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Open… but careful: Scrutiny of inward investment ramps up

By SEC Newgate team
10 December 2020
Financial & Professional Services

By Simon Gentry

Last month the Government announced a comprehensive and wide-ranging package of changes to its powers to scrutinise investment int the UK from abroad. The National Security and Investment Bill very significantly changes the Government’s enforcement powers.  It will introduce a CFIUS-style foreign investment regime for the first time in the UK. CFIUS is the UK government’s inter-departmental investment watchdog.  Whilst strengthening and tightening the regime, the Government is also keen to emphasise that it wants the UK to be a champion of global free trade and the country to be an attractive place to invest, it also wants a much better idea of who, and what, is buying British companies.

The Bill, which is currently making its way through Parliament, imposes mandatory notification requirements for certain sectors believed to be the highest national security risk.  There would also be a voluntary regime for other, non-high-risk sectors. The draft legislation combines a very broad scope and no safe harbours, meaning it will capture a very wide range of transactions, perhaps as many as 1,000 to 2,000 deals each year.  The old regime only reviewed 12 transactions in over 17 years.

The legislation brings the UK much more into line with most other advanced western countries, all of which have national security checks on inbound investment.  This Bill draws on both the EU’s Investment Screening Regulation and the system in the US.  Although the Bill will apply to investment from anywhere in the world, its timing coincided with guidance from the UK government to technology firms doing business in China.

The Bill is in the Committee Stage in the Commons at the moment, meaning it will receive Royal Assent in the first few months of next year.  How the Department for Busines, Energy and Industrial Strategy will build the capacity to review so many deals from a standing start will be a key practical challenge in the first few months.  Those legal and financial advisers assisting clients on live transactions will need to bear this in mind.

Can the legislation be changed or stopped?  This is unlikely given the large Conservative majority but also because there is wide-spread acceptance that the previous regime was too lax.  Interested parties should be seeking to achieve a fast, efficient and predictable process.