A review of the UK’s limited controls over Foreign Direct Investment (FDI)
began in 2016, leading to a 2018 White Paper which indicated that changes
were on the way. The National Security and Investment Bill announced in
November 2020 by the UK government is the culmination of that review
process, but it surprised most by going well beyond what was suggested in
The proposed new regime will operate alongside the existing UK merger
control framework, which provides for voluntary notification of qualifying
transactions. That system will continue to allow for reviews on
competition/antitrust grounds as well as the public interest grounds of
media plurality, financial stability and public health emergencies.
National security issues will be covered only by the new legal framework
(replacing the current controls on national security grounds which are also
part of the merger control framework).
The key features of the proposed new regime for national security review of
FDI into the UK are as follows:
No definition of “national security.”
“National security” was deliberately left undefined in the Bill,
meaning the government will have significant flexibility to intervene
There will be no minimum turnover level or value requirement in
relation to the target business or asset.
Mandatory notification for certain acquisitions of entities,
including minority stakes.
Transactions involving the acquisition of a minimum level of interest
(typically at least a 15 percent holding) in an entity (i.e., not an
“asset deal”) active in certain parts of 17 key industry sectors must
be notified to and cleared by the government before closing. (The scope
of this is subject to an ongoing consultation.) The review will
determine whether national security concerns are raised. Transactions
subject to the requirement which are not notified will be void.
Review of other transactions/investments not subject to mandatory
notification (the “call-in” power).
A very wide range of other transactions and investments may be reviewed
for up to five years after they have taken place, on national security
grounds (reduced to six months if the government becomes aware of the
transaction). This covers any acquisition of an entity (where at least
“material influence” will be gained; a low bar), as well as certain
asset acquisitions (where the purchaser will obtain a right or interest
providing the ability to use, direct or control the asset, or do so to
a greater extent than before the transaction).
Wide range of asset acquisitions can be called in.
The types of asset acquisitions which can be called in for review are
very wide. “Asset” is defined broadly to include land; tangible movable
property; and ideas, information or techniques which have industrial,
commercial or other economic value (including trade secrets, databases,
source code, algorithms, formulae, designs, plans, drawings and
specifications and software).
Voluntary notification for transactions/investments not subject to
Transactions not caught by the mandatory notification regime may be
voluntarily notified if the parties consider that national security
concerns may arise (so there is a risk of the call-in power otherwise
being used). In practice, a purchaser investing in any sector falling
outside the mandatory regime which may raise a national security issue
will have to weigh the burden of a voluntary notification (which then
starts the formal review period; see below) against the risk of a
post-closing call-in if it chooses not to notify the government
voluntarily (which will be open for up to five years, reduced to six
months if the government becomes aware of the transaction).
UK and extraterritorial application to entities and assets.
A target entity falls within the regime if it carries on activities in
the UK or supplies goods or services to persons in the UK. A target
asset falls within the regime if it is used in connection with
activities carried on in the UK or the supply of goods or services to
persons in the UK. Therefore, a target asset or entity does not need to
be registered or located in the UK.
UK and extraterritorial application to purchasers (of all types).
The regime will apply to purchasers from any country (UK, EU or
elsewhere). Any type of purchaser, not just state-backed, is covered.
Any transaction caught by the regime (not only the mandatory
notification requirement) which closes on or after 12 November 2020 and
before adoption of the Bill may retrospectively be reviewed using the
call-in powers once the Bill becomes law. This power will remain in
place for five years following the Bill becoming law (reduced to six
months if the government becomes aware of the transaction, including
before the Bill becomes law).
Fixed timetables for review, but in practice, flexible.
The headline review period for notified transactions (compulsory or
voluntary) trailed by the government is 30 working days, but even
“simple” reviews are likely to take longer, not least since the
government will decide when time starts to run.
The regime is backed by an extensive range of enforcement powers,
including: as noted, voidness of transactions closed in breach of the
mandatory notification and clearance requirement; personal and
corporate sanctions for noncompliance with the mandatory notification
requirement; a power to adopt “hold separate” orders to prevent
integration where an acquisition has legally closed but is under
review; and a wide range of remedies to deal with risks to national
security (including blocking or unwinding deals and the imposition of
It’s clear that the UK’s National Security and Investment Bill, once
adopted, will herald a dramatic change to the UK FDI rules. The
government’s own estimate is that up to some1,800 notifications of
transactions may be made each year and that up to 95 transactions each year
may raise enough concerns to be looked at in detail. Those figures are
truly extraordinary when compared with the very limited number of cases
reviewed under the current national security regime.
The current regime is clearly too weak by current international standards,
but once adopted, the Bill will make the UK’s regime one of the most
comprehensive in the world. Given the retrospective application of the
rules and its wide scope of coverage, a purchaser contemplating a corporate
or asset acquisition or investment which has any link to the UK and which
may raise national security concerns needs to consider now whether the
regime may apply and the potential consequences of that. Those consequences
include impacts on deal feasibility, contractual conditionality,
timetables, certainty and overall execution risk.