Post Brexit - what will happen to the UK's investment control regime?

One of the consequences of the UK choosing to take a path apart from that chosen by the EU is the development by the UK of an investment control regime. This has recently materialised into a more thought out form, via the publication by the UK government of the UK’s proposed National Security and Investment Bill.

The Bill seeks to implement an approach which is becoming more common on a global level – that is, investment into certain sectors of the UK economy, particularly by foreign entities, will have to undergo a mandatory screening process. The sectors to be covered by the regime are those which are considered central to the UK’s national security.

In essence, the Bill implements an approach whereby transactions that are subject to the regime will be suspended whilst screened, and it will be an offence to complete the transaction without first having obtained approval. Offences will be criminal, and accompanied by fines.

The Bill also will allow the government to elect to review transactions which it considers have national security issues. This right will also apply retrospectively, covering transactions which occurred in the latter part of 2020. The Bill also contains provisions relating to voluntary screening, and self-assessment of transactions, in certain non-core areas where investments satisfy certain criteria.

Notably, the Bill implements the approach by referring to sectors and assets, not with respect to the location of the investor. As such it covers both domestic investment alongside foreign investment. It also covers “land, tangible moveable property, and ideas, information or techniques which have industrial, commercial or other economic value” alongside equity acquisition, and the acquisition of influence. Land and moveable property also includes that outside of the UK if it is used in connection with UK activities.

Whilst the detail on what sectors will be covered will be set out in regulations, it is likely to apply to the chemicals, nuclear, communications, defence and military, emergency services, energy, finance, food, space, transport health, utilities, advanced technologies and governmental sectors. Given that elements of the requirements are retrospective, then the potential impact upon transactions should already be part of planning strategies.

The UK’s approach differs from the approach taken in the EU. In late 2020 the EU implemented a new regulation covering foreign direct investment, and there has been discussion surrounding control of investments which are enabled by foreign government funding. It also differs from the approach taken outwith the EU, in countries such as China, which forbids foreign investment into certain specified sectors.

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