This page answers some common questions about the new National Security and Investment (NSI) regime and seeks to provide clarity for both businesses and investors on what to expect. An overview of the regime is a useful place to start when trying to understand the new measures.
All content is informative, is not intended to be legal advice, and should not be used as such. It is based on the legislation as currently drafted, is correct as of August 2021 and may be subject to change.
Why is the UK Government bringing in this change?
The current mechanism for investigating national security was established by the Enterprise Act 2002, which gave the Competition and Markets Authority the power to intervene on mergers on grounds of national security if certain tests are met. It is felt that this does not go far enough, and technological developments have further widened the potential scope of national security concerns. Similar national security regimes are in place in France, Germany, USA and Japan.
What is the definition of a national security interest?
The UK Government, despite facing calls to do so, has decided not to define “national security interest” in legislation to ensure it is able to address future risks which are not yet a concern.
Does this only apply to life sciences companies?
The mandatory notification regime also applies to advanced materials, advanced robotics, artificial intelligence, civil nuclear, communications, computing hardware, critical supplies to government, critical suppliers to emergency services, cryptographic authentication, data infrastructure, defence, energy, military and dual-use, quantum technologies, satellite and space technologies, synthetic biology and transport.
How will this impact investment in UK life sciences and higher education?
It is too early to know what impact the new regime will have on investment into these sectors. By classifying Synthetic Biology as a sensitive sector, many investments into the sector will need to go through the screening process ahead of taking place, even if there is no real impact on national security. If the assessment process is not efficient, it could delay investments and could potentially make the UK a less attractive place to invest. The BIA is working to mitigate this risk.
The potential impact of this regime on higher education research is not considered to be too substantial. The Government will shortly be producing guidance specifically for the higher education and research sector to outline how it may be impacted by the regime.
Is this only for foreign investment?
No, the regime is targeted at foreign and domestic acquisitions into companies based in the UK, and those with headquarters abroad but carrying out activities in the UK.
Who will review transactions?
The Department for Business, Energy and Industrial Strategy (BEIS) is responsible for the operation of this regime, and has set up the Investment Security Unit (ISU) to process transactions. The ultimate responsibility for decision making sits with the Secretary of State for BEIS. The ISU will be made up of civil servants carrying out the assessments, operating a hub-and-spoke model across government departments to benefit from the range of industry expertise from across the civil service. For example, the National Security and Investment team at the Foreign Office will support the ISU its assessments of foreign investments.
When does this apply from?
While the regime will come into force on 4 January 2022, it will apply to transactions taking place on or after 12 November 2020. This was when the bill setting out the regime was introduced to Parliament. The regime applies from then to ensure potentially problematic transactions are not rushed through before the regime becomes operational.
How long will the scrutiny process take?
Once the mandatory notification has been submitted it must be accepted by BEIS, there is no time restriction for this but it is intended to be a matter of days. Once accepted, the ISU has 30 working days to carry out the initial assessment. If it chooses to call-in the investment for a national security assessment after this, it has a further 30 working days to carry this out, though this can be extended to 45 working days.
What is a “trigger event”?
A “trigger event” is when an individual gains control of a qualifying entity or asset. This is the transaction which requires a notification to be made under the mandatory notification process if control over an entity is gained. For control of assets, this could be alerted to the ISU through the voluntary notification process, or be subject to the ISU retrospectively investigating the transaction. Gaining control of a qualifying entity includes:
- The acquisition of more than 25%, 50% or 75% of shares or voting rights in an entity, or can stop or pass any form of resolution in an entity.
- Material influence over an entity.
If an individual acquires a right or interest in an asset and is able to use the asset or director or control how the asset is used, this forms part of the voluntary notification regime. Qualifying assets include:
- Tangible (or, in Scotland, corporeal) moveable property,
- Ideas, information or techniques which have industrial, commercial or other economic value (this includes trade secrets, databases, source code, algorithms, formulae, designs, plans and drawings, and software).
My transaction is taking place before the regime comes into force. Will this be subject to scrutiny?
The regime applies to all applicable transactions in the sensitive sectors and meeting the control thresholds that have taken place on or after 12 November 2020.
Are there penalties for failing to notify if notification is not mandatory?
No, penalties only apply in situations where transactions subject to mandatory notification were not alerted to the Government. Penalties for failure to comply with the regime include fines the higher of £10 million or up to 5% of worldwide turnover. Directors may also face up to five years in prison.
Will this be used for other economic reasons, like preventing monopolies or protecting jobs?
During debates on the legislation introducing the new regime in the Houses of Parliament, the Government has repeatedly insisted that this regime would be exclusively focused on national security, and it would not be used for wider public interest considerations.
If investment is blocked, is there any provision for compensation?
Investments will be blocked if it is deemed that they risk national security. Such transactions will be declared void, and no compensation will be provided.