As the UK's investment screening regime starts to bed down following over a year of being in effect, we have been tracking the developments in the last quarter relevant to the operation of the regime. It has been a tumultuous three months, with the new UK government's decision to dismantle the Department of Business, Energy and Industrial Strategy (BEIS) resulting in the Investment Security Unit (ISU) being transferred to the Cabinet Office amid rumours of a desire to bring the functions of the ISU closer to central government. At the same time, the new decision maker, Oliver Dowden, has promised more transparency following criticisms of the opaque nature of the regime;1 and a Memorandum of Understanding has been concluded between the government and Parliament,2 setting out an agreed process for scrutiny of the ISU's activities by Parliament. On the policy side, we have seen a raft of governmental policy statements in sensitive sectors, throwing some, albeit limited, light on where the greatest sensitivities are likely to lie from a national security perspective when considering transactions in these areas.

We have seen less activity in the last quarter in terms of public call-ins and final orders compared to last year, which is likely a function of decreased deal activity overall. There has only been one final order issued so far this year. To put this in context, we have set out a snapshot below of publicly known call-ins (of which we have identified 18) since the NSIA regime came into effect in January 2022. These represent a small portion of the total number of transactions notified (which we estimate to be in the region of 1,000)3, and are also likely to represent a small portion of the total number of transactions that have been called-in (which we estimate to be up to 150 transactions).4 Due to the lack of comprehensive public data, these are our best estimates only. Greater clarity on the number of notifications and call-ins will be provided in the forthcoming NSIA Annual Report 2023, which we expect to be published this summer.

Finally, we note that the Committee on Foreign Investment in the United States (CFIUS) has signalled its approval of the UK's investment screening regime and has indicated an increased desire for collaboration in investment screening between the United States, UK and the other "Five Eyes" alliance states (namely Australia, New Zealand and Canada).

1. ISU scrutiny

As discussed in our February 2023 alert, the ISU was moved to sit within the UK government's Cabinet Office as part of the UK government's reshuffle of BEIS. This move brought the ISU closer to central government and triggered a change of ultimate decision maker under the NSIA for the fourth time in just over a year. Oliver Dowden currently fills this role in his capacity as the Secretary of State in the Cabinet Office. These changes have no doubt led to some upheaval for the ISU in practice, as well as to closer oversight from central government.

Meanwhile, on 14 March 2023, a Memorandum of Understanding ("MoU") was agreed between the Secretary of State and the BEIS Select Committee (the "Select Committee"). This sets out the process for scrutiny of the UK's investment screening regime under the NSIA and the workings of the ISU by Parliament and has been the subject of negotiation between the Select Committee and successive decision makers since the NSIA came into force in January 2022 (a process that was prolonged because of the series of government changes).

In introducing the final MoU, the Select Committee noted the importance of external scrutiny to give businesses confidence that there is "independent oversight of the process, increased transparency and accountability, and a driver for learning lessons within the system".

The MoU highlights that the Select Committee's focus will be on the way in which the ISU operates procedurally, including how it interacts and shares information with parties, as well as its overall efficiency in processing cases, identifying national security risks and conducting national security assessments. It will scrutinise individual cases only in exceptional circumstances to avoid the impression that decisions under the regime are politicised. To that end, the MoU also sets out a process for access to information (including sensitive and classified information relating to individual cases on a retrospective basis) where necessary. It is hoped that this new level of oversight will lead to more transparency and guidance over time.

2. Enforcement activity since January 2022

Considering the levels of enforcement activity that we saw under the NSIA last year, Q1 of this year has been comparatively quiet. The only final order issued by the government this quarter was in relation to the acquisition of the UK engineering company David Brown Santasalo SARL ("David Brown") by U.S. private equity firm Stellex Capital Management LLC via its subsidiary Gear Bidco SARL ("Stellex"). In the final order conditionally clearing this transaction, the government required Stellex to agree to maintain the continuity of David Brown's contributions to critical UK Ministry of Defence programmes and to keep David Brown's related operations within the UK.5

This outcome is very much in line with the trends that we observed last year. As set out below, including the David Brown/Stellex transaction, over 40% of the transactions publicly called-in to date have involved national security concerns relating to the transfer of technology, critical assets, know-how or operations out of the UK. In three other transactions, the government has required the acquirer to commit to maintaining strategic capabilities in the UK or the provision of certain services to the UK government.


3. Policy updates

The first quarter of 2023 saw the publication of several key policy documents which highlight current government priorities in relation to some of the key sensitive sectors and technologies governed by the NSIA.6 These are summarised below, together with the policy imperatives which are most likely to be relevant to the assessment of national security and call-in risk under the UK's investment screening regime:

