The existing system, and recent minor changes
Current foreign investment controls fall under the Enterprise Act 2002. This allows UK Government to issue a Public Interest Intervention Notice, but only in strictly defined situations. These powers have been little used - on only about 20 occasions.
Since 2017, this area has been on the agenda for reform, with a review and consultation leading to limited short-term changes. At the time, the need for longer-term reform was clear and more substantial change was promised.
These plans have taken time to bring forward, with Brexit and the COVID-19 pandemic competing for ministerial attention. Several interim tweaks to the existing regime have seen minor alterations in some areas. The most recent of these, in July 2020, saw the introduction of a power to review transactions involved in mitigating or combating public health emergences (such as takeovers of vaccine or PPE producers).
A new approach
Now a comprehensive new system is envisaged, set out in the National Security and Investment Bill. In sensitive sectors, notification will be mandatory. The detail of the definitions is currently under consultation, although they are expected to include activities within the following categories:
- advanced materials
- advanced robotics
- artificial intelligence
- civil nuclear
- computing hardware
- critical suppliers to Government
- critical suppliers to the Emergency Services
- cryptographic authentication
- data infrastructure
- engineering biology
- military and dual use
- quantum technologies
- satellite and space technologies
Features of the proposed system include:
- A hybrid notification system: mandatory notification will apply for transactions in sensitive categories of activity. These will be defined in secondary legislation. The intention is that most of the notified transactions will not be called in for review, and that they can be completed with confidence that Government will not intervene. Voluntary notification will be available for transactions that parties consider may be of interest from a national security perspective. Making a voluntary notification will remove the risk of the transaction being called in later on.
- A call-in power: Government will be able to call in non-notified transactions within six months after becoming aware of them, for example through press coverage. A long stop date of five years after the transaction will apply, except where notification was mandatory.
- The “trigger events” enabling scrutiny are broadly defined to capture different ways of structuring a transaction. They include changes in the ownership or control of companies and other entities, or of certain asset classes.
- Government will have powers to call in acquisitions of control over intangible assets, including “ideas, information or techniques which have industrial, commercial or other economic value”. This can include trade secrets, software, databases and formulae.
- There are no safe harbours for smaller levels of turnover or market share.
- Government will have a retroactive ability to call in transactions where they occurred after the introduction of the Bill (12 November 2020 onwards). This aims to prevent a rush of transactions before the legislation takes effect.
- Although much of the discussion of the legislation focuses on inward investment, it is not restricted to transactions involving overseas acquirers. It seems, therefore, that the notification requirements could apply to wholly domestic transactions.
Consultation open to 6 January
The consultation on the sector definitions will remain open until 6 January 2021. Businesses in the affected sectors should consider responding, as the definitions will be key to determining which transactions are caught. Responses to the consultation will be used to develop the tests for notification that are ultimately set out in the legislation.
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