Transparency of the Regulatory System
U.S. exporters and investors generally will find little difference between the United States and UK in the conduct of business. The UK’s regulatory system provides clear and transparent guidelines for commercial engagement. Common law prevails in the UK as the basis for commercial transactions, and the International Commercial Terms (INCOTERMS) of the International Chambers of Commerce are accepted definitions of trading terms. In terms of accounting standards and audit provisions, firms in the UK must use the UK-adopted international accounting standards (IAS) instead of the EU-adopted IAS for financial years beginning on or after January 1, 2021. The UK’s Accounting Standards Board provides guidance to firms on accounting standards and works with the IASB on international standards.
Statutory authority over prices and competition in various industries is given to independent regulators, for example the Office of Communications (Ofcom), the Water Services Regulation Authority (Ofwat), Water Industry Commission for Scotland (WICS), the Office of Gas and Electricity Markets (Ofgem), the Office of Fair Trading (OFT), the Office of Rail and Road (ORR), the Prudential Regulatory Authority (PRA), and the Financial Conduct Authority (FCA). The PRA was created out of the dissolution of the Financial Services Authority (FSA) in 2013. The PRA reports to the Financial Policy Committee (FPC) in the Bank of England. The PRA is responsible for supervising the safety and soundness of individual financial firms, while the FPC takes a systemic view of the financial system and provides macro-prudential regulation and policy actions. The FCA is a regulatory enforcement mechanism designed to address financial and market misconduct through legally reviewable processes. These regulators work to protect the interests of consumers while ensuring that the markets they regulate are functioning efficiently. Most laws and regulations are published in draft for public comment prior to implementation. The FCA maintains a free, publicly searchable register of their filings on regulated corporations and individuals here: https://register.fca.org.uk/ .
The UK government publishes regulatory actions, including draft text and executive summaries, at: https://www.gov.uk/business-and-industry/business-regulation#guidance_and_regulation.
International Regulatory Considerations
The UK’s withdrawal from the EU has not caused dramatic shifts in the UK’s regulatory regimes but has opened the door to regulatory divergence. The future regulatory direction of the UK remains uncertain as the UK determines whether to maintain the current regulatory regime inherited from the EU or to move towards new regulations. The UK is an independent member of the WTO and actively seeks to comply with all WTO obligations.
His Majesty’s Government introduced in September 2022 a proposed Retained EU Law (Revocation and Reform) Bill, colloquially referred to as the “Brexit Freedoms Bill.” If the bill passes in its original form, some 4,000 EU-derived laws and regulations still applied in the UK will “sunset,” or cease to have effect, at the end of 2023 (or 2026 in some circumstances), absent ministers’ action to keep them on the statute book as “assimilated” law. At the time of writing, the bill is still completing its parliamentary passage. The tight deadline to review such a wide-ranging body of EU-derived legislation has raised concerns among business groups and legal experts.
Legal System and Judicial Independence
The UK is a common-law country. UK business contracts are legally enforceable in the UK, but not in the United States or other foreign jurisdictions. International disputes are resolved through litigation in the UK Courts or by arbitration, mediation, or some other alternative dispute resolution (ADR) method. The UK has a long history of applying the rule of law to business disputes. The current judicial process remains procedurally competent, fair, and reliable, which helps position London as an international hub for dispute resolution with over 10,000 cases filed per annum.
Laws and Regulations on Foreign Direct Investment
The procedure for establishing a company in the UK is identical for British and foreign investors. No approval mechanisms exist for foreign investment, apart from the process outlined in Section 1. Foreigners may freely establish or purchase enterprises in the UK, with a few limited exceptions, and acquire land or buildings.
The National Security and Investment Act 2021 – which applies equally to foreign or domestic investment – requires mandatory reporting of significant investments (generally over 25 percent control) in 17 sensitive sectors; the reporting requirement extends to investments in intellectual property and in higher education and research. The UK government aims to review cases expeditiously, with most reviews of notifications completed within 30 days.
The Register of Overseas Entities came into force in the UK on August 1, 2022, through the Economic Crime (Transparency and Enforcement) Act 2022. Overseas entities that want to buy, sell or transfer property or land in the UK must register with Companies House and provide information on registrable beneficial owners or managing officers. The Act requires registry of ultimate beneficial owners, including those controlling at least 25 percent of overseas entities that own such property. Entities or their officers who refuse to register or keep their information up to date face restrictions on selling the property, and those who violate the rules could face a fine of up to £2,500 ($3,082) per day and up to five years in prison.
Register an overseas entity: https://www.gov.uk/guidance/register-an-overseas-entity
Foreign are subject to the same tax laws as UK firms. Foreign investors, however, may have access to certain UK regional grants and incentives designed to attract industry to areas of high unemployment, but these do not include tax concessions.
Competition and Antitrust Laws
The UK competition regime is established by the Competition Act 1998 and the Enterprise Act 2002, as amended by the Enterprise and Regulator Reform Act 2013. This legislative framework created the UK’s independent competition authority, the Competition and Markets Authority (CMA), which is responsible for enforcing UK competition law. The government has limited powers to intervene in either the assessment of mergers or the investigation of markets.
