Unlock Editor’s Digest for free
Roula Khalaf, editor of the FT, picks her favorite stories in this weekly newsletter.
The UK’s investment screening powers are to be curbed to make them more “business-friendly”, the deputy prime minister has said, less than two years after they were introduced.
Oliver Dowden will this week launch a review aimed at “restricting and refining” the National Security and Investment Act, which allows the government to scrutinize and ultimately block takeovers.
In an interview with the Financial Times, Dowden said he wanted to ensure that “government regulation keeps pace with the dynamics of the private sector” and that the state imposes “as little regulatory burden as necessary.”
The government’s position has shifted from a laissez-faire approach that led it to celebrate Japan’s SoftBank’s takeover of Britain’s largest tech company, Arm, in 2016, to the introduction of the new control powers in January last year and now their relaxation.
“We cannot have yesterday’s rules for tomorrow’s world,” Dowden said.
It is the second time in a month that the government has signaled it will water down its own corporate rules after taking the rare step of abandoning the governance legislation after it was tabled in Parliament.
The UK introduced the new control powers in January 2022 to address security concerns that foreign powers such as China were too easily able to buy British companies with national importance in technology and other industries.
Last year, ministers used the law to block the sale of Newport Wafer Fab – one of the UK’s few semiconductor companies – to Chinese company Nexperia, despite doubts about the Welsh deal’s importance to the industry.
The proposed merger of the British businesses of Vodafone and CK Hutchison Holdings – a Hong Kong-based group – is also being examined under the law.
The government also faces a legal challenge as it seeks to use the law to retroactively block the takeover of broadband company Upp by LetterOne, the sanctions-backed Russian oligarchy.
Companies considering UK deals and their advisers have criticized the legislation as opaque and overly broad; They argue that this has contributed to the slowdown in mergers and acquisitions in the UK.
It enforces mandatory reporting of proposed acquisitions – by any company, from any country, including the UK – in 17 sensitive areas of the economy, including defence, quantum technologies, civil nuclear energy and synthetic biology.
Peter Lu, partner at law firm McDermott Will & Emery, said: “Narrowing and refining the scope of the NSIA will reduce the burden it places on investors and promote a more open and transparent framework in which advisers can provide more concrete advice to their clients can give.” customers. Legal certainty is one of the main attractions for investments.”
As Chancellor of the Duchy of Lancaster, Dowden is the legal decision-maker under the Act and is advised by the Investment Security Department, based in the Cabinet Office.
In the last audited year, 866 takeovers were reported to the government, 65 of which were subject to further review and 14 were subject to final orders from Dowden to intervene in certain deals, with 40 percent of them involving companies or investors from China.
He will propose removing internal restructuring from the regime. “Ultimately the beneficial owner [of the company] remains the same, so I am considering whether to remove this from the scope of the regulation,” he said.
Recommended
He also wants to limit the scope of the legislation by checking which economic sectors are subject to reporting requirements.
Currently, all artificial intelligence businesses fall under the law. Dowden will try to narrow this scope. “AI is becoming ubiquitous throughout the economy. A lot of it will have little impact on national security,” he said.
Instead, he will seek to focus regulations on certain “high-end” AI that may have a military “dual use” or AI technologies that could be acquired by a company to “extend an adversary’s capabilities.” improve or reduce ours”.
The Deputy Prime Minister also intends to provide greater clarity by, among other things, making semiconductors and critical minerals standalone categories in the list of sensitive economic sectors subject to the regulation. Currently these are subcategories of other industries.
The move was intended to give “more signal” to business about the areas the government was interested in for security reasons, Dowden said.
On Monday, Dowden will launch a nine-week consultation, inviting national and international companies, investors, academics and consultancies to provide feedback.
If the government can be “absolutely clear about where the risks are, then we reduce business uncertainty,” he said.
He expected that the scope of the regulation would be “net smaller” at the end of his review. “I always want to stick to the principle of a small yard or garden and a high fence. So if I can achieve things that are outside the scope of the legislation, I will do it,” he said.
Wendy Saunders, head of financial services regulation at Lewis Silkin, said: “Any ‘narrowing and refinement’ of the scope of the NS&I regime would increase certainty and confidence in the UK as an investable jurisdiction.”
Source : www.ft.com