November 24, 2020

National Security: U.K. Bill Would Heighten Scrutiny of FDI

Part of the fallout from the pandemic has been an acceleration of a global trend toward tighter regulation of foreign direct investments.  This Simpson Thacher memo highlights the latest example of this trend – pending legislation in the U.K. that would ratchet up that nation’s regulatory scrutiny of FDI. Here’s the intro:

On November 11, 2020, the Parliament of the United Kingdom (“U.K.”) introduced the National Security and Investment Bill of 2020 (the “NSI Bill”) to modernize the U.K.’s foreign direct investment (“FDI”) screening process and strengthen its ability to investigate and intervene in transactions targeting U.K. businesses. The NSI Bill imposes mandatory notification requirements to the U.K. Department of Business, Energy and Industrial Strategy (“BEIS”) for transactions involving investments in U.K. businesses operating in certain strategic sectors, a regime that will apply to investors from any foreign country.

In the broader context, the NSI Bill is reflective of a global trend of tightening FDI screening in many major economies, including the United States, European Union member states, and Australia, among others. Particularly in the era of COVID-19, numerous countries around the world have implemented or expanded national security-focused FDI regimes designed to protect domestic businesses involved in sectors affecting national security and public order. International investors, including private equity sponsors and multi-national corporations engaged in cross-border transactions, should consider and analyze as part of their routine transaction diligence the plethora of new obligations arising pursuant to these changes, and in particular, the forthcoming rules in the United Kingdom.

John Jenkins