Before Brexit, the prohibitions in UK law on abusing dominant market positions and anti-competitive agreements were based on and underpinned by equivalent provisions in EU law. Since Brexit, under the terms of the UK-EU trade agreements, EU competition law is no longer enforced in the UK, and the UK and EU now operate separate competition regimes.
The CMA is responsible for:
- investigating phase 1 and phase 2 mergers,
- conducting market studies and market investigations,
- investigating possible breaches of prohibitions against anti-competitive agreements under the Competition Act 1998,
- bringing criminal proceedings against individuals who commit cartel offenses,
- enforcing consumer protection legislation,
- encouraging sectoral regulators to use their powers to protect competition,
- considering regulatory references and appeals, and,
- regulation of public sector subsidies to business.
While merger notification in the UK is voluntary, the CMA may impose substantial fines or suspense orders on potentially non-compliant transactions. The CMA has no prosecutorial authority, but it may refer entities for prosecution in extreme cases, such as those involving cartel activity, which carries a penalty of up to five years imprisonment.
In 2021, the UK established the Digital Markets Unit- (DMU) on a non-statutory basis within the CMA to oversee and operationalize a forthcoming pro-competition regime for digital markets. Powers for the DMU and the new regulatory regime will require new legislation. The UK government committed to bringing forward a new Digital Markets, Competition, and Consumer Bill during the 2022-23 parliamentary session, which is expected to end in the fall of 2023. At the time of writing, the bill has not yet been tabled. In the interim, the DMU is supporting and advising the government on establishing the statutory regime, including by gathering evidence on digital markets.
In addition to the CMA, the Takeover Panel, the Financial Conduct Authority, and the Pensions Regulator have principal regulatory authority:
- The Takeover Panel is an independent body, operating per the City Code on Takeover and Mergers (the “Code”), which regulates takeovers of public companies, and some private companies, centrally managed or controlled in the UK, the Isle of Man, Jersey, and Guernsey. The Code provides a binding set of rules for takeovers aimed at ensuring fair treatment for all shareholders in takeover bids, including requiring bidders to provide information about their intentions after a takeover.
- The Financial Conduct Authority administers Listing Rules, Prospectus Regulation Rules, and Disclosure Guidance and Transparency Rules, which can apply to takeovers of publicly listed companies.
- The Pensions Regulator has powers to intervene in investments in pension schemes.
Expropriation and Compensation
The UK is a member of the OECD and adheres to the OECD principle that when a government expropriates property, compensation should be timely, adequate, and effective. In the UK, the right to fair compensation and due process is uncontested and is reflected in all international investment agreements. Expropriation of corporate assets or the nationalization of industry requires a special act of Parliament.
Dispute Settlement
ICSID Convention and New York Convention
In addition to its membership in the International Center for Settlement of Investment Disputes (ICSID) Convention, the UK is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards.
The United Kingdom has elected not to follow the United National Commission on International Trade Law (UNCITRAL) Model Law on International Commercial Arbitration. Enforcement of an arbitral award in the UK is dependent upon where the award was granted. The process for enforcement in any particular case is dependent upon the seat of arbitration and the arbitration rules that apply. Arbitral awards in the UK can be enforced under a number of different regimes, namely: The Arbitration Act 1996, The New York Convention, The Geneva Convention 1927, The Administration of Justice Act 1920 and the Foreign Judgments (Reciprocal Enforcement) Act 1933, and Common Law.
The Arbitration Act 1996 governs all arbitrations seated in England, Wales, and Northern Ireland, both domestic and international. The full text of the Arbitration Act can be found here: http://www.legislation.gov.uk/ukpga/1996/23/data.pdf .
The Arbitration Act is heavily influenced by the UNCITRAL Model Law, but it has some important differences. For example, the Arbitration Act covers both domestic and international arbitration; the document containing the parties’ arbitration agreement need not be signed; an English court is only able to stay its own proceedings and cannot refer a matter to arbitration; the default provisions in the Arbitration Act require the appointment of a sole arbitrator as opposed to three arbitrators; a party retains the power to treat its party-nominated arbitrator as the sole arbitrator in the event that the other party fails to make an appointment (where the parties’ agreement provides that each party is required to appoint an arbitrator); there is no time limit on a party’s opposition to the appointment of an arbitrator; parties must expressly opt out of most of the provisions of the Arbitration Act which confer default procedural powers on the arbitrators; and there are no strict rules governing the exchange of pleadings. Section 66 of the Arbitration Act applies to all domestic and foreign arbitral awards. Sections 100 to 103 of the Arbitration Act provide for enforcement of arbitral awards under the New York Convention 1958. Section 99 of the Arbitration Act provides for the enforcement of arbitral awards made in certain countries under the Geneva Convention 1927.
