British government plans to increase powers to block foreign investments

LONDON—The British government plans to increase its ability to prevent foreign investors from acquiring strategic assets amid increasing concern about the threat to national security posed by potentially hostile states such as China and Russia.

The government on Wednesday will introduce legislation requiring businesses to notify authorities about foreign investment in sensitive industries, including defense, transportation, communications and technology. A new regulatory agency would have 30 days to review potential transactions and either block or impose conditions on those deemed to pose a risk to national security.

The legislation follows similar moves by Britain's allies, including the U.S ., Australia and Germany, amid concerns about the influence of foreign investors such as Chinese technology giant Huawei. Stock market declines triggered by the C OVID -19 pandemic have left many companies undervalued by historical standards, heightening concerns about international takeovers.

“The U.K. remains one of t he most attractive investment destinations in the world and we want to keep it that way,” Business Secretary Alok Sharma said in a statement. “But hostile actors should be in no doubt – there is no back door into the U.K.”

The legislation applies to deals that would give foreign investors access to U.K. technology and intellectual property, as well corporate takeovers.

Penalties for violating the new rules will be steep, including fines of up to 10 million pounds ($13.3 million), or 5% of worldwide revenue, whichever is higher.

“This bill gives the government the power to scrutinize broad swathes of M&A activity with any U.K. nexus,” said Nicole Kar, head of U.K. competition at the law firm Linklaters. “We therefore anticipate that foreign investment rules, both in the U.K. and internationally, will be an increasingly onerous consideration for overseas investors planning international transactions.”