Open consultation

Consultation on The Enterprise Act 2002 (Mergers Involving Newspaper Enterprises and Foreign Powers) Regulations 2024

Published 9 May 2024

1. Introduction

The importance of newspapers to our democracy cannot be overstated: newspapers have always been, and must continue to be, free to develop relationships with their readers, to challenge received or established views and develop editorial lines supporting different causes. The plurality of views across different UK newspapers and news magazines ensures that there is a wide range of views supporting a culture of argument, debate and challenge, which in turn contributes to a healthy democratic society.

The government has responded to concerns about the risks that foreign state ownership of, or control or influence over, the UK’s newspapers and news magazines could pose to democracy and to free speech. Foreign state influence, if used to develop or control narratives which align with another state’s interests, may over time corrode trust in our media as a whole.

On 26 March 2024, at the Third Reading of the Digital Markets, Competition and Consumers Bill the government brought forward amendments to the Enterprise Act 2002 in order to create a new foreign state intervention (FSI) regime for newspapers and periodical news magazines.

Under the FSI regime, the Secretary of State will be obliged to issue a foreign state intervention notice where the Secretary of State has reasonable grounds to believe that a merger involving a UK newspaper or news magazine has given, or would give, a foreign state or a person associated with a foreign state ownership, influence or control. The Competition and Markets Authority will be obliged to investigate and provide a report to the Secretary of State on the merger or potential merger. If the CMA concludes that the merger has resulted or would result in a foreign state newspaper merger situation, the Secretary of State will be required by the statutory provisions to make an order to block or unwind the merger.

To ensure the measure is effective, the amendments define ‘foreign power’ to capture a wide variety of actors, including senior members of a foreign government, officers of a governing political party acting in a private capacity as well as public bodies controlled by the foreign states. The legislation will also apply to persons associated with a foreign power to ensure that we are capturing all possible ways in which a foreign state could seek to control or influence a UK newspaper or a news magazine. Investments made directly by a foreign state, in and of itself, in a newspaper of any size will be banned in future under this new regime.

It is, however, essential that these new measures do not have undesired effects in relation to wider investment in UK media and business. The government therefore gave a commitment to introduce an exception from the regime for investments made by state owned investors up to a maximum threshold set by regulations made under the affirmative procedure. This would apply to investments by state-owned investment vehicles, such as sovereign wealth funds, pension funds or similar as defined by the regulations. The government also intends to exclude small shareholdings or retail investments made by associated persons in investment funds which hold financial stakes in UK newspaper enterprises.

The government gave commitments to bring these regulations forward after Royal Assent of the DMCC Bill. This technical consultation - which we are launching before Royal Assent - is intended to provide an opportunity for newspapers businesses and other interested stakeholders to comment on the draft regulations.

2. Policy considerations and questions

Exception for state owned investment vehicles and definition of state owned investors

The government intends to use powers in the new legislation to modify the restriction on ownership, control or influence of UK newspapers and news magazines by a foreign power to include an exception for state owned investment organisations (SOIs). The modifications are set out in the draft regulations.

Under the current wording of the legislation, the definition of foreign power is based on the definition in s32 of National Security Act 2023 but includes, among other things, heads or senior members of a foreign government or an agency or authority of a foreign government, and officers of a governing political party of a foreign government, acting in their private capacity or their families or other associated individuals investing their private wealth directly or through companies or organisations that they have an interest in.

This definition will capture investment via state owned investors such as sovereign wealth funds and public pension reserve Funds (PPRFs). The policy intention, however, is that investment of this type should be allowed, up to (and not beyond) a percentage of the shares or the voting rights in the newspaper owner: ensuring the foreign state investment organisation could not have influence over the business of a UK newspaper. The aim here is to ensure that the measure is proportionate, and to limit any potential chilling effect of the policy on wider foreign inward investment.

New powers introduced by Digital Markets, Competition and Consumers Bill, including the power in Schedule 6B, paragraph 15 to the Enterprise Act 2002, will - once the Bill is enacted - be exercised to create exceptions for these state owned investors (SOIs) (including sovereign wealth funds).