Under Section 66 of the Arbitration Act, the court’s permission is required for an international arbitral award to be enforced in the UK. Once the court has given permission, judgment may be entered in terms of the arbitral award and enforced in the same manner as a court judgment or order. Permission will not be granted by the court if the party against whom enforcement is sought can show that (a) the tribunal lacked substantive jurisdiction and (b) the right to raise such an objection has not been lost.
The length of arbitral proceedings can vary greatly. If the parties have a relatively straightforward dispute, cooperate, and adopt a fast-track procedure, arbitration can be concluded within months or even weeks. In a substantial international arbitration involving complex facts, many witnesses and experts and post-hearing briefs, the arbitration could take many years. A reasonably substantial international arbitration will likely take between one and two years.
Two alternative procedures can be followed in order to enforce an award. The first is to seek leave of the court for permission to enforce. The second is to begin an action on the award, seeking the same relief from the court as set out in the tribunal’s award. Enforcement of an award made in the jurisdiction may be opposed by challenging the award. The court may also, however, refuse to enforce an award that is unclear, does not specify an amount, or offends public policy. Enforcement of a foreign award may be opposed on any of the limited grounds set out in the New York Convention. A stay may be granted for a limited time pending a challenge to the order for enforcement. The court will consider the likelihood of success and whether enforcement of the award will be made more or less difficult as a result of the stay. Conditions that might be imposed on granting the stay include such matters as paying a sum into court. Where multiple awards are to be rendered, the court may give permission for the tribunal to continue hearing other matters, especially where there may be a long delay between awards. UK courts have a good record of enforcing arbitral awards. The courts will enforce an arbitral award in the same way that they will enforce an order or judgment of a court. At the time of writing, there are no examples of the English courts enforcing awards which were set aside by the courts at the place of arbitration.
Most awards are complied with voluntarily. If the party against whom the award was made fails to comply, the party seeking enforcement can apply to the court. The length of time it takes to enforce an award which complies with the requirements of the New York Convention will depend on whether there are complex objections to enforcement which require the court to investigate the facts of the case. If a case raises complex issues of public importance the case could be appealed to the Court of Appeal and then to the Supreme Court. This process could take around two years. If no complex objections are raised, the party seeking enforcement can apply to the court using a summary procedure that is fast and efficient. There are time limits relating to the enforcement of the award. Failure to comply with an award is treated as a breach of the arbitration agreement. An action on the award must be brought within six years of the failure to comply with the award or 12 years if the arbitration agreement was made under seal. If the award does not specify a time for compliance, a court will imply a term of reasonableness.
Investor-State Dispute Settlement
As a member of ICSID, the UK accepts binding international arbitration between foreign investors and the State. As a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the UK provides local enforcement on arbitration judgments decided in other signatory countries.
London is a thriving center for the resolution of international disputes through arbitration under a variety of procedural rules such as those of the London Court of International Arbitration, the International Chamber of Commerce, the Stockholm Chamber of Commerce, the American Arbitration Association International Centre for Dispute Resolution, and others. Many of these arbitrations involve parties with no connection to the jurisdiction, but who are drawn to the jurisdiction because they perceive it to be a fair, neutral venue with an arbitration law and courts that support efficient resolution of disputes. They also choose London-based arbitration because of the general prevalence of the English language and law in international commerce. A wide range of contractual and non-contractual claims can be referred to arbitration in this jurisdiction including disputes involving intellectual property rights, competition, and statutory claims. There are no restrictions on foreign nationals acting as arbitration counsel or arbitrators in this jurisdiction. There are few restrictions on foreign lawyers practicing in the jurisdiction, as evidenced by the fact that over 200 foreign law firms have offices in London.
International Commercial Arbitration and Foreign Courts
Bankruptcy Regulations
The UK has strong bankruptcy protections going back to the Bankruptcy Act of 1542. Today, both individual bankruptcy and corporate insolvency are regulated in the UK primarily by the Insolvency Act 1986, the Insolvency Rules 1986, and the Corporate Insolvency and Governance Act 2020, regulated through determinations in UK courts.
Regarding individual bankruptcy law, the court will oblige a bankrupt individual to sell assets to pay dividends to creditors. A bankrupt person must inform future creditors about the bankrupt status and may not act as the director of a company during the period of bankruptcy. Bankruptcy is not criminalized in the UK, and the Enterprise Act of 2002 dictates that for England and Wales bankruptcy will not normally last longer than 12 months. At the end of the bankrupt period, the individual is normally no longer held liable for bankruptcy debts unless the individual is determined to be culpable for his or her own insolvency, in which case the bankruptcy period can last up to 15 years.
For corporations declaring insolvency, UK insolvency law seeks to distribute losses equitably between creditors, employees, the community, and other stakeholders in an effort to rescue the company. Liability is limited to the amount of the investment. If a company cannot be rescued, it is liquidated and assets are sold to pay debts to creditors, including foreign investors.
Liquidation and Insolvency: https://www.gov.uk/government/publications/liquidation-and-insolvency/liquidation-and-insolvency