Why new research funding regulation increases pressure on universities

The UK’s research and development (R&D) landscape has long captured the attention of foreign investors. In fact, Foreign Direct Investment (FDI) today makes up a significant portion of funding into universities’ R&D projects (£1.2 billion to be exact).

The UK has a world-leading status in R&D, and the higher education sector is ripe for global investment. But that doesn’t come without its risks. In recent years, there have been growing concerns about hostile state actors exploiting the UK’s latest advancements.

With this in mind, a new regulation has been introduced that makes R&D partnerships with universities more secure: the National Security and Investment Act (NSIA). This gives the UK government power to screen, and intervene in, R&D investment which could undermine national security. So, how can universities best prepare and stay compliant with this regulation?

What universities should know about the National Security and Investment Act (NSIA)

Since universities collaborate with researchers and institutions from around the world, it often involves sensitive research areas or technologies deemed critical to national security. Because of this, universities need to consider the implications of their collaborations and, if necessary, notify the government.

The NSIA gives the UK government the authority to evaluate and intervene in the partnership. For example, if a university were to collaborate with a foreign entity that’s linked to a nation of concern, it might attract the government’s attention.

Between April 2022 and March 2023, 866 deals were referred to the government. Ministers used national security powers to intervene in 15 transactions, eight of which involved Chinese-linked investment in British companies.

The majority of deals proceeded without any issues. However, for universities aiming to secure research funding in certain areas, it’s become necessary to demonstrate a comprehensive understanding of potential partners and their backgrounds.

As Professor Karen Holford CBE FREng, Vice-Chancellor and Chief Executive of Cranfield University puts it: “This isn’t an optional extra; it’s essential. The reputation of UK universities depends on it.”

What does this look like in practice for universities? 

Universities often conduct research in areas such as cybersecurity, artificial intelligence and biotechnology, which may have national security implications. If a university’s research leads to the creation of a commercial venture that operates in these 17 sensitive areas of the economy, then foreign investments could be subject to scrutiny.

If a foreign investor wants 25% or more of shares, they need approval from the Department for Business, Energy & Industrial Strategy (BEIS). This also applies if investors want to increase their ownership, with extra checks happening at the 50% and 75% marks. After informing the government, a unit within BEIS will decide whether to approve the investment or take a closer look if it could be a risk. 

Another is getting approval from the BEIS before sharing ‘ideas, information, or techniques’ with foreign entities. This would go through the same assessment process as the mandatory system, but there aren’t any consequences if universities don’t follow this procedure.

New expectations from research funders

In the wake of the NSIA’s introduction, leading research funders like UK Research and Innovation (UKRI) and the National Institute for Health and Care Research (NIHR) have implemented more rigorous due diligence requirements for partnerships and collaborations.

UKRI, for example, has issued the following guidance:

UKRI require research organisations that are involved in partnering with overseas organisations to have policies and processes in place regarding due diligence and to carry out the process using a risk-based approach. Research organisations will be asked to evidence this as part of the UKRI funding assurance process. 

In short, universities need to build the NSI Act into existing due diligence practices, take a risk-based approach when partnering with overseas entities, and have policies in place to demonstrate compliance.

Challenges posed by the NSIA for universities

The intensified due diligence that universities now need to conduct is a substantial step up. But universities need to find the resources to identify and mitigate risks, access appropriate databases, gain security clearances, and train the staff involved. 

This could quickly lead to capacity issues, as highlighted by Ashley Lenihan of the London School of Economics: “My primary concern would be that the institutional capacity and resources behind the review regime are not made clear… an inter-agency review team is needed. You need enough staff to actually handle and catch all the risks.” 

Swift reporting and assessment

Universities need to promptly identify potential risks with a partnership, assess their implications, and determine whether reporting to the government is necessary. This adds to the already complex process of managing international collaborations. As universities engage with more international investors and entities, due diligence has to become more efficient. 

Reputation 

While penalties are the main punishment for not following procedures, universities also need to consider the impact on their reputation. When universities take the initiative to thoroughly vet research collaborations, partnerships, and funding sources, it sends a clear message that they’re committed to upholding ethical standards and safeguarding national interests. 

Stakeholders are more likely to place their trust in institutions that demonstrate a proactive approach to due diligence, seeing them as reliable and responsible contributors to societal progress. Having a reputation for stringent due diligence and ethical research collaborations is incredibly attractive for individuals seeking an environment of academic integrity.

How universities can comply with the NSIA 

Now the NSIA has been rolled out, universities need to think about how they can ensure compliance with the regulation. Identifying sensitive areas, technologies, and potential collaborations that might raise concerns under the NSIA. This could involve reviewing government guidelines, assessing the nature of research projects, and investigating the background of the partner.

Manual due diligence would involve gathering information from various sources, including search engines, screening databases, publications, industry reports, news articles, and other media. Analysing this information to identify potential risks and evaluating their implications on national security is a time-consuming task, especially considering the dynamic and ever-changing nature of technology and the geopolitical landscape.

The constraints of manual research coupled with the NSIA’s extensive requirements could delay research collaborations with foreign partners. Universities may need to allocate additional resources to comply with the Act, which could impact their budgets and staffing arrangements. To avoid this, universities should develop plans to manage the NSIA’s implications effectively. The solution? Artificial Intelligence (AI).

How Xapien can help universities stay ahead 

As universities adapt, they need to balance compliance with growth, and that requires having the right technology. Powered by AI, Xapien is a research and due diligence tool that collects and processes enormous amounts of data from the entire indexed internet. This includes screening data sets, news articles, and information found in online publications. By automating data collection and analysis, Xapien significantly reduces the manual groundwork for research teams.

Rapid risk identification

Xapien can evaluate the data it collects and identify potential risks in minutes. This accelerates the process of risk assessment, allowing universities to promptly assess the potential implications of partnerships and investments.

Resource management

Xapien alleviates the burden of manual research, enabling universities to allocate their human resources more effectively. This ensures that staff members can focus on more nuanced tasks that require human judgement, while Xapien handles the data-intensive aspects of due diligence.

Comprehensive reporting

Xapien generates executive-style reports that set out its findings and risk assessments in a clear and concise manner. This enables universities to make informed decisions swiftly and facilitates communication between different departments.

Adaptable and scalable

Xapien can adapt to changing requirements and accommodate a growing number of due diligence reviews. As the volume of collaborations and investments increases, universities can rely on Xapien to handle the expanding workload.

Curious about how Xapien can help your university stay compliant? Book a chat with our team here.