National Security and Investment Bill
The National Security and Investment Bill, introduced in the House of Commons on 11 November 2020, seeks to establish a new national security and investment regime which gives the Government the necessary powers to scrutinize and intervene in business transactions to protect national security. This new regime could have a significant impact on the UK life sciences sector, subjecting investment in the industry to scrutiny. The BIA has been working with its members, parliamentarians, and government to ensure the regime works effectively and to mitigate any negative impacts.
Since the Bill was first introduced, the BIA has been working with members to understand and communicate the potential threat this poses to the UK life sciences industry. Advocating on behalf of our members, we have been discussing the Bill with the Minister responsible, meeting with BEIS officials regularly, submitting responses to consultations on different aspects of the new regime, briefing parliamentarians and advising on amendments to improve the Bill.
This blog provides an overview of the proposed regime, the process to its implementation and the BIA’s work in relation to it.
The Bill – the basics
The Bill gives the Government power to ‘call-in’ acquisitions, including investments and takeovers to assess any risks to national security and block or reverse the acquisition if necessary. This Bill establishes a mandatory notification regime for certain sensitive sectors of the economy (see below), with a requirement to log acquisitions in these sectors with the Business Department. It also creates a voluntary notification regime for parties to an acquisition not already covered by the mandatory regime to notify the Government of a planned transaction that could pose national security concerns. A new Investment and Security Unit within the Department for Business, Energy and Industrial Strategy (BEIS) will manage the scrutiny process.
This diagram demonstrates the notification process for mandatory and voluntary notifications, with timeframes within which actions legally must be completed.
For a fuller explanation of the Bill, see this briefing from Covington.
In Parliament, there is broad cross-party consensus on the need for the Bill, with debate and amendments focusing on technicalities and the way the new regime will operate. The Bill passed through the House of Commons unamended and is now being debated in the House of Lords.
Currently in Committee Stage, the Bill has three days of debate scheduled in the Lords, concluding on 15 March. As in the Commons, there is broad consensus on the need for the Bill, and we expect it to be passed unanimously and largely unamended in any significant way. It is likely to receive Royal Assent by May, with the NSI regime coming into force later this year.
Sectors of national security interest
The Bill stipulates that certain sensitive sectors of the economy must notify the Government ahead of particular transactions taking place, because, the Government argues, of the resurgence of state-based threats to national security and the risk of UK businesses being controlled by entities with close ties to hostile foreign governments. BEIS published draft definitions of 17 sectors which it considers sensitive and launched a consultation on these sectors to understand the views on these in industry.
The BIA, having consulted members and stakeholders, submitted a response highlighting significant concerns about the broad nature of the definitions of AI and Engineering Biology, which capture all businesses in the life sciences sector, almost all of which would have no impact on national security. The BIA’s concerns, found in our consultation response, include:
- The regime with these definitions and control thresholds would place an undue burden on hundreds of businesses in our sector and make the UK a less attractive place globally to start and build life sciences companies.
- The UK life sciences sector is heavily dependent on foreign investment, so implementation of the regime must not risk this capital source.
- BEIS must be sufficiently staffed and have the level of expertise required to respond to notifications appropriately and quickly.
- The Government should provide further detail on technologies that it considers to be or not to be a national security concern, to provide more certainty to investors and companies.
BEIS published its response to this consultation on 2 March, in which it narrowed the definition of AI and significantly changed the definition of Engineering Biology. In its response, it cited the feedback from the BIA as one of the reasons for this change (paragraph 433).
The definition of AI has been narrowed to focus on three applications which the Government identifies as being of higher risk (identification of objects, people and events, advanced robotics and cyber security), and focuses on AI looking at ‘cognitive tasks’, rather than just ‘complex’ tasks. This is a significant improvement and allays many original concerns.
The definition of Engineering Biology has been changed significantly and renamed Synthetic Biology. The full new definition of Synthetic Biology, found in the consultation response, covers activities that consist of or include:
- Carrying out basic scientific research into synthetic biology
- The development of synthetic biology
- The production of goods using synthetic biology
- The formulation of synthetic biology to enable the degradation of materials
- The provision of services that enable the activities listed above.
The draft definition also covers a list of exemptions, including the production of substances ordinarily consumed as food or used as feed and gene therapy where it is used to replace missing or defective genes to achieve a therapeutic effect, for example. These are helpful, but the definition is still quite broad and there’s an unhelpful lack of clarity.
Since its publication, the BIA has met with officials from BEIS and the Office for Life Sciences (OLS) to discuss these definitions in more detail and stress the importance of narrowing the definition of Synthetic Biology further to ensure UK life sciences companies are not unduly burdened despite not having any effect on national security. This definition, however, is not final and may still be subject to change ahead of being published in secondary legislation later this year.
Alongside our policy influence work, the BIA has been supporting members in understanding how this regime may impact them. On 24 February, the BIA hosted a webinar with expert lawyers from the UK and the US, James Marshall and Jonathan Wakely, from Covington & Burling LLP and Sarah Mackintosh, Deputy Director of National Security and Investment in BEIS, to discuss the impact of the National Security and Investment Bill on the life sciences sector and answer questions from members.
The NSI regime, as it stands, will evidently place some unnecessary barriers for some companies looking to secure investment, and businesses acquiring other businesses or assets. The BIA will continue to lobby for changes to the way this regime will operate in order to support the UK life sciences sector and mitigate the impact of this on much needed investment.
For more information on the National Security and Investment Bill, you can read Covington’s briefing paper here, and the briefing paper prepared by the House of Commons Library here. All information on the National Security and Investment Bill provided by the BIA is correct as of 10 March 2021 and to the best of our knowledge. It is not intended to be legal advice and should not be used as such.
Zainab Gulamali is the BIA Policy and Public Affairs Executive, focusing on the National Security and Investment Bill.
Zainab joined the BIA in March 2021 as a Policy and Public Affairs Executive. She previously was Public Affairs and Communications Manager for the Muslim Council of Britain, and prior to this, Zainab worked in the House of Commons where she was the Head of Parliamentary Affairs for Plaid Cymru, coordinating voting and advising on policy.
Outside work, Zainab has recently been with local councils and public health bodies on the rollout of the COVID-19 vaccine in London’s faith and ethnic minority communities. In her spare time, she is an avid baker of bread and biscuits.