UK Should Reform FDI Screening, Be Cautious in Aligning Controls With US, Parliament Told

Simon Thomas, CEO of Paragraf, a graphene electronic device company, said the U.K. should reform the way it approaches investment screening by opting for a more collaborative approach with businesses. Instead of screening deals at the time of the investment, he said the government should consider working with U.K. companies earlier in the process so that deals aren’t bogged down by regulatory hurdles at the point of the merger or acquisition.

The way investment screening “is looked at today is not quite correct,” Thomas told the U.K.’s Business and Trade Subcommittee on Economic Security, Arms and Export Controls. He said the U.K. should consider a “more open and beneficial approach” for investors, “where the government and the company can work together over time, maybe even starting at the inception of the company, so that the technology is understood by the government as we move through the different phases.”

Foreign investment screening currently “happens at the point of investment,” he said. “That is the most critical point for a company that is trying to push its runway out, and that is when the investigation starts.”

Thomas said more cooperation at an earlier stage would also help government officials better understand emerging technologies and how they can be used. “I do not think people, particularly in investor companies, would be averse to being questioned at an early stage if they knew it was going to be useful and collaborative going forward,” he said.

Thomas acknowledged that the U.K.’s investment screening mechanism is more business-friendly than the Committee on Foreign Investment in the U.S., which is “a lot more strict.” Paragraf has a subsidiary in San Diego, he said, and the company has “run across some CFIUS instances that require a lot more paperwork.”

“If we are looking at proliferation and progress of technology, then I believe the U.K. has a better set-up,” he said. “Whether that offers the level of protection that the U.S. has is the balance we have to look into.”

He said Paragraf and other U.K. companies are “very aware of technology control” and are “aligned” with the U.K.’s strategy of ensuring adversaries don’t acquire sensitive technologies. But Thomas suggested that shouldn’t come at the expense of beneficial foreign investments in British companies.

“If we want to ensure that we get these technologies to a state where we can use them properly in this country, we have to make sure that those technologies succeed,” he said. “If they do not succeed here, they will succeed somewhere else.”

Liam Byrne, chair of the Business and Trade Committee, asked whether the U.K. should further align its economic security tools, such as investment screening measures and export controls, with the U.S. He said he thinks the U.S. could push the U.K. to adopt more strict measures against China as part of a future trade deal between London and Washington (see 2505140036).

“We know that the American national security strategy quite explicitly entails a plan to try and slow down China when it comes to China developing advanced technologies,” Byrne said. “Therefore, in the conversations that no doubt are going on in trying to get a trade deal with the United States agreed, there will be questions about whether the U.K. should be doing more to join in with that American-led strategy.”

Thomas said he would caution the government against imposing new trade restrictions without making sure they benefit the U.K.

“I would urge a bit more pragmatism to try to understand what it is we want or what we define as sensitive technologies and, in the future, where we think those partners need to be,” he said. “Because if we do not at least try to forward-plan where we want to put our critical technologies or those critical components I talked about, we may find, if we align with other people’s rules, that we cannot access those markets or, even more critically, get those things that we want and need for national security.”

Chris Parker, director of government strategy at cybersecurity company Fortinet, said any new national security-related restrictions should be imposed only after talking with industry.

“The biggest need is for collaboration and for people just to talk and communicate,” he said, adding that “a lot of that” is already happening. “Our ability to secure our customers and people everywhere is only through collaboration with the national agencies on quite a regular basis.”

Asked by Parliament member Matt Western whether the U.K. has the “right approach to controlling the export of sensitive technologies,” Thomas said he had no issues with the country’s current rules.

“In terms of technology borders, it is very clear that there are certain technologies you cannot sell to certain states,” he said. “As long as you are aware of that, it is quite straightforward, from my perspective.”