New Foreign Direct Investment oversight controls to be introduced in the UK

19th November 2020

On 11 November 2020, the UK Government published draft new legislation (the National Security and Investment Bill) for the establishment of the UK’s new Foreign Direct Investment (FDI) oversight regime.  The UK Government is consulting on the terms of the draft legislation which is expected to come into force early next year. Importantly, the UK Government has reserved the power to apply the legislation retrospectively to any acquisition closing after 11 November 2020.

Some headline points to note are as follows:

Potential retrospective effect: any acquisition which completes after 11 November 2020 and before the new FDI oversight regime is in force can be retrospectively reviewed on national security grounds.  There is a recognition that this may cause some uncertainty for deals currently being negotiated so the government is making available a procedure for informal consultation relating to any transactions that may potentially be affected.

Mandatory notification in 17 identified sectors: notification by the potential acquirer will be mandatory for acquisitions of interests in qualifying entities operating in 17 identified sectors. Transactions in these sectors will not be able to complete until clearance has been given. The identified sectors are below (with the sectors marked in bold being those sectors which are already subject to some oversight in the UK through the UK’s existing merger control regime):

1. Advanced Materials
2. Advanced Robotics
3. Artificial Intelligence
4. Civil Nuclear
5. Communications (telecommunications, internet infrastructure, and broadcast infrastructure)
6. Computing Hardware
7. Critical Suppliers to Government
8. Critical Suppliers to the Emergency Services
9. Cryptographic Authentication
10. Data Infrastructure
11. Defence
12. Energy
13. Engineering Biology
14. Military and Dual Use
15. Quantum Technologies
16. Satellite and Space Technologies
17. Transport (ports, airports, and air traffic control)

Voluntary notification will be available for other acquisitions that may give rise to national security concerns.

Basis of review: the basis on which transactions will be reviewed will be an assessment based on national security risk.  Transactions will not be assessed based on wider economic protectionist grounds.

Application to acquisitions of a broad range of assets: the new oversight regime will cover not only the acquisitions of entities but also acquisitions of other types of asset, e.g. land and intellectual property (although notification relating to acquisitions of these other types of asset will be voluntary rather than mandatory).

Application to acquisitions of entities outside the UK: the new oversight regime will catch not just a UK-led transaction (i.e. where a target entity is a UK corporate) but also acquisitions of shares in entities in other non-UK jurisdictions where there is a connection to the UK by virtue of that entity/business carrying on activities or supplying goods or services in the UK.

No de minimis exemptions: there are no “safe harbour” exemptions from mandatory notification or oversight for transactions with target assets of low UK turnover or low UK market share.

Sanctions: non-compliance (for example, completing an acquisition subject to mandatory notification before clearance) will be an offence with fines of up to 5 per cent. of worldwide turnover or £10 million (whichever is the higher) and possible custodial sanctions.

For more detail, please contact a member of Walker Morris’ International Team.