The National Security and Investment Act 2021 received Royal Assent on 29th April 2021 and represents the biggest change to the UK’s investment screening regime in 20 years.
The scheme aims to bring the UK’s inward investment screening into line with the world’s major economies, and to reaffirm the UK’s status as an attractive investment destination.
The regime will strengthen the government’s ability to investigate and intervene in deals involving a foreign buyer, granting it greater powers to screen, impose conditions upon, and potentially block transactions that could threaten “UK national security”.
The Act means that certain transactions (so-called ‘notifiable acquisitions’) must have Secretary of State approval prior to completion, non-compliance being a criminal offence.
What powers does the Act introduce?
A new mandatory notification and approval regime will be put in place for businesses in pre-determined sectors deemed to be more sensitive to national security risks – such as artificial intelligence, defence, energy, and data infrastructure.
In addition, there will be a voluntary notification regime for other businesses, broadly applying where control of a UK incorporated business or UK based asset passes.
Investors and businesses affected will be required to notify the Investment Security Unit, a new dedicated government unit, through a digital portal. However, until a mechanism or standard form of notification of such a transaction is devised (it is promised by the end of the year) those involved in potentially notifiable acquisitions will need to work out how to notify the Secretary of State and, for the voluntary regime, self-assess the extent to which the proposed transaction creates a national security risk.
The government will also have retrospective powers to ‘call in’ for review transactions completed since 12 November 2020.
The screening powers will also be extended to include assets like intellectual property as well as companies.
An incentive or deterrent for foreign investment?
As well as protecting national security, the measures are designed to make the investment screening process simpler and quicker for investors and businesses. The government claims investments will be screened within 30 working days, these timelines being set out in law for the first time.
“The Act represents a significant change to the UK M&A market, and requiring sellers and investors will need to ensure they take the new regime into account in international transaction planning. Although some practicalities have yet to be specified, consideration should be given to transactions currently in progress and those which completed since 12 November 2020.
As the bill moved through the legislative process there were repeated calls to narrow the scope of the regime and define ‘national security’. However, the government has resisted these calls, and the regime remains wide-reaching and open to interpretation.
Some believe the failure to define the parameters of ‘national security’ could allow for decisions on transactions to be influenced by political or economic considerations (not solely national security ones), which could also create uncertainty for investors.
Whilst the government clearly needs to protect national security interests, this needs carefully balancing with the risk of deterring foreign investment, particularly in a post-Brexit environment. The government claims the regime will boost foreign investment in the UK but, as with all legislation, it remains to be seen whether this will be achieved, and how ‘trigger happy’ the Government will be in using its powers”.