similar to SIRA, the Transport Act aims to establish a designated entities regime where the relevant authorities can designate key entities involved in the provision of essential transport services in Singapore. Under this regime, acquirers and sellers of the designated entities, as well as the designated entities themselves, will be subject to notification or approval requirements for specified changes in ownership or control of these entities. These designated entities will also be required to notify the relevant authorities of changes in key operational and resourcing arrangements.
In anticipation of SIRA implementation, clients are advised to conduct comprehensive reviews of their investment portfolios, particularly focusing on entities potentially subject to designation. During transactional engagements involving Singapore entities, meticulous due diligence should include assessments of SIRA compliance and adherence to regulatory requirements.
Singapore's adoption of SIRA reflects its proactive stance in managing investment while safeguarding national security interests. As stakeholders navigate this evolving regulatory landscape, proactive engagement, regulatory compliance and strategic risk management will be essential for fostering a resilient and secure investment environment in Singapore.
- Introduction
- Ex-CFIUS chair analyzes the Committee’s current impact on cross-border deals
- Can Singapore's Significant Investments Review Act balance investment and national security?
- Court challenges to FDI decisions
- EU Commission’s Draft Regulation to revamp Europe’s FDI screening landscape
- Updating the UK national security and investment regime
- Not a paper tiger – enforcement trends in the first ten months of the EU Foreign Subsidies Regulation
- Foreign investment monitor archive
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Please get in touch with us or your usual Freshfields contact if you would like to discuss these or any other regulatory issues in more detail.
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