On 29 April 2021, the UK National Security and Investment Bill was granted Royal Assent and has therefore formally become law. The new National Security and Investment Act (NSIA), is not yet in force but it is expected to become effective later this year.
The NSIA establishes a new security regime which will strengthen the UK government’s ability to investigate and intervene in any corporate deals and investments to protect national security. It will allow the UK Government to review and approve foreign investments and will capture qualifying transactions involving the acquisition of shares and assets. It is a standalone regime and separate from the UK merger control regime. However, just as with merger control, it should certainly be front of mind in considering the regulatory implications and timetables of any corporate transactions as approval will be required for certain transactions prior to closing.
The new regime and mandatory notifications
The NSIA introduces a new mandatory notification regime for transactions in 17 sensitive sectors. Businesses in these sectors such as advanced robotics, quantum technologies, transport, communications, space and defence will have to notify the Government of any transactions where one of the ‘trigger events’ set out in the Act occurs. This notably includes transactions where a person acquires more than 25% of the shareholding or voting rights in a relevant entity (although transactions involving the acquisition of lower shareholdings which result in a “material influence” over the target entity are also captured by the regime). There are no minimum financial or market share thresholds.
Alongside the mandatory notification regime, the NSIA introduces a voluntary notification process for transactions where a ‘trigger event’ (including the acquisition of a qualifying asset, including land, tangible moveable property and intellectual property) occurs and matters of national security are involved but where the entities do not fall into one of the 17 sensitive sectors. The Secretary of State will also have the power to ‘call in’ any anticipated or completed deals (up to five years post-closing) that could result in a risk to national security.
The NSIA will apply retroactively to any transactions or investments made from 12 November 2020 onwards. Any such transaction may be “called in” by the Government for review for up to five years after the commencement date of the NSIA (or 6 months where the Government has been made aware of the deal). The NSIA will be administered by the Investment and Security Unit (ISU), within the Department for Business, Energy and Industrial Strategy and the ISU has already been busy providing informal guidance on transactions.
Importantly, the NSIA also includes substantial criminal and civil sanctions for non-compliant businesses, such as fines of up to £10m or 5% of an annual revenues and prison sentences of up to five years. Transactions can also be declared void.
You can find more information on the NSIA regime here.
Recent changes to the new security regime
Minor changes have been made to the regime along the way (during the passage of the draft legislation), including:
- Refining and narrowing the scope of the 17 sensitive sectors following a government consultation in January 2021. Several changes were made to definitions and certain key sub-sectors were removed from scope entirely, including government subcontractors and private electronic communications networks, services and associated facilities. For further information on the refined sectors, please see here.
- Another key change made in the last few months was to the acquired share/voting rights ‘control’ threshold which applies to transactions between entities in one of the 17 sensitive sectors. Originally this minimum threshold was set at 15%, however, following feedback from stakeholders that this number was too low and therefore onerous, the threshold was increased to 25%.
The Government has indicated that it intends to work with stakeholders to continue developing and refining the regime over the coming months, particularly with regards to any guidance and secondary legislation needed. We can expect the regime to be effective in the Autumn 2021.
Businesses that would potentially be affected by the changes must therefore ensure that they are familiar with the provisions and obligations and keep a close eye on any developments. We are standing by to assist.