As currently drafted, new powers for the government to intervene in transactions could apply to some FinTechs; the question is how the government will use those powers
The National Security and Investment Bill (the Bill) was published on 12 November 2020 and the powers proposed are a material step forward from those set out in the National Security and Investment White Paper published on 24 July 2018. Instead of a voluntary notification regime with a call-in power in certain situations, the Bill proposes mandatory notifications for some transactions in specified sectors, with voluntary notification and call-in powers for all other transactions in those specified sectors. There is also a retrospective ability to review transactions. For an overview of the Bill, see our Insight here.
Is FinTech one of the "specified sectors"?
There are 17 specified sectors and those focused on technology are widely construed: communications, data infrastructure, artificial intelligence, computing hardware, cryptographic authentication, quantum technologies and military or dual-use technologies are all included. The government is consulting on the exact definitions for these specified sectors, with a closing date of 6 January 2021.
As currently drafted, it is mixed news for FinTechs. A close read of the proposed definitions indicates that areas like communications and data infrastructure are firmly aimed at networks and their physical components (although references to "virtualised" infrastructure will give pause for thought), which narrows the specturm of FinTechs covered. However, in other areas like "artificial intelligence" the definition is extremely wide (artificial intelligence is defined as "technology designed to approximate cognitive abilities including ... communication [and] problem solving"). Commonplace features of FinTech B2C offerings like chatbots could be at risk of putting companies within the purview of the legislation.
What if your business falls within a "specified sector"?
There are really two things to consider here, which are distinct but play into each other. The first is the additional processes you might have to undergo in order to get a deal away and the second, more nuanced, consideration is how likely this is to actually impact what deal you can do or what the outcome might be.
The answers to these will turn in large part on how the government chooses to exercise the powers contained within the Bill when it comes to FinTech. There is the obvious inherent tension between the powers contained in the Bill and the government's desire to show that a post-Brexit Britain is open for international tech investment. But it is certainly reasonable to suppose that the powers contained within the Bill will be used to extract concessions from foreign or state-backed bidders.
Government concerns in the context of FinTech will likely relate to cases where a FinTech's business becomes an embedded part of the UK's financial services infrastructure. Although the FCA oversees the stability of the UK's financial services from a systemic point of view (regulating outsourcing, for example), it has typically done so from the point of view of assessing appropriate levels of oversight and concentration risk, rather than through a political prism. So payments, bank access and clearing infrastructure will probably be at the top of the list in terms of "mission critical" elements of our financial services likely to be scrutinised.
What should FinTechs be doing?
If the government does seek to intervene in as broad a spectrum of specified sectors as possible from the start, then FinTech businesses will want to think carefully about the implications of taking on state-backed investors. FinTechs which are developing their business with a particular strategic exit in mind will want to test the political risk attached to such an exit in the light of the Bill.
The Bill will also be of relevance for FinTechs who are considering bidding on government infrastructure contracts or deploying their technology in this space as it remains to be seen whether that level of integration deters overseas investors. Ultimately, of course, the impact of the Bill will depend on the extent to which the government exercises these new powers.