National Security and Investment Act 2021 (NSIA) – what the latest report from Government reveals
18 September 2024
On 10 September the Cabinet Office published its National Security and Investment Act 2021 – Annual Report for the period 1 April 2023 – 31 March 2024. This is the third report on the UK’s investment security screening regime since NSIA came into force on 4 January 2022. The report gives a useful insight as to how the regime impacts on corporate transactions.
What is the NSIA regime?
The NSIA enables Government to scrutinise and intervene in transactions that it views as potentially harmful to the UK’s national security. This is principally effected via a notification procedure, though the Government also has the power to call in a transaction which has not been notified. Most notifications are made under the “mandatory regime” which relates to acquisitions of entities whose activities fall within any one of the prescribed 17 high risk sectors which are very broadly defined. Once notified, a transaction will either be cleared or “called in” for further scrutiny. The Government may apply conditions to a called in transaction to address national security concerns; in extreme cases it may block a transaction altogether.
What does the report tell us?
Key findings of the report are:
- The number of NSIA notifications is increasing. In this period the Secretary of State received 906 notifications compared to 865 notifications in the previous 12-month period
- Of the 847 notifications the Government reviewed in the period, 95.6 % (810) were cleared to proceed. Only 37 notifications (4.4%) were formally called in for further scrutiny
- Of those transactions called in, the Government issued a total of 33 final notifications (a “no further action” notice clearing the transaction). It issued five final orders imposing conditions to the transaction to mitigate against national security risks. No transactions were blocked or ordered to be unwound in the period
- Of those transactions called in, the highest proportion related to those associated with the defence sector (34%) followed by military and dual use (29%). This was also the case in the previous period where the proportions were 29% and 37% respectively
- In terms of origin of investment (location of headquarters of acquirer and ultimate beneficial owner), China remains a significant feature with 41% of call-in notices relating to acquirers associated with China. This was followed next by United Kingdom (39%) and USA (22%).
The report demonstrates that whilst more transactions are being notified for approval, very few are heavily scrutinised or the subject of mandatory conditions. Essentially, this reflects the Government’s original intention to the regime: a broad- based screening system whereby a large number of deals are caught but the vast majority are cleared quickly without formal call-in.
The Birketts view
Inevitably, the NSIA regime can add considerable uncertainty to transactions as well as potential delays to deal timetables. This uncertainty is also increased by the very broad descriptions assigned to certain high-risk sectors. Defence, in particular, covers a variety of activities which are not immediately obvious as having links to defence or national security; this in part accounts for the high number of notifications in this sector. It’s also clear that UK acquirers should not assume that they are immune from scrutiny; a significant proportion of call-in notices related to UK acquirers.
How Birketts can help
Our team of corporate lawyers is experienced in screening transactions for NSIA implications and helping with the notification process. We can advise both buyers and sellers as to the legal and practical consequences of an NSIA affected transaction including its potential effect on deal timetable.
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Pamela Blore
Services
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at September 2024.