MPs: Investment security screening ‘not keeping pace’ with economic threats

• Inquiry: Information sharing by the Investment Security Unit
• Business and Trade Sub-Committee on National Security and Investment

The warning comes in the Business and Trade Sub-Committee on National Security and Investment’s reply to Government’s call for evidence ahead of reforms to the UK’s investment-screening regime. Created by the National Security and Investment (NSI) Act, investment screening allows ministers to block purchases of or investment in firms in the UK’s strategic industries on national security grounds.

The Sub-Committee argued that a surge of investment from both offshore sources and countries classed as dictatorships, together with new, tougher investment rules in both the US and the EU and new threats from China and Russia, required the UK to strengthen its screening processes.

The US has recently toughened controls on foreign investors acquiring firms that control significant amounts of US citizens’ data while the EU has controls over threats to media freedom. The UK’s NSI Act “does not explicitly consider risk relating to media freedoms” as equivalent regimes do in the European Union and Australia, the submission said. Equally a stronger UK regime would make explicit the need to call in merger deals like that proposed between Three and Vodafone.

The Sub-Committee raised concerns that the lack of an explicit definition of ‘national security’ creates confusion for investors and called for an annual National Security Assessment for investors better understand the deals that would be called in for screening. 

As evidence of the confusion in industry about the scope of the current Act, the sub-committee cited the 866 transactions notified to the Government in 2022/23 - more than twice the number notified to the United States’ equivalent, CFIUS, in what is a much larger economy.

The risk, warns the Sub-Committee, is that so many transactions risked ministers ‘losing sight of the wood for the trees’ and missing key transactions with security implications.

The submission went on to label part of the Act a “fundamental roadblock to scrutiny” because it prohibits the sharing of information with Parliament about how Government decisions are made on whether to allow a transaction to proceed, to call it in, or to block or unwind it. The sub-committee felt that this had been oversight in drafting the legislation and called on the Government to find ways around it to enable information sharing.

The document also highlighted the need to bring the UK’s investment screening regime into stronger alignment with those of allies with explicit rules to notify the Cabinet Office of proposed investments in transactions affecting media freedoms, access to UK persons’ sensitive data, cybersecurity, critical supply chains and sensitive data relating to the UK biosecurity industry, including genomics, along with;

• inconsistencies in minerals identified as critical under the NSI Act and those covered by the Critical Minerals Strategy
• the impact on the NSI regime of inconsistent reporting and registers of who ultimately benefits from ownership of companies in UK Crown Dependencies and Overseas Territories
• The importance of improving business awareness and transparency of the regime.

Chair's comment

Business and Trade Sub-Committee Chair, Liam Byrne MP, said:

“The UK is a science superpower. So, it is vital that we do not let our country become a ‘back door’ through which our adversaries acquire capabilities that imperil the collective security of either us or our NATO Allies.”

“Equally, it is vital that Parliament is given proper oversight of the decisions made by ministers, so we can assure the House of Commons that the decisions made on investment screening are sound decisions.

“Right now, the truth is we cannot give that assurance, because ministers do not have the legal power to share the information we need to check decisions. That risks making a nonsense of parliamentary oversight of our economic security. That is something we simply cannot afford to go on.”

Further information

• About Parliament: Select committees
• Visiting Parliament: Watch committees

Image: CC0