On 29 April 2021, the National Security and Investment Bill became law as the National Security and Investment Act (the "NSI Act").
As set out in our previous alert on this topic, the UK's new investment screening regime consists of three review mechanisms, namely:
- a mandatory notification regime - which applies to transactions in certain pre-defined sectors;
- a voluntary regime which applies broadly to any transaction in which a person obtains control of a UK incorporated business or UK based asset; and
- a retrospective 'call-in' right, through which the Secretary of State for Business, Energy and Industrial Strategy ("BEIS") is able to call-in for review any transaction completed since 12 November 2020 which the Government reasonably considers could give rise to a national security risk for up to six months from the date on which the Secretary of State became aware of the transaction (subject to a 'long-stop' date of five years from the transaction's completion).
The passage of the NSI Act into law means that certain transactions (so-called 'notifiable acquisitions') must obtain approval from the Secretary of State prior to completion. Completing a notifiable acquisition without such approval is a criminal offence.
A notifiable acquisition arises where:
- a person gains control of a qualifying entity "of a specified description" - i.e. an entity active in one of the sectors specified by the Government, which currently includes a wide range of sectors (e.g. military and dual-use goods, artificial intelligence, energy and transport)1; or
- a person acquires right or interest in a qualifying entity of a specified description, and increases their shareholding or share of voting rights from less than 15% to more than 15%.
However, while the NSI Act creates the notion of a 'notifiable acquisition', there is currently no mechanism through which to notify the Secretary of State of such a transaction.
What happens now?
The Act provides that regulations (i.e. a statutory instrument) must be passed to prescribe the form through which businesses must submit notifications to BEIS under the mandatory regime.
The Government has not yet published these regulations, but it has published a draft set of questions that it proposes to include within the National Security and Investment notification form.
Until these regulations are passed into law - which the Government intends to do by the end of this year - businesses involved in transactions that may be 'notifiable acquisitions' should continue to consider approaching BEIS on a more informal basis and self-assess the extent to which their transactions could give rise to a national security risk.
BEIS has encouraged businesses whose transactions may be caught within the ambit of the new regime to contact via email to obtain "informal guidance".
While the Government has not published formal guidance as to how to undertake the self-assessment exercise, the Government welcomes early engagement from investors and businesses and invites them to review the "statement of policy intent".
When deciding whether to exercise its "call-in" right, the Secretary of State must have regard to the statement of policy intent. The Statement of Policy Intent identifies three types of risk:
- the "target risk", which concerns the entity or asset which is the subject of the trigger event (i.e. some assets and entities are more likely to give rise to national security risk due to their nature);
- the "trigger event risk" (i.e. the potential of the underlying acquisition of control to undermine national security, for example, this may involve gaining control of a crucial supply chain); and
- the "acquirer risk" (i.e. national security concerns related to a specific acquirer, for example, where the acquirer is hostile to the UK's national security, or when they owe allegiance to hostile states or organisations).
The Government has also published a series of fact sheets, which provide further information about each of the provisions in the Bill.
However, there continues to be uncertainty as to how 'trigger happy' the Government will be in the exercise of its "call-in" right.
Contact our EU, Trade & Competition team who can assist you to undertake this self-assessment and advise on engaging with BEIS.
1 A full list of the proposed mandatory sectors is available at: National Security and Investment: Sectors in Scope of the Mandatory Regime.
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