National Security and Investment Act 2021: Key Rules, Mandatory Notifications & Compliance Risks

What is the National Security and Investment Act 2021?

The National Security and Investment Act came into force came into force on 4 January 2022 and introduced the first stand-alone regime for screening acquisitions and investments to protect UK national security. It gives the government powers to scrutinise and intervene in business transactions, such as takeovers. It also provides businesses and investors with the certainty and transparency they need to do business in the UK.

How the rules work

1. Check if the rules apply to your acquisition. This will depend on what you are acquiring and how much control you have over it.
2. Check if you need to tell the government about your acquisition. You are legally required to inform the government about certain acquisitions of entities if your acquisition is in a sensitive area of the UK economy.
3. Tell the government about your acquisition. You can do this online by submitting a notification using the National Security and Investment service.
4. The government will review your acquisition. It can either clear your acquisition, impose certain conditions, or block or unwind it.

Does your acquisition require notification?

If you are acquiring a qualifying entity (not an asset) that carries out certain activities in the UK within one of 17 key areas of the economy (see below), then it requires notification to the government.

The NSI Regime applies to transactions that involve acquiring a specified level of control over certain qualifying entities (i.e. a company or organisation with legal rights) or qualifying assets (i.e. tangible or intangible property with value). The relevant transactions (or ‘trigger events’) include:

Qualifying entities

• The acquisition of votes or shares in a qualifying entity exceeding a threshold of 25% or 50%, or 75%. A fresh acquisition of control (and therefore a further notifiable acquisition) will arise where the investor moves through the 50% and 75% share ownership/voting thresholds.
• The acquisition of voting rights that enable or prevent the passage of any class of resolution governing the affairs of the qualifying entity.
• The acquisition of material influence over a qualifying entity’s policy.

Qualifying assets

The acquisition of a right or interest in, or in relation to, a qualifying asset providing the ability to:

• Use the asset, or use it to a greater extent than prior to the acquisition; or
• 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.

Which transactions are affected by the National Security and Investment Act?

If your business is involved in one or more of the 17 key areas of the economy that have been identified as being sensitive, a notification needs to be made to the Investment Security Unit (ISU) to receive approval before completion.

The 17 areas affected by NSIA are:

• Advanced Materials
• Advanced Robotics
• Artificial Intelligence
• Civil Nuclear
• Communications
• Computing Hardware
• Critical Suppliers to Government
• Cryptographic Authentication
• Data Infrastructure
• Defence
• Energy
• Military and Dual-Use
• Quantum Technologies
• Satellite and Space Technologies
• Suppliers to the Emergency Services
• Synthetic Biology
• Transport

Key features of the regime

• a mandatory notification systemapplies only to qualifying entity acquisitions (not asset acquisitions) in at least one of the 17 areas crossing control thresholds;
• voluntary notificationsfrom parties to transactions not caught by the mandatory regime who consider that their transaction may raise national security concerns. It also covers acquisitions of shares, voting rights or qualifying assets where there is a perceived risk that the transaction may be “called in” for review;
• a call-in power gives the Secretary of State (SoS) the power to “call-in” any transaction that is within the scope of the regimefor a detailed national security assessment, including transactions completed on or after 12 November 2020. Once the Government becomes aware of a trigger event it will have six months to call in the transaction, subject to an overall five-year limitation period from the date of the trigger.

Consequences of non-compliance

• Fines of up to 5% of worldwide turnover or £10 million (whichever is the greater) and imprisonment of up to 5 years.
• Failure to notify a transaction renders the transaction void
• Disqualification of a director for up to 15 years.

Top tips for acquirers

• Self-assessment— consider whether your acquisition gives you such influence that it could trigger notification requirements.
• Preparation is key— the notification process is detailed and requires thorough details about the acquirer, the target and the transaction.
• Due Diligence— NSIA compliance should be integrated into your due diligence process.
• Be time vigilant — factor in the deal’s timeframe. If a notification is made, the SoS will have 30-working days (starting from the date that the SoS informs the notifying party that the notification has been accepted) to screen the notification and decide whether or not to (i) clear the transaction; or (ii) exercise its call-in power and undertake a full, in-depth review of the trigger event.

If the SoS decides to exercise its call-in power, the SoS will have an additional 30-working day period to undertake the review. This period can be extended by a further 45-working days if the SoS believes that the trigger event risks giving rise to a national security threat and more time is needed to assess it. The Government can also “stop the clock”, with further information requests. So, the NSIA could potentially add several months to a deal timetable.

How can Waterfront Law help you?

• To notify or not notify – we can help you determine whether you need to notify BEIS (Department for Business, Energy & Industrial Strategy) of your acquisition
• Regulatory updates: Keeping your business up to date with upcoming changes to the NSIA.
• Early advice – this is key to avoiding delays, added costs or, in some cases, the invalidation of a transaction.

Reach out to Andrew Gordon if you’d like to discuss how Waterfront Law can assist you on this matter.