  • Semiconductors
    • A strong theme emerging from government policy statements has been the imperative for the UK to have a competitive advantage and where possible, gain autonomy, in relation to the semiconductor supply chain, to protect its national security interests.
    • Building on this, the UK government has been promising for some time to publish a semiconductor strategy, with a focus on fostering competitive advantage for the UK and improving global supply chain resilience. This is now expected to be published imminently.
    • Meanwhile, acquirers seeking to engage in transactions concerning any part of the semiconductor supply chain with a UK nexus will be subject to high call-in risk, even if the transaction does not require a mandatory filing.7 Intense scrutiny of this sector means that voluntary notification should be considered in any deals with a material UK nexus.
  • Quantum technologies
    • Keeping up with global competition to develop quantum capability is another key focus, meaning that transactions concerning businesses engaged in quantum computing-related activities, including R&D, will entail a greater risk of call-in. Again, call-in risk applies even if the transaction does not meet mandatory filing requirements, e.g., in relation to an asset deal such as a licensing arrangement. Voluntary notifications should be considered on a case-by-case basis.
  • Artificial intelligence (AI)
    • Government policy includes a strong focus on making Britain "a global AI superpower", with an acknowledgement that the UK's openness to foreign investment is increasingly being exploited by adversaries for military and economic gain.
    • Acquisitions of key technology companies by foreign purchasers and risks of intangible technology transfer out of the UK are key areas of concern, meaning that transactions involving AI technology should be closely assessed for call-in and remedy risk.
  • Critical minerals (including lithium, cobalt, nickel, graphite, silicon, tin, and gallium):
    • The government has highlighted the need for the UK to invest in this sector in the context of increasing demand for critical minerals, key inputs in the global race to develop semiconductors, electric vehicles and renewable energy technology.
    • Given the vulnerability of supply chains to market shocks, geopolitical events and logistical disruptions, the government is seeking to foster investment and R&D into critical minerals located in the UK, while simultaneously utilising investment security measures (including the UK's investment regime) to safeguard critical mineral supply chains.
  • Telecoms
    • Telecoms is one of six priority technologies (alongside AI, quantum technologies, engineering biology, semiconductors and data) identified under the UK's International Technology Strategy.
    • Key themes related to telecoms, which will likely drive intervention risk, include ensuring the security and resilience of the UK's telecoms infrastructure, as well as increasing overall security requirements for network equipment.
  • Synthetic/engineering biology
    • Synthetic biology is expected to have a transformative effect on various industries such as health, agriculture, energy, environmental protection and material science.
    • Areas at particular risk of scrutiny under the NSIA include gene editing and activities relating to the use of DNA for data storage, encryption and bio-enabled computing.

Other themes which emerge from these recent policy documents and which are relevant to call-in risk include the threats posed by China and Russia to the UK's national security, economy and values, energy security, vulnerability of supply chains, rising prices for basic goods, the proliferation of disinformation and cyber scams, climate change and environmental damage, health resilience, and UK economic security.

Where these sectors and themes are engaged, extra caution should be taken when assessing call-in and remedy risk as well as the merits of submitting a voluntary notification, even if a mandatory filing is not triggered. The government has extensive powers to call-in transactions involving UK companies, or non-UK entities supplying into the UK, as well as asset deals, including licensing deals. This power subsists for up to five years post-closing unless the transaction is notified and cleared.

4. International collaboration

On 10 February 2023, CFIUS announced a decision to permanently designate the UK as an "excepted foreign state".8 This means that UK investors who satisfy certain criteria confirming that they are UK-owned and controlled are not subject to CFIUS' mandatory notification requirements, and their non-controlling minority investments and real estate purchases do not fall within CFIUS' jurisdiction.9

This decision signals that the U.S. government considers the UK's investment screening regime to be sufficiently "robust" in scrutinising foreign investments and mitigating national security risks. CFIUS concurrently permanently designated New Zealand as an excepted foreign state, meaning that all Five Eyes alliance states (Australia, Canada, the UK, the United States and New Zealand) are now permanently designated.

This continues a trend of international collaboration and, where considered necessary, intervention, which we expect to continue among the Five Eyes alliance states both in relation to individual cases and best practices.10 In line with this theme, as part of the work related to developing and negotiating the MoU regarding Parliamentary scrutiny of the ISU, the BEIS Sub-Committee conducted a study visit to the United States to understand and take inspiration from how congressional oversight of the CFIUS regime is conducted in the United States.

Edie Essex Barrett and James Quirke, London Trainee solicitors, contributed to the drafting of this alert.


1. See: UK pledges greater transparency of how it scrutinizes deals (FT, 2 April 2023) and see also

Transparency, Accountability, Predictability: Protecting National Security Through the UK's Foreign-Takeover Regime(Tony Blair Institute for Global Change, 14 March 2023).

2. See: Memorandum of Understanding on scrutiny of the Investment Security Unit (23 March 2023).

3. Based on the NSIA Annual Report 2022, the total number of notified transactions between 4 January 2022 and 31 March 2022 was 222. Assuming that the rate of notifications has continued at a relatively constant rate since then, we have estimated the number of notified transactions to be approximately 1,000 as at the end of Q1 2023. See the Annual Report 2022 (June 2022).

4. Former Secretary of State for BEIS, Grant Schapps has stated publicly, that there had been around 100 call-ins as at November 2022. Assuming that call-ins have continued at a relatively constant rate since then, we estimate that there have been up to 150 call-ins as at the end of Q1 2023.

5. See: Notice of Final Order: Acquisition of David Brown Santasalo SARL by Stellex Capital Management LLC via its subsidiary Gear Bidco SARL (22 February 2023).

6. The policies include: The UK's Science and Technology Framework(6 March 2023), The Integrated Review Refresh 2023(13 March 2023),The Critical Minerals Refresh(13 March 2023);andThe UK'sInternational Technology Strategy (22 March 2023).

7. Note that only certain elements of the supply chain will fall within the defined mandatory sectors, while certain transaction structures do not give rise to mandatory filing requirements, including share acquisitions of less than 25% in a qualifying entity, or asset/licensing deals.

8. See CFIUS decision (13 February 2023).

9. Note that investors from the UK will remain subject to CFIUS jurisdiction where acquiring investments that result in the acquisition of control of a U.S. business. Control of a U.S. business is established where an acquirer obtains the ability to determine, direct or decide important matters impacting an entity, whether such power is exercised or not and can be established even where the investor only obtains a minority shareholding.

10. For an example of intervention, please see our discussion of calls from members of the U.S. congress in April 2022 for the president of the United States to exert diplomatic pressure on the UK government to secure its intervention under the NSIA in relation to the Newport Wafer Fab/Nexperia Holding BV deal in our November 2022 client alert. An indication of the fact that international collaboration will likely continue is contained in the U.S. Department of Treasury's press release (10 February 2023).

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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