The UK Government has further extended its powers to review mergers in certain key strategic sectors on national security grounds.1 The additional sectors are artificial intelligence, cryptographic authentication and advanced materials.

The new powers follow changes made by the Government in 2018 to increase its ability to intervene in mergers involving the acquisition of businesses active in the following sectors: dual use/military use, computing hardware and quantum technology.

Further powers to undertake national security reviews of investments in the UK are expected to be proposed shortly as part of a new National Security and Investment Bill. The Bill is likely to build on proposals set out in a 2018 Government White Paper on National Security and Investment.

What are the changes?

The Government can intervene on public interest grounds, including national security, in mergers that qualify for review under the UK merger control rules or the EU merger regulation, as well as mergers involving certain defence contractors which have been notified that they hold confidential information.

In 2018, the Government amended the jurisdictional thresholds under the UK merger control rules in relation to transactions in three areas: the dual use and military use sector, computing hardware and quantum technology.

The Government has now extended the application of these amended thresholds to mergers involving target businesses in three additional areas: artificial intelligence, cryptographic authentication and advanced materials. The amended thresholds are that a transaction involving a target active in any of these areas will be caught if:

  • the UK turnover of the target exceeds £1 million (the normal threshold is £70 million); or
  • the target supplies or acquires goods or services in any of these areas that account for at least 25% of those goods or services supplied or acquired in the UK or a substantial part of it (the normal threshold, which continues to apply as a separate threshold, is that the transaction must increase the share to 25% or more, meaning that both parties have to supply or acquire the same goods or services in order for the transaction to be caught).

What is the impact of the changes?

The effect of these changes is that, in the additional areas of artificial intelligence, cryptographic authentication and advanced materials, a much greater number of transactions now qualify for review under the UK merger control rules than was previously the case – and therefore are potentially at risk of intervention both by the Competition and Markets Authority (CMA) on competition grounds and the Government on public interest grounds (including, but not only, national security).

That said, the CMA has issued guidance indicating that it does not expect the changes to bring about a material change in its approach to the assessment of mergers on competition grounds in these areas.

It is also worth noting that the changes not only apply to transactions involving foreign investment – they also apply to purely domestic transactions.

Where the Government decides to intervene on national security grounds, it can clear the merger (where it considers no concerns arise) or, if it considers that there are concerns, make clearance conditional on certain remedies being put in place or block the merger.

What is covered by artificial intelligence, cryptographic authentication and advanced materials?

According to the Government's guidance:

  • Artificial intelligence refers to technology enabling the programming, or execution of a computational process capable of undertaking complex tasks commonly associated with human intelligence. These tasks are often data intensive, including but not restricted to analysis, decision making, image processing and recognition, natural language understanding, autonomous operation in complex domains, reflection or introspection.
  • Cryptographic authentication enables information to be protected whilst in storage or in transit by making it inaccessible or unreadable by everyone except those who have the information needed to access or read it.
  • Advanced materials include materials that are capable of modifying (including in real time) the appearance, detectability, traceability or identification of any object to a human or to sensors within the range 1.5e13 Hz up to and including ultraviolet and alloys that are formed by chemical or electrochemical reduction of feedstocks in the solid state.

Although the provisions cover a broad range of areas, the Government has indicated that it does not intend to use its powers to intervene where the relevant target's products and systems are generally available to the public and for use by consumers. Examples given include virtual Artificial Intelligence assistants that are capable of undertaking certain actions by voice commands and authentication by means of username and password access, in order to log on locally to computers running consumer operating systems.

When did the changes come into effect?

The changes came into force on 21 July 2020.



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