Snapshot

The UK National Security and Investment Act 2021 (NSIA) entered into force and became operational on 4 January 2022. As mentioned previously,1 the NSIA represents a radical overhaul to the foreign investment screening in the UK: not only does it introduce for the first time a requirement (or, depending on the case, the possibility) to proactively notify deals with potential national security implications, but it also creates a standalone regime—which is mandatory and suspensory in certain cases—for transactions that may give rise to national security concerns.

The UK National Security and Investment Act 2021 (NSIA) entered into force and became operational on 4 January 2022. As mentioned previously,1 the NSIA represents a radical overhaul to the foreign investment screening in the UK: not only does it introduce for the first time a requirement (or, depending on the case, the possibility) to proactively notify deals with potential national security implications, but it also creates a standalone regime—which is mandatory and suspensory in certain cases—for transactions that may give rise to national security concerns.

The new regime (Regime) has significant implications for deals and investments in life sciences and will likely cause increased burden, costs and uncertainty for deals with some (even loose) UK nexus.

In terms of its impact, at the time the NSIA was enacted, the UK government estimated the Regime will result in 1,000—1,830 transactions being notified per year, with only around 70-95 cases called in for an in-depth national security assessment and only around 10 cases being subject to remedies. The government's first report published on 16 June 2022 and covering the Regime's first three months of operation up to 31 March 2022 (Report), suggests the number of notifications, as well as the number of cases called in for in-depth review, is in line with, and perhaps slightly below, these initial estimates.2 A few important takeaways can be drawn from an analysis of the Regime and its first six months of operation:

  • The scope is potentially very broad, particularly in the life sciences space. This is due to, among others, the broad definition of the sensitive sectors requiring mandatory notification, the inclusion of asset acquisitions (including licensing of IP) within the potential purview of the UK government, the low equity/voting rights thresholds to trigger a filing, as well as the broad extra-territorial reach.
  • It is likely that businesses will err on the side of caution and elect to make filings in cases where the application is unclear—particularly given the draconian sanctions potentially applicable for failing to submit a mandatory filing, as well as the potential for the UK government to "call in" un-notified transactions for a period up to five years.
  • BEIS has proven to be open to discussion and has issued several guidelines to help businesses navigating through the system. It has also generally been rather swift in responding to informal outreaches as well as providing clearance in no-issue cases.
  • The review/clearance process itself is significantly less iterative than for example the CMA's merger control process or similar FDI reviews in other jurisdictions (e.g., Germany or Spain).
  • The general lack of communication throughout the review process, the absence of any reasoning in the government's decisions, as well as the general lack of public information and transparency

Key question

Answer

Overview

Who is the decision maker under the Regime?

The UK Government's Secretary of State for the Department for Business, Energy & Industrial Strategy (BEIS) is the final decision maker. A newly formed Investment Security Unit (ISU), which sits within BEIS, is the body in charge of administering the Regime and acts as the single point of contact for businesses: it is empowered to receive notifications, conduct the review and act as the central hub throughout the whole screening process.

Depending on the case, other ministerial bodies (e.g., the Ministry of Defence or the Department for Digital, Culture, Media & Sport), the CMA or other foreign authorities may be consulted as necessary.

Does the Regime have any retroactive effect?

For deals closed after 4 January 2022, BEIS has the power to "call-in" for review any transaction (regardless of the sector) for up to 5 years post-closing. This period is reduced to 6 months if BEIS becomes aware of the transaction—e.g., through the press or informal notification by the parties.

Similarly, BEIS has the power to call in any deals (regardless of the sector) closed between 12 November 20203 and 3 January 2022, even though these where not subject to a potential filing requirement until 4 January 2022. This retroactive call-in power may be exercised up until five years from 4 January 2022; if the parties have informed or have made aware (e.g., through a press release) BEIS of the transaction, this period is reduced to 6 months from 4 January 2022 (i.e., until 4 July 2022) or from the day BEIS became aware of the transaction, if subsequent to 4 January 2022.4

Deals closed before 12 November 2020 are not subject to BEIS' jurisdiction.

Footnotes

1 See in particular our previous advisories "A New Mandatory UK Foreign Direct Investment Regime Gets Royal Assent: The Five Key Things You Need to Know" and "CFIUS—CFIUK: New Additional National Security Review of UK Acquisitions" available at https://www.arnoldporter.com/en/perspectives/advisories/2021/05/a-new-mandatory-uk-fdi-regime-gets-royal-assent and https://www.arnoldporter.com/en/perspectives/advisories/2020/12/cfius-cfiuk-new-natl-security-review-of-uk-acqs, respectively.

2 Although, given the short period considered, the report cautions against drawing conclusions on long-term trends at this stage, the following points are worth noting: (i) 222 filings were received in total in the first three-month period; of these, 196 were mandatory, 25 voluntary and one was done retrospectively; (ii) of these 222 transactions subject to the government's review, 17 were called in for further assessment; (iii) four of the 17 call-ins related to voluntary notifications; (iv) of the 17 cases subject to in-depth assessment, only three have been ultimately cleared so far, with the other 14 cases still being reviewed at the end of the reporting period.

3 Date when the NSIA was passed by the UK Parliament.

4 Very recent and notable example include (i) French company Altice's acquisition of a further 6% stake in British Telecom, which occurred in December 2021 (taking Altice to own 18%) and which was called in on 26 May 2022, and (ii) the acquisition of UK Newport Wafer Fab by Nexperia (Dutch subsidiary of Chinese company Wingtech) in August 2021 which was called in by BEIS on 25 May 2022.

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