White Paper released on regime for foreign investment national security screening

Background and relevance

The UK government is considering increasing its power to screen investments where the investment can be viewed as a threat to UK national security. The proposal would include national security related "Trigger Events" that would apply in a broader range of circumstances than the existing threshold tests that apply to the Competition and Markets Authority's (CMA's) call-in power. 

The proposal is relevant for Danish investors who acquire interests/control of entities or assets in the UK that have or may have national security implications. 

Key takeaways

The new regime signals an added layer of complexity ahead for foreign investors in the UK, and there is much more detail still to be published, particularly around who is likely to constitute a hostile actor. For example, only time will tell whether the proposed powers could apply to situations like the China General Nuclear Power's investment in the Hinkley Point C power station which some commentators warned against as a potential national security threat.

In addition, though the proposed notification regime is voluntary, it may be that investors err on the side of caution and choose to voluntarily notify proposed transactions which will have implications on transaction timings. For now, however, it seems that investors from countries which maintain cordial relations with the UK are unlikely to be significantly adversely affected.

What the proposed legislation seeks to achieve

The White Paper stated that the key driver for change was national security. In particular, the White Paper identified hostile activities including human, technical and cyber operations at home and overseas compromising the Government, Government-held information and critical national infrastructure; attempts to influence Government policy covertly; and operations to steal sensitive commercial information and disrupt the private sector. 

Currently, under the Enterprise Act 2002, the CMA may not be able to intervene in the circumstances stated above as the CMA's intervention rights are generally only triggered if certain thresholds are met (in particular, a target annual turnover test of MGBP70 (the turnover test threshold is reduced in certain instances, for example, relating to targets in the technology sector) or a combined UK market share test of 25%). 

By contrast, the proposed new regime would apply in a broader range of circumstances on national security grounds, regardless of whether the existing thresholds tests are met. Details of the relevant trigger events are to be further described but will likely cover acquisition of significant influence or control over a relevant entity or asset. 

The White Paper proposes a voluntary notification system (and not a mandatory regime). However, transactions that have not been voluntarily notified may also be called in by the Government within a prescribed period (expected to be 6 months) after the occurrence of a trigger event. If a transaction is voluntarily notified or called in, the Government aims to provide a quick confirmation (within set time periods) as to whether a full national security assessment is needed.

If, following a full national security assessment, the Government concludes that a national security threat is posed by a foreign investment, there are a range of remedies proposed to be available under the new regime. Remedies include the Government imposing conditions on the transaction proceeding, prohibiting the transaction outright, and (in extreme cases) ordering the unwinding of a transaction which has completed. Non-compliance with the new regime may result in custodial sentences, civil penalties and/or director disqualification orders.