Yesterday I took part in the second reading debate on the National Security and Investment Bill. This legislation will comprehensively reform the UK’s foreign investment rules, introducing a hybrid system of mandatory and voluntary notifications on grounds of “national security” similar to that in the United States and Germany.

A long time in the arrival (Green Paper 2017, White Paper 2018) there is quite a lot in this Bill and yet more that ought to be.

It seems clear that national security and national prosperity are in no sense opposed, rather complementary.  Without free trade and international investment we have fast routes to isolationism, protectionism, retreatism and all the negative consequences which ensue.

It is similarly clear that the UK has good grounds for inward investment:  a secure, sustainable, resilient and reliable policy environment, the rule of law and we are ranked 4th in the 2020 global innovation index.

We have inspirational innovators, fantastic founders and excellent entrepreneurs.  They deserve our thanks. They create something where before there was nothing and they need access to the global market for funding and investment opportunities.

In my comments on the Bill, I wanted to focus on:

  • definitions,
  • the proposed notification regime,
  • the proposed Investment Security Unit (ISU), established to deal with the notifications and allied other issues.

It seems that a National Security Bill lacking a definition of ‘national security’ is at least noteworthy.  For context, the definitions in the U.S. and Australia are helpful and more generally it is worth reviewing the approach by all of our five eyes partners.  Perhaps, it is better not drawn but it is certainly a debate to be had through the coming stages of the Bill. 

In other nations it has certainly occurred that national security and national interests have somewhat overlapped, think yoghurt companies or those producing bottled water: can they really be counted as critical national assets?  Similarly, when times get tough it can be irresistible not to convert national security into national interest, see France’s decision to reduce the share-holding level to be of interest from 25% to just 10% as the Covid crisis took hold.

In terms of the list of sectors identified for mandatory notifications, it is both broad and broadly good.  It becomes interesting though when we consider technologies such as Artificial Intelligence, for example, hardly a sector, a vertical, a horizontal, more a coming ubiquity. How do we ensure that is properly incorporated into the reporting regime?

It is also good that the information required for notification is cut by two thirds.  Disappointing though that not just small and medium-sized enterprises (SMEs) and micro business’ could be caught.  They will need help and nothing should further add to the scale up difficulties we currently have in the UK.

The responsibility will lie with the Secretary of State for Business, Energy and Industrial Strategy who will be in charge of a new 100-person Investment Security Unit (“ISU”). All notifications required under the Bill will be made to the ISU. Considering the number and complexity of notifications expected the ISU will need some serious heft in terms of resource and people.  The more likely danger to national security might be the threat of administrative overwhelm!  The impact assessment suggests that the new regime is projected to receive up to 1,800 notifications per year and I fear it may be far higher. This is already significantly higher than similar schemes in other European jurisdictions, such as Germany, and contrasts with only 12 transactions that have been reviewed in the last 18 years on national security grounds under the current UK framework. It will be critical for the unit to be fully resourced and fully staffed with expertise in investments, new technologies and security issues.  There must be the case for the consideration of some form of regulatory sandbox.  Similarly, there has to be real time effective connection with Department for International Trade (DIT) and, crucially, our security services.

Finally, it is unfortunate that the Bill, as currently drafted, suffers the same democratic accountability deficit we saw in the Financial Services Bill which received second reading in the Lords last Thursday, 28 January 2021. It is even more important, in the national security context, that Parliament has a key role and it would seem that the Intelligence and Security Committee (ISC) is exactly the right committee to exercise that scrutiny, as perfectly pointed out by Lord West of Spithead.

It’s time to update the Treckies, space, is not the final frontier, cyber space, not even, just the current world we find so much being stretched in.  Good news that we have such talent and world leading organisations in cyber in the UK, NCC for example in the private sector, the National Cyber Security Centre (NCSC) and all our intelligence services in the public.  They work, rightly, out of sight and out of the light yet their work is of the utmost importance, keeping us all safe every single day and night.  They deserve our thoughts and our gratitude.

In conclusion, we have the opportunity, over the coming weeks, to delicately improve this Bill.  We must all be constantly aware of the chilling effect on inward investment if the Government gets this even partially, tonally or perceptually wrong.

It is crucial we get this right, not the balance between investment and security but the proper consideration of both. We need a proportionate, practical, efficient and effective response to ensure our security and all of our future prosperity.

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