Q&A
The current UK FDI rules are contained in UK Enterprise Act 2002 and regulations promulgated under this Act.
The UK National Security and Investment Act 2021 is introducing new rules for foreign investors.
Although these new rules are not yet in force, the UK Government will have the power retroactively to call in transactions for review which took place after the Bill was introduced to Parliament.
The Act has received Royal assets and will come into effect later in 2021. Foreign investors considering material investment into the UK should therefore seek advice on the new FDI rules.
Current UK FDI Rules
Until recently, the UK Enterprise Act 2002 gave only limited powers to UK government ministers to block material transactions on three non-competition law grounds: (1) national security; (2) financial stability (introduced at the time of the 2008 GFC); and (3) to preserve media plurality and standards. These assessments took place within the UK competition regulatory process rather than in a separate FDI regime (with significant transparency other than for national security).
Under this domestic merger control regime, the CMA could only intervene in transactions where the turnover of the target exceeded £70 million; or if the merger would result in the creation of a combined share of supply or purchases of any goods or services of 25% or more within the UK.
The UK recently implemented three temporary measures pending implementation of its new FDI regime.
These changes enabled the UK Government to monitor smaller transactions, especially those in the technology sector.
- In 2018, the UK lowered the £70m turnover threshold for intervention to £1m where the target operated in the military and dual use (civilian and military) sector; certain segments of the advanced technology sector, esp. quantum computing; and the design and maintenance aspects of computing hardware, and introduced an additional share of supply test where the relevant enterprise had an existing share of supply of at least 25% of the goods or services (which could be satisfied even if the combined group’s share of supply did not increase as a result of the merger).
- In 2020, the list of activities was expanded to include the development, production and research into advanced materials (and materials used to manufacture advanced materials), cryptographic authentication and AI.
- Also in 2020, in response to concerns over the pandemic, the UK Government specified a new public interest consideration citing the need to maintain in the UK the capability to combat, and to mitigate the effects of, public health emergencies. Under these emergency powers, the UK government took powers to review transactions involving UK companies involved in combating Covid 19, esp. those active in vaccine development, PPE production, internet services and the food supply chain.
The UK National Security and Investment Act 2021 is introducing new rules for foreign investors, with mandatory and/or voluntary notification requirements (by sector); and powers to block or unwind transactions.
Although these new rules are not yet in force, the UK Government will have the power retroactively to call in transactions for review which took place after the Bill was introduced to Parliament.
Foreign investors considering material investment into the UK should therefore be aware of the new FDI rules and seek informal guidance from the UK Government.
For a brief overview of the sectors covered by the new UK National Security and Investment Bill, see my post here.