To define a ‘State owned investor’ we will be using a purposive test, composed of five conditions, in order to distinguish an SOI from a foreign state and also from private sector businesses who are not subject to the requirements unless there is a direct or indirect influence from a foreign state. The detailed conditions are set out in Para 2C of the new Part 1A of Schedule 6B to the Enterprise Act 2002:

Condition 1: that the State Owned Investor (SOI) is wholly owned or controlled by a foreign power i.e a foreign power holds 100% of voting rights or shares or has the ability to appoint or remove a majority of officers in the SOI

Condition 2: that the trustees of a trust or members of a partnership or unincorporated association, which holds 100% of the shares or voting rights in an SOI, or which holds the right to appoint or remove the majority of the SOI’s officers or to direct or control, or actually directs or controls, the SOI’s activities, are subject to direction or control of a foreign state

Condition 3: that the principal activity of the SOI is to make or manage investments and that this includes investments in other countries or territories

Condition 4: that the principal source of funds for the investment by the SOI is the foreign power

Condition 5: that the sole purpose of the investments is to benefit the foreign power or its people, or, in the case of a public pension fund, the fund’s beneficiaries

We would welcome comments on the proposed definition of state-owned investor and whether the five conditions, which do overlap, capture the full range of organisations that are generally regarded to be sovereign wealth funds or other state-owned investors.

The level of threshold and its application to diversified businesses

The government announced on 26 March 2024 that the exception allowing SOIs to acquire an interest in a UK newspaper or news magazine would be set at 5% of total shares or voting rights in a UK newspaper enterprise.

However, there may be circumstances where newspaper enterprises are part of a much larger diversified group of enterprises. A parent company of the newspaper enterprise may wish to develop the other parts of their business in partnership with SOIs. In this scenario, a straight 5% limit may disincentivise investment into the wider business, where there is no risk of foreign state influence in the newspaper aspect of the business. This would be an unintended consequence of the policy.

We therefore propose to permit SOI investment in newspaper enterprises within a diversified business to a slightly higher level. Where the following conditions are satisfied, the SOI would be permitted to take a shareholding of up to 10% of shares or voting rights in the newspaper owner:

• the UK newspaper business accounts for 20% or less of the group’s global turnover in the most recent qualifying period of 12 months; and

• the SOI has no shareholding at all in the company that directly operates the UK newspaper business

In all other cases, the government intends to limit the level of shares or voting rights that an SOI can hold to 5% total available shares or voting rights in the newspaper owner.

We would welcome views on the diversified business exception and whether the current drafting achieves our stated aims.

Exception for retail investment products

The FSI regime relies on a wide definition of foreign power which includes individuals who are senior officials within a foreign government and associated persons which includes children and other family members of such officials.

This could potentially bring in investments held by associated persons in legitimate investment vehicles, such as Individual Savings Accounts (ISAs) or a Self Invested Personal Pension Schemes (SIPPs) where the underlying investment fund holds shares in a newspaper enterprise. This would be the case even if the collective investment fund had a diversity of owners and was managed by a third party investment manager. If this issue is not addressed, the new FSI regime may be invoked in numerous cases where small investments have been made involving shares in UK newspapers by associated persons on a perfectly legitimate basis.

To avoid this situation, we intend to create an exception in relation to all investments held in a UK or an overseas investment fund (and covering products such as ISAs and SIPPs) by any person deemed to be an associated person by virtue of s127(4)(a)-(c) of the Enterprise Act 2002. This would cover spouses, other family members, trustees and business partners associated with a foreign state (as defined in new s70E of the Enterprise Act 2002). The intended effect of this exception is that a foreign power will not be treated as being able to control or influence the policy of a newspaper owner simply because an associated person has made an investment in a legitimate investment fund which owns shares in a newspaper owner.

We would welcome views on the scope of this exception and whether there is a case to go further and exclude all investments in UK newspaper enterprises by UK and international investment funds where there is a genuine diversity of ownership, including where a foreign power has invested directly in the fund.

We have included a broad definition of investment funds to reflect the wide variety of investment vehicles that may otherwise be caught by these provisions and there will be a significant degree of overlap which is intentional. The definition covers UK and international investment funds. The definition includes:

• investment funds as defined in s236(1) of the Finance (No. 2) Act 2023

• arrangements that amount to a collective investment scheme (see section 235 of the Financial Services and Markets Act 2000)

• arrangements that amount to a collective investment scheme (see section 235 of the Financial Services and Markets Act 2000)

• collective investment undertaking within the meaning of regulation 3 of the Alternative Investment Fund Managers Regulations (SI 2013/1773)

This definition is qualified by a requirement that an investment fund should have a genuine diversity of ownership to benefit from the exception. This would be the case where the fund meets conditions A to C in regulation 75 of the Offshore Funds (Tax) Regulations 2009 (S.I. 2009/3001) read with regulation 76 of those Regulations, or regulation 75(5) applies to it.

We would welcome views on whether the current drafting of the regulations meets our policy intention to exempt investments made in investment funds holding shares in UK newspaper enterprises and through which an associated person may invest.

Exception for small shareholdings (up to 0.1%) by an associated person

As the regime is currently drafted, the acquisition of any shares by an associated person in a UK newspaper would trigger the requirement for regulatory action. However some transactions only result in very small shareholdings, some less than 0.1%.

