New UK Law Boosts Scrutiny Over Hostile Foreign Takeovers

New UK Law Boosts Scrutiny Over Hostile Foreign Takeovers
Kwasi Kwarteng, secretary of state for business, energy and industrial strategy, holds a discussion with Tees Valley Mayor Ben Houchen on the second day of the Conservative Party Conference in Manchester, on Oct. 4, 2021. (Ian Forsyth/Getty Images)
Alexander Zhang
Updated:

Foreign firms will find it harder to buy British businesses considered key to national security, as new legislation grants the UK government more powers to vet foreign investment.

The National Security and Investment Act, which came into force on Jan. 4, is said to be the biggest shake-up of the UK’s national security regime for 20 years.

Under the new rules, the government will be able to scrutinise and intervene in certain acquisitions made by anyone—including businesses and investors—that could harm the UK’s national security.

The government will be able to impose certain conditions on an acquisition or, if necessary, block it, though ministers said such interventions will be rare and the vast majority of deals will be able to proceed without delay.

Business Secretary Kwasi Kwarteng said, “The UK is world-renowned as an attractive place to invest but we have always been clear that we will not hesitate to step in where necessary to protect our national security.”

He said the new rules are “simple and quick” and will give everyone in the UK the “peace of mind” that their security remains the government’s number one priority.

Foreign investors and businesses will have to notify the government if they plan to buy any part of a UK business across 17 sensitive areas of the economy that could threaten national security, including artificial intelligence and nuclear energy services.

Plans for the new rules were first unveiled in November with Kwarteng setting out the risk factors he will take into account.

It will be enacted retrospectively to any deals made since Nov. 12, 2020 and has already been cited by the government over deals in the defence sector announced early last year.

The UK is not the only country reinforcing its defence against hostile foreign investment. The U.S. Treasury Department released two new regulations in January 2020 governing how the federal government reviews foreign investment.
Australia has also updated its foreign investment law, giving the treasurer greater authority to scrutinise foreign bids, amidst growing concerns surrounding Chinese investment in Australian assets.
A Dutch study published in 2020 showed that China’s communist regime has moderate to heavy influence over 40 percent of European businesses acquired by Chinese companies in the past decade.
Lily Zhou, Katabella Roberts, Daniel Y. Teng, and PA Media contributed to this report.