The UK's new NSI regime

The UK’s new, more extensive national security regime will enter into force on January 4, 2022. This follows publication of the National Security and Investment Bill on November 11, 2020, which became the National Security and Investment Act 2021 after receiving Royal Assent on April 29, 2021. The new regime is the culmination of a number of years of discussion of the UK’s approach to national security matters, including a White Paper in 2018. It reflects a global trend for more intervention in and scrutiny of national security issues (as demonstrated, for example, by the recent EU FDI Regulation).

Headline points to note are:

• A significant expansion of the types of transactions covered by national security reviews – moving beyond mergers and acquisitions to include a much broader range of deals including minority investments, acquisitions of voting rights and acquisitions of assets including land and IP (although investigations of assets are expected to be rare).
• The UK Government has the power to review (call-in) relevant deals that take place from any point after the date the Bill was published (i.e. deals entered into or that complete on or after November 12, 2020) although the full regime will only be in place once the Act enters into force on January 4, 2022.
• Failure to comply may result in heavy sanctions including turnover-based fines and criminal liability, as well as the risk of transactions subject to mandatory notification being void.

The expectation is that the Government will be more likely to intervene in transactions under this new regime than has been the case under the national security provisions of the Enterprise Act 2002 (which will fall away when the Act comes into effect). Concerns are more likely under the new regime if a transaction involves the acquisition of an entity or asset in (or closely linked to) 17 specified sectors of the economy, although the new powers are deliberately flexible to address concerns in any sector and evolving national security risks (with national security not defined).

The Act introduces a significant change in approach in terms of the requirement on companies to notify deals under mandatory elements of the new regime, which are very broad and are backed by the power to impose significant financial and criminal penalties for failure to comply. However, the final mandatory regime is narrower than it might otherwise have been – the lowest percentage threshold triggering a mandatory notification under the Act requires an acquisition of more than 25 per cent of votes or shares in a qualifying entity, whereas the Bill had proposed a lower threshold of 15 per cent.

The key points for companies to consider are: (a) the need to alert the Government of any transactions entered into on or after November 12, 2020 (or conditional deals entered into prior to that date but where a “trigger event” might still occur) to manage the risk of those deals being “called-in” for retrospective review once the Act comes into force; and (b) looking forward, how the regime will need to be factored into future deal timelines and documentation to manage the risks of delay or Government intervention.

We summarise the key points of the new regime in our recent publication. You can also download our decision tree to help identify transactions falling within the scope of the new regime.