The National Security and Investment Act 2021(the “NSI Act”) came into force on 4 January 2022 and applied retrospectively to all deals from 12 November 2020 onwards. Investments from that date can potentially be ‘called in’ for scrutiny by the Government. Other than within the sector definitions for mandatory notification (see below) there are no minimum turnover, market share or size of transaction thresholds so the NSI Act is generally very wide and catches a large number of investments.

The focus is on protecting national security only and the UK Government has made clear that it wants to encourage foreign direct investment into the UK.

There is no definition of “foreign investor” in the Act and the rules apply equally to investment from within the UK as they do to investment from outside the UK.  However, when looking at an investment and the potential for a national security concern, the Government will look at the risk profile of the investor.  As such investments from investors who are in states which may be deemed by the UK Government to be 'hostile' or high risk may come under more scrutiny than others.

There are two key parts to the NSI regime: a mandatory notification regime and a voluntary notification regime. 

Mandatory notification is required when the target business is within one of 17 key sensitive sectors and where the relevant thresholds are met. The 17 sectors are:

• advanced materials;
• advanced robotics;
• artificial intelligence;
• civil nuclear;
• communications;
• computing hardware;
• critical suppliers to the Government;
• cryptographic authentication;
• data infrastructure;
• defense;
• energy;
• military and dual-use technologies;
• quantum technologies;
• satellite and space technologies;
• suppliers to the Emergency Services;
• synthetic biology; and
• transport.

These sectors are defined in the secondary legislation, see - NSI: Regulations 2021 (https://www.legislation.gov.uk/uksi/2021/1264/contents/made) - and are subject to future change by the Government to respond to changes in national security risk.  

Voluntary notification is required when the relevant thresholds are met and there is also a potential risk to national security – so the voluntary part of the regime is not sector-specific. There is no set definition of ‘national security’.

Thresholds or ‘trigger events’ should be checked carefully and are described more fully in our flowchart National-Security-and-Investment-Act-Flow-Chart but are generally as follows:

• acquisition of shares or votes in an entity exceeding 25%, 50% or 75%;
• acquisition of voting rights by which resolutions can be passed or blocked;
• acquisition of material influence over an entity’s policy (voluntary regime only);
• acquisition of a right or interest in an asset providing an ability to: i) use the asset (or use it to a greater extent than prior to the acquisition); or ii) direct or control how the asset is used (or direct or control how the asset is used to a greater extent than prior to the acquisition) (voluntary regime only).

It is important to note that the mandatory part of the regime applies to mergers and acquisitions only and the voluntary regime applies to mergers and acquisitions and also the purchase of assets (including intellectual property) and land so is potentially very wide.

Under the NSI Act notification must be made if a matter falls within the mandatory regime or if there is a national security risk and a trigger event which means notification under the voluntary regime is needed.  In addition, the Secretary of State has wide powers to ‘call-in’ transactions for scrutiny and also has wide information-gathering powers.

There will be three key aspects looked at when determining whether or not to call in a transaction:

• Target risk: the nature and business of the target and whether that could result in a national security risk;
• Trigger event risk: the control being acquired and how that could be used in practice; and
• Acquirer risk: the extent to which the acquirer raises national security concerns.

Yes, for any matter that needs to be notified under the mandatory part of the regime approval is required before a deal can be complete and any deal that goes ahead without approval (where mandatory notification is needed) will be null and void (although it can subsequently be ratified by the Secretary of State).

For a notification that does not fall within the mandatory regime, notification and a request for approval are not strictly necessary but may be preferable as they will allow the deal to go ahead with certainty that it won’t be called in at a later date.

Not applicable. 

To date, the UK Government has not reviewed or blocked many deals at all and has had a fairly light-touch approach to scrutiny of FDI.  However, the passing of the NSI Act shows the intention of the Government to review more transactions and investments. Despite that, the Government has said that it expects to block a deal rarely and the intention is very much to encourage inward investment into the UK but with adequate national security measures in place.

Over the first year of the NSI Act, only 15 deals were blocked, unwound or conditionally approved. While only a small number of deals were blocked, the UK Government issued call-in notices to investigate over 60 deals. Overall, this reflects the Government's intention that it would rarely block investments.

As the NSI Act is still relatively new, the UK Government has recently published guidance to provide clarification on the seventeen sectors and when they may apply. It is likely that more guidance will be published as questions are asked and the implications of the legislation become clearer.