Extensive FDI regime introduced in the UK
On 4 January 2022, a new FDI regime will be introduced in the UK. The regime implies that in future a large number of transactions will require the prior approval of the Secretary of State. This applies, among other things, to transactions that do not involve a British entity, if such foreign entity - for instance in Denmark - is supplying goods or services in the UK (regardless of volume). Completion of a notifiable transaction without prior approval implies that the transaction automatically becomes void, and civil and criminal penalties may be imposed on the parties to the transaction. The regime also allows the Secretary of State to scrutinise certain other transactions for up to five years after completion. Although the regime does not come into force until 4 January 2022, the Secretary of State will be able to scrutinise completed transactions completed after 12 November 2020.
The UK Parliament has adopted a new National Security and Investment Act, the purpose of which is to extend the UK authorities' powers to scrutinise transactions that may give rise to national security concerns.
The Act introduces (i) mandatory notification requirements for certain transactions - including transactions not involving UK entities - in a number of core sectors, and (ii) a possibility for the UK Secretary of State to scrutinise certain other transactions that may give rise to national security concerns.
This Act will come into force on 4 January 2022. The mandatory notification scheme merely applies to transactions completed after this date. However, the Act allows the Secretary of State to scrutinise already completed transactions completed after 12 November 2020. This includes both transactions in the core sectors and other transactions that may give rise to national security concerns.
The new UK FDI regime constitutes one of the most extensive regimes for investment screening so far introduced world-wide. It is particularly extensive in that that it includes transactions that do not involve entities set up in the UK but where the "connection" to the UK merely consists in having activities or supplying goods or services in the UK. As the regime does not include a lower threshold in terms of the scope of activities or the sale of goods or services in the UK, a transaction will in principle be included, regardless of the fact that activities in the UK are very limited or the turnover from the supply of goods or services in the UK is very low.
The regime must be expected to imply increased complexity in transactions. This applies to, for example, the planning phase, where it will have to be assessed whether a potential transaction will require advance approval, and where it is not sufficient to rule out application of the regime that the transactions does not involve an entity having activities in the UK. If the transaction is not subject to the mandatory notification scheme, it must also be assessed whether there is any risk of the transactions being scrutinised at a later stage. If this is the case, it should be considered drawing the Secretary of State's attention to the transaction in order to limit the period for potential scrutiny to six months.
Furthermore, in this connection it is worth pointing out that after 4 January 2022, the Secretary of State will be able to scrutinise already completed transactions completed since 12 November 2020. This may give rise to uncertainty with respect to already completed transactions. However, it is possible to approach the Secretary of State already at this point for the purpose of clarifying whether the transaction must be expected to become the subject of an investigation.
Finally, the regime gives rise to enforcement issues. Accordingly, it is unclear how the UK Secretary of State will specifically enforce the regime in relation to purely foreign transactions that are merely subject to the regime due to activities or the supply of services in the UK.