The tech industry fears that the takeover rules will discourage early stage investment in areas such as artificial intelligence
The tech industry fears that the takeover rules will discourage early stage investment in areas such as artificial intelligence © Wrightstudio/Dreamstime

UK ministers have narrowed the list of which foreign investments will fall foul of their new takeover powers in an attempt to allay business leaders’ concerns about the sweeping scope of the new regime.

However, some in the tech industry remain concerned that the new rules, likely to become law this summer, will still discourage early stage investment in areas such as artificial intelligence, where the government will retain broad powers to intervene in dealmaking.

Under the national security and investment bill, currently going through the House of Lords, the government will take a more intrusive approach to foreign takeovers.

The tough measures will require prospective foreign buyers of UK companies, shareholdings or intellectual property in 17 sensitive industries to alert a new government unit about proposed transactions.

Directors of overseas companies that fail to do so could face personal fines of up to £10m, or their businesses could pay penalties of up to 5 per cent of annual turnover.

Under Tuesday’s announcement the government has tightened some of the definitions of the 17 industries in order to “streamline” the process.

Officials said that should mean a drop in the number of transactions that are notified under the new takeover regime from a previous estimate up to 1,800 a year. However, they could not give a new prediction.

Although only a small percentage are likely to be blocked or face “remedies”, the interventions still represent a leap in scrutiny of transactions given there have been only 12 public interest interventions by the government on national security grounds since 2002.

The definitions of the relevant sectors have been tweaked after a consultation with business designed to make the system “as targeted and proportionate as possible”.

The business department said the revised definitions would give investors and businesses more certainty over whether their proposed deal would be hit by the new laws.

“The carefully drafted list — which may be further refined following continued engagement with stakeholders in the relevant sectors as the bill continues its passage — will help to strike a balance between ensuring our national security is safeguarded, while keeping the number of businesses caught by the mandatory notification regime to the minimum possible level,” the ministry said.

Examples of how the business department will change its original descriptions of industries with a “mandatory call-in” include “quantum technologies”, which will now be restricted to companies that develop or produce a quantum technology product. And it has redefined “engineering biology” to the more specific “synthetic biology”.

The “advanced robotics” category will include self-driving cars but not consumer items such as automated vacuum cleaners or camera drones, or industrial equipment with only basic sensors.

The government curtailed its definition of cryptographic authentication technology to remove applications intended for use by consumers, rather than governments.

But the aspects covering artificial intelligence have proven particularly contentious in the tech community, given the broad application of machine learning as a component of many new software and internet start-ups.

“Most respondents” to the original proposals said that they “lacked clarity” and were “too broad in scope”, the government admitted in its review.

The government said that it would now focus scrutiny on AI applications involving object or person recognition, advanced robotics and cyber security. But one start-up adviser said the definition was “still very broad”.

The BVCA, a venture capital trade body, said it welcomed the extra clarity provided and was “looking closely at the detail of these changes to ensure they support the UK in remaining an attractive location for investment”.

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