To avoid the need to review numerous and low-level transactions for persons associated with a foreign power by virtue of sections 127(a) to (c) of the Enterprise Act 2002, we intend to create a de minimis threshold whereby these categories of person may own a shareholding in a UK newspaper of up to 0.1%. Given shareholding at this level poses very little risk of granting the purchaser any tangible influence, our policy position is that investment at this level by an associated person within these categories should not trigger the FSI regime.

The draft regulations state that a foreign power is not to be treated as being able to control or influence the policy of a newspaper where the the investor in question is an associated person within the meaning of section 127(4)(a) to (c) of the Enterprise Act 2002 and holds no more than 0.1% of the shares or the voting rights in the newspaper owner.

We would welcome views on the structure of the de minimis limit and whether the drafting fully captures the policy intention.

We would also welcome broader views regarding exemptions to the Foreign State Intervention (FSI) regime, is there anything else that the current proposals should consider?

3. Timings

The consultation will run for 2 weeks from 9 May 2024 until 11:59PM on 23 May 2024. The consultation will only be open for two weeks rather than the standard 12 week period. This is due to the need to get the regulations in place as soon as possible after Royal Assent on the Digital Markets, Competition and Consumers Bill.

4. How to respond

If you have any comments on this technical consultation please email them to foreign-state-news@dcms.gov.uk

When sending your comments please include contact details (your name and either email address, postal address or telephone number) so that we can follow up if clarification is needed.

5. Consultation outcome

To support transparency in our decision-making process, a summary of the responses to this consultation will be made public. No names of individuals or organisations who respond to the consultation will be publishe

6. Privacy notice

Data Controller for your personal information

The Department for Culture, Media and Sport (DCMS) is the Data Controller in respect of any personal information you provide in your answers. Your personal data is being collected and processed by DCMS, which processes your personal data on the basis of public tasks. We will hold the data you provide for a maximum of 1 year. You can find out more here.

Personal data collected as part of this consultation

We will process the names and addresses and email addresses provided by respondents, and information about which organisations respondents belong to, where this is provided.

We will also process the information that you provide in relation to your views on the proposed changes contained in the consultation, which may of course include commercially sensitive data. When the consultation ends, we will publish a summary of the key points raised on the Department’s website​. This will include a list of the organisations that responded, but not any individual’s personal name, address or other contact details. All responses and personal data will be processed in compliance with the Data Protection Act 2018 and the UK General Data Protection Regulation (UK GDPR).

Publication of responses

If you want some or all of the information you provide to be treated as confidential or commercially sensitive, it would be helpful if you could clearly identify the relevant information and explain why you consider it confidential or commercially sensitive.

Please note that DCMS may be required by law to publish or disclose information provided in response to this consultation in accordance with access to information regimes: primarily the Freedom of Information Act 2000, the Environmental Information Regulations 2004, the Data Protection Act 2018 and the UK GDPR. If we receive any request to disclose this information, we will take full account of your explanation, but cannot give you an absolute assurance that disclosure will not be made in any particular case where no other lawful exemption to disclosure applies. We will not regard an automatic disclaimer generated by your IT system as a relevant request for these purposes.

Your data protection rights

Once you have submitted your response to the consultation you will not be able to withdraw your answers from the analysis stage. However, under the Data Protection Act 2018 (and the UK GDPR), you have certain rights regarding your personal data and have it corrected or erased (in certain circumstances), and you can withdraw your consent to us processing your personal data at any time.

The Information Commissioner’s Office (ICO) is the supervisory authority for data protection legislation, and maintains a full explanation of these rights on their website. DCMS will ensure that it upholds your rights when processing your personal data.

Data Protection Officer contact details

The contact details for the Data Controller’s Data Protection Officer (DPO) are:

Data Protection Officer
The Department for Culture, Media & Sport
100 Parliament Street
London
SW1A 2BQ

Email: dpo@dcms.gov.uk

If you would like to exercise your rights under data protection legislation, or you’re unhappy with the way we have handled your personal data and want to make a complaint, please write to the department’s Data Protection Officer using the contact details above.

If you need any further information please contact us at dcmsdataprotection@dcms.gov.uk

Information Commissioner’s Office contact details

You have the right to lodge a complaint to the Information Commissioner’s Office about our practices, to do so please visit the Information Commissioner’s Office website or contact the Information Commissioner at:

Information Commissioner’s Office
Wycliffe House
Water Lane Wilmslow
Cheshire SK9 5AF

Telephone: 0303 123 1113 Textphone: 01625 545860 Monday to Friday, 9am to 4:30pm

Annex: Draft regulations

Draft Statutory Instruments: The Enterprise Act 2002 (Mergers Involving Newspaper Enterprises and Foreign Powers) Regulations 2024