The case for more guidance and transparency
While national security is of paramount importance, one of the UK’s longstanding competitive advantages is its openness and attractiveness to global investment. Investors who are unclear on which investments may be called in, or on how the rules will be practically applied, risk being put off making investment into the UK.
BEIS has provided the markets with valuable guidance about the timelines for reviewing investments (30 working days in most cases) and the investments that it would be most interested in screening. It has also provided guidance on the Act, notifiable acquisitions, compliance, government call-in powers and extraterritorial effect.
However, further guidance is needed to help steer investors through the UK’s investment screening processes and reassure markets that the UK remains open to foreign investment.
Specific areas in need of greater clarity
Clarify definition of 'acquirer'
The Act is clear on the meaning of “acquirer” for simple acquisitions but less clear in complex transactions where there may be multiple investors, different ownership chains, indirect acquirers, or acquirers in the form of lenders seeking collateral. Clearer guidance on which investors need to apply for review, whether lenders seeking collateral are “investors”, and whether acquisitions arising from internal corporate restructuring will be caught by the Act, would all be helpful.
A tiered system
The Act permits BEIS to create a list of investors who will be exempted from notification requirements. Industry would welcome guidance on whether such powers are likely to be used, how, and in what timescale.
Impact on markets
The timing and announcement of investment screening interventions is market-sensitive. It is therefore important for BEIS to publish a transparent policy and process for announcing market-sensitive investment screening decisions.
Guidance that clarifies that value threshold below which acquisitions are unlikely to be subject to review should be provided.
There is already some guidance on the Act’s extraterritorial effect, noting that investments in one of the 17 covered sectors must be notified if they have a “nexus” with the UK. Is the “nexus” test for voluntarily notified transactions the same? Can the definition of “nexus” be made clearer?
Scale of retrospective investment screening
One early indicator about how widely investments will be screened in future, is the number of investments called in for retrospective review from the period before the Act came into the force. Information about such cases, released early in 2022, would provide an early indication about how the Act will operate.
Criteria by which BEIS would vary the sectors requiring mandatory screening
BEIS has noted that over time it might consider adding or removing sectors from the list of those subject to mandatory screening. Guidance on the processes and criteria when changing the list of mandatory sectors, and the timelines for changes, would be helpful.
Sensitive voluntary disclosure investments
BEIS has indicated that the voluntary regime transactions most likely to be reviewed are those in areas most closely associated with mandatory review sectors. Data on which areas of activity are most reviewed under the voluntary system should be made publicly available, to aid transparency.
In special situations (e.g. insolvency) there is often a need to act quickly. 30 working days for investment screening might be too long to wait. In such cases, receivers (or shareholders) should be able to apply to expedite the screening process.
There could be cases where a participant in a supply chain needs access to material or processes falling within one of the mandatory sectors. Would they be subject to the Act’s requirements? Businesses need guidance on how far down the supply chain the obligations to notify would apply.
In the early stages of M&A activity, it would be helpful for investors to be able to speak to BEIS informally to assess whether an investment was likely to be acceptable, to avoid all parties expending efforts unproductively.