On 29 April 2021, the much-anticipated National Security and Investment Bill received Royal Assent which means that the Bill has now been enacted into law. The National Security and Investment Act introduces the UK’s first standalone foreign investment regime, which is focussed on protecting the UK’s national security (“NS&I regime”). The NS&I regime will replace the Secretary of State’s current powers to intervene in transactions on national security grounds under the Enterprise Act 2002.

Although the NS&I regime is expected to commence towards the end of 2021, the enactment of the Bill is a key milestone in the introduction of the new regime, which will bring the UK’s regime in line with that of its allies in the Five Eyes nations, including the US and Australia. We previously summarised the features and developments of NS&I regime here and here; however the enactment of the National Security and Investment Act warrants a timely reminder of the key elements of the regime, in particular:

• Mandatory regime – once the regime comes into force, ‘notifiable’ transactions involving the acquisition of qualifying entities in any of the 17 mandatory sectors will have to be notified to the Department for Business, Energy and Industrial Strategy (“BEIS”) and receive clearance prior to completion.
  • The threshold for a ‘notifiable’ transaction was recently revised from an acquisition of 15% or more of votes or shares in a qualifying entity to an acquisition of more than 25% of votes or shares in a qualifying entity.
  • In March 2021, the Government published its response on its consultation on the draft sector definitions of the mandatory regime. As a result of the consultation, many of the draft sector definitions were narrowed and refined with a view to make them clearer for businesses.
    
    
• Voluntary regime – transactions involving the acquisition of entities in all other areas of the economy can be voluntarily notified to BEIS if they involve a ‘trigger event’ (i.e. an acquisition of certain thresholds of shares or voting rights, material influence or a qualifying asset) and they may give rise to a national security risk. It is worth noting that transactions involving the acquisition of less than 25% of shares or votes in a qualifying entity that is active in any of the mandatory sectors may fall within the voluntary regime if this constitutes an acquisition of ‘material influence’.
  
  
• Call in power – once the regime comes into force the Secretary of State will have the power to ‘call in’ a transaction that is not notified, if it considers that it may give rise to a national security risk, within 6 months of becoming aware of the transaction provided this is done within 5 years of the ‘trigger event’ occurring. The Secretary of State will also have the power to retrospectively ‘call in’ transactions which complete during the period from 12 November 2020 to when the NS&I regime comes into force for up to 5 years from the commencement of the regime, however if the Secretary of State became aware of the transaction prior to the NS&I regime coming into force, the intervention period will be reduced to 6 months from the commencement of the regime.

What next? 

The Government will now introduce a series of statutory instruments required for the commencement of the NS&I regime together with accompanying guidance. For example, the Secretary of State intends to make regulations to specify the sectors subject to the mandatory regime and regulations specifying the form and content of a mandatory notification. The Government will work closely with investors and businesses to help them understand what the new regime entails. The Government also announced that it will create a new Investment Council which will act as an advisory body to the UK Government on foreign investment. The Investment Council will be made up of private sector senior leaders from around the globe in range of sectors including technology, energy and financial services, and will operate alongside the new Investment Security Unit, which will be a new unit within BEIS responsible for operating the NS&I regime.

In the meantime, BEIS encourages businesses to engage with it for informal discussions if there is a possibility that a transaction may fall within the new NS&I regime when it enters into force.

Written by Sandra Mapara