The United Kingdom implemented an expansive national security regime on 4 January 2022, marking a significant milestone following the passage of the National Security and Investment Act 2021 (NSI Act). This legislation signifies a global inclination toward heightened scrutiny of national security concerns. The NSI Act establishes an independent framework dedicated to examining and intervening in acquisitions and investments within the UK, aimed at safeguarding national security.
NSI regime notification systems
The NSI regime has two notification systems: one that’s mandatory and one that’s voluntary. The mandatory system covers transactions in 17 sensitive sectors, while the voluntary one deals with transactions that might raise national security concerns. The government’s power to review transactions has expanded to include various deals like mergers, acquisitions, and even buying minority stakes or assets like land and intellectual property. Even though the NSI regime started on 4 January 2022, the government can look back at transactions since 12 November 2020. Not complying with the NSI rules can lead to serious consequences like fines based on how much money a company makes, criminal charges, or even voiding transactions that should have been notified.
The NSI regime consists of two main systems:
- Mandatory Notification: Transactions meeting certain criteria must be notified for approval before completion. The mandatory notification test consists broadly of two elements: (a) the presence of a trigger event; and (b) the involvement of a target entity operating within a sensitive sector. Trigger events are basically the acquisition of a certain percentage of voting rights or shares in a qualifying entity.
- Voluntary Notification: While not mandatory, parties may choose to voluntarily notify transactions for approval, and the government reserves the right to call-in these transactions. Furthermore, irrespective of whether the transaction involves a target entity in a sensitive sector, trigger events apply within the voluntary framework. These trigger events include the acquisition of “material influence” over a qualifying entity’s policy or of a right or interest in, or pertaining to, a qualifying asset that enables the usage or control of the asset.
The 17 sensitive sectors
Under the NSI regime, the government is expected to be more proactive in intervening in transactions, particularly those involving entities or assets in sectors deemed sensitive to national security risks. While the NSI Act outlines the 17 sensitive sectors, the regime’s powers remain flexible to address concerns across various industries.
Here are the 17 sensitive sectors:
- Advanced Materials
- Advanced Robotics
- Artificial Intelligence
- Civil Nuclear
- Communications
- Computing Hardware
- Critical Suppliers to Government
- Critical Suppliers to the Emergency Services
- Cryptographic Authentication
- Data Infrastructure
- Defence
- Energy
- Military and Dual-Use
- Quantum Technologies
- Satellite and Space Technologies
- Synthetic Biology
- Transport
NSI regime assessment criteria
Determining whether a transaction falls within the NSI regime involves assessing various factors, including the nature of the target entity or asset, the level of control acquired, and the sector in which the entity operates.
The Secretary of State issued a final statement in November 2021 outlining the use of the power to call in transactions for national security review. This guides parties on whether to make voluntary notifications and the likelihood of clearance or full assessment. Transactions in any sector may be reviewed, but those in sensitive sectors or closely linked to them are more likely to be called in.
There are three key risk factors to determine the likelihood of a transaction being called in:
- Target or asset risk: Assessing whether the target entity or asset is currently being used or has the potential to be used in a manner that jeopardises national security;
- Acquirer risk: Evaluating whether the acquirer possesses characteristics showing present or potential national security risks associated with their control over the target entity; and
- Control risk: Determining whether the level of control being acquired or already acquired presents a risk to national security, where a heightened level of control may amplify the national security risk.
NSI regime notification process
Mandatory and voluntary notifications are made via the NSI electronic portal to the ISU, who is responsible for the daily operation of the regime. However, the Secretary of State for BEIS determines whether to call in a transaction and conclusion of their review.
An initial review is conducted within 30 working days after a notification. Subsequently, the Secretary of State is required either to issue a call-in notice for a full assessment or decide to take no further action (i.e. clear the deal) within 30 working days. The full assessment lasts up to 30 working days, with an extension of 45 working days, and further voluntary extension if agreed between parties. The review process may be paused during a full assessment if additional information is required.
The following is important to note regarding the process:
- Mandatory notifications: Clearance from the Secretary of State must be obtained before the transaction proceeds. The Secretary of State retains the power to call in a deal within six months of becoming aware of the trigger event even if a notification has not been made; and
- Voluntary notifications: You have a choice on whether you wish to notify, but in saying that the Secretary of State can call-in a deal within six months after becoming aware and may do so up to five years after the transaction. The transaction will be subjected to a full assessment if called-in for review if it falls under the voluntary regime but no notification was made.
Download the PDF here – Do I need to make a notification under the NSI regime?
Enforcement of the NSI regime
Non-compliance with the NSI regime carries significant consequences, including voiding of transactions, civil and criminal penalties, and potential imprisonment for individuals. Furthermore, the Secretary of State possesses broad powers to address national security concerns arising from transactions, including imposing conditions, blocking deals, requiring completed acquisitions to divestment, or unwound. While most transactions are expected to be cleared without requiring remedies, the regime emphasises the government’s commitment to safeguarding national security interests.
How Moore Barlow can help
In this complex regulatory environment, Moore Barlow stands ready to provide support, guiding clients on whether a notification is necessary, identifying the appropriate notification to be made, and facilitating the notification process on your behalf. With our expertise and commitment, we can confidently steer clients through the NSI regime, ensuring compliance and safeguarding their interests in an increasingly scrutinised landscape of national security considerations.
More information
There are three primary guidance notes relevant to the NSI Act. These guidance notes can be accessed here:
