On 18 April 2024, the Cabinet Office published its response to the ‘Call for Evidence’ in relation to the National Security and Investment Act 2021 (“NSIA”). The Cabinet Office issued the Call for Evidence to give stakeholders the opportunity to have their say in the Government’s review of the NSIA, which we discussed in our previous post (The National Security and Investment Act to be pared back: government review launched).

The Government received 110 full responses from a range of stakeholders, including legal firms, trade bodies and Business Representative Organisations, banks and investors, businesses operating in the 17 mandatory notification sectors, academic and research institutions, and the Business and Trade Committee (to whom the Government responded in full here). 

In response to the feedback, the Government will focus on five areas between now and Autumn 2024. We summarise these areas below.

1. Consult on updating the mandatory areas 

The Government plans to launch a formal public consultation on updating the 17 mandatory notification sector definitions by Summer 2024. This formal consultation will include:

  • proposals for a standalone ‘Semiconductor’ mandatory notification sector definition (currently part of ‘Advanced Materials’);
  • proposals for a new ‘Critical Minerals’ mandatory notification sector definition; and 
  • exploring adding ‘Water’ to the list of areas subject to mandatory notification. 

2. Consider technical exemptions to the mandatory notification requirement

The Government will bring forward secondary legislation to exempt the appointment of liquidators, official receivers and special administrators from the mandatory notification requirements. This legislation will be laid in Autumn 2024, subject to parliamentary time. 

However, before deciding whether to make targeted exemptions from the mandatory notification requirements for certain internal reorganisations, Scots law share pledges and public bodies, further consideration of the feasibility and potential national security impact is required. The Investment Security Unit will conduct a thorough national security risk assessment in respect of these exemptions. 

3. Publish an updated statement about the exercise of call-in power 

The Government plans to publish an updated statement setting out how the Secretary of State expects to exercise the power to give call-in notices (NSIA Section 3 Statement) in May 2024. This aims to help stakeholders better understand what the Government is seeking to protect and the factors the Secretary of State expects to take into account when exercising the call-in power.

The Government also confirmed that it is not considering a fast track process for certain types of acquirer (e.g. those who have received clearance for a prior transaction), despite calls from some respondents. 

4. Publish updated market guidance 

The Government plans to publish further market guidance in May 2024 on the topics that stakeholders raised, including the application of the NSIA to Outward Direct Investment and academia. 

The Government also confirmed that it does not expect to exempt transfers of control under Automatic Enforcement Provisions in secured lending agreements (“AEPs”). AEPs lead to a situation where voting rights are automatically transferred from a borrower to a lender in the event of a loan default or similar situation, and some stakeholders have suggested that the application of mandatory notification requirements to these provisions could present challenges in the loan markets. However, based on the feedback and small number of notifications in relation to AEPs, the Government does not consider an exemption to be necessary, but will consider where it can provide further guidance in this area. 

5. Improve the operation of the NSIA notification system 

The Government has already made a number of improvements to the operation of the NSIA notification system, including:

  • routinely offering calls at key stages of the NSIA notification review process; 
  • providing senior contacts for parties to engage post call-in; 
  • introducing explanatory calls for more complex Information Notices; 
  • making targeted use of Attendance Notices to obtain and understand complex information relating to acquisitions; and 
  • introducing the ability to share notifications with other users on the NSIA Notification Service Portal (the “portal”). 

The Government will continue its ongoing work to improve the NSIA system, such as trialling potential solutions to technical issues on the portal. In response to the feedback, the Government will also consider further improvements to the Investment Security Unit’s operational processes, the notification forms and the portal. This will undoubtedly be great news for businesses and legal professionals. 

This post was co-written by Shachi Nathdwarawala and Tommy Yapp.