The National Security and Investment Act 2021 (NSIA) came into force on 4 January 2022, establishing new powers of Government oversight and intervention into investment in UK entities and assets, where this may affect national security. The NSIA strengthens Government powers, broadens the range of transactions which can be engaged, and fortifies those powers with robust criminal sanctions. Key elements of the regime are:
- Mandatory notification: where transactions exceed stated thresholds of ownership or control in identified sectors;
- Voluntary notification: where participants consider that national security concerns may be engaged;
- “Call-in” powers: where the Government identifies concerns within a defined period after a transaction.
The new regime will be administered via a new Investment Security Unit within the Department for BEIS.
The NSIA, subsidiary legislation and supporting guidance set out 17 qualifying sectors, and the types of services or activities which may engage the regime. In addition to obvious areas of critical infrastructure and defence, the areas affected include:
- Technology (including computer hardware, cryptographic authentication, artificial intelligence and data infrastructure);
- Synthetic biology;
- Suppliers to the emergency services, including suppliers of communication systems to ambulance services.
The regime applies to UK companies, limited liability partnerships and unincorporated partnerships, associations and trusts; it will also apply to entities formed outside of the UK if they carry on activities in the UK.
The NSIA regime engages a broader range of transactions than its predecessor mechanism, and there is no minimum threshold value below which powers are not engaged. In addition to mergers and acquisitions, the new regime applies to the following “trigger events”:
- Minority investments where a shareholding in excess of 25% is acquired, or where a shareholding increases to over 25%, 50% or 75%;
- Acquisition of voting rights of over 25% or increasing voting rights to over 25%, 50% or 75%;
- Acquisitions allowing the exercise of “material influence” or allowing a resolution to be passed or prevented;
- Acquisition of qualifying assets including land and (of particular relevance to technology investments) intellectual property.
The call-in regime applies retrospectively to transactions which completed from 12 November 2020.
Notification and intervention
The NSIA provides for:
- Mandatory notification: where a transaction would lead to a “trigger event” in relation to an entity in one of the qualifying sectors, completion is prohibited until approval has been granted;
- Voluntary notification: where a “trigger event” is in progress or contemplation which may affect national security;
- Call-in: by Secretary of State for Business, Energy & Industrial Strategy (BEIS), where it is reasonably suspected that a trigger event may give rise to national security concerns. A transaction can be called in up to 6 months after the Secretary of State becomes aware of it (and up to 5 years after completion)
The NSIA gives the UK Government the power to:
- Call in and assess transactions;
- Require the provision of information relevant to the use of the Government’s powers under the NSIA;
- Make interim orders to prevent a transaction proceeding pending an assessment;
- Approve, impose conditions on or block a transaction;
- Order the “unwinding” of a transaction undertaken without approval.
Sanctions for non-compliance
The NSIA provides for:
- A transaction requiring mandatory notification to be void if complete without approval;
- The imposition of civil fines of up to the higher of £10m/5% of turnover for non-compliance, including competing a notifiable transaction without approval. This can include a “daily rate” fine (of up to £200,000/0.1% of turnover per day) to incentivise rapid compliance;
- Civil enforcement including injunctions to enforce compliance;
- Criminal sanctions for non-compliance (including completion of a notifiable transaction without approval, non-compliance with an order, or non-compliance with a requirement to provide information), with penalties including fines, imprisonment and disqualification as a director.
What does this mean?
Any transaction involving investment into one of the qualifying areas – including, for example, suppliers of non-public communication systems to ambulance services – will now require careful consideration of
- The reporting obligation;
- Where mandatory notification is not indicated, the risk of call-in;
- The potential impact of the reporting regime on the transaction timeline.
This information is based on information available as of 4 January 2022. The information set out does not constitute tailored legal advice. For specific queries and/or issues, we recommend that legal advice is obtained on a case-by-case basis.