The National Security and Investment Act to be pared back: government review launched
17 Nov 2023
4 min read
The Deputy Prime Minister Oliver Dowden has announced a review of various powers used by the government under the National Security and Investment Act 2021 (“NSIA”), with an accompanying ‘Call for Evidence’ to give stakeholders the opportunity to have their say.
The NSIA requires buyers to notify the government before they complete acquisitions of target companies that are active in certain sensitive sectors of the economy (as defined in secondary legislation) and enables the government to intervene in acquisitions of entities or assets which may give rise to a national security risk (see our previous post for details).
Call for Evidence
Dowden stated that he is seeking to review the NSIA regime in order to “narrow and refine” the scope of it and make it more “business friendly”.
The Call for Evidence covers a large number of topics, including refining various sector definitions and mandatory notification requirements; providing more clarity on when the government might use its call-in powers; and making the process more user friendly.
The Call for Evidence also invites feedback on where use of exemptions to the mandatory notification could be helpful – currently there are none.
We consider some of the elements of the Call for Evidence in more detail below:
- Business Impact
The overarching aim of the review is to better appreciate how the NSIA is understood and used and the Call for Evidence requests feedback on businesses’ understanding of the NSIA and how they have adapted their behaviours to comply with its requirements.
- Removal of internal reorganisations from the NSIA’s ambit
Internal reorganisations of groups which have a company or companies active in any of the 17 mandatory notification sectors must currently be notified under the NSIA. The Call for Evidence asks for feedback on whether such transactions truly warrant scrutiny and if so, under what conditions. It also invites feedback from those who have notified their internal restructurings and the impact this had on them.
- Changes to mandatory sector definitions
The NSIA requires that the provisions set out in the sector definitions (specified in secondary legislation) must be reviewed within three years of the definitions coming into force. The responses to the Call for Evidence will feed into the government’s statutory review.
In particular, the government is interested in understanding whether there are activities within the 17 sectors that are unlikely to create national security risks, as well as refining certain sector definitions such as:
- Defence - The government has received feedback that businesses are unsure whether their activities bring them within the ‘Defence’ definition and is considering improving this definition and accompanying guidance to ensure activities that do not present a national security risk are less likely to be caught.
- Energy - Currently the Energy definition captures interconnection and transmission activity. In line with the proposed addition of multi-purpose interconnectors (MPIs) to the Energy Bill 2022/2023, the Government is considering the addition of MPIs to this definition.
- Advanced Materials – Feedback received suggests this definition is too complex and the Call for Evidence seeks input on how to refine this definition, as well as separating out semiconductor activity and critical minerals into two separate and new definitions, as well as updating them.
- AI - the Call for Evidence seeks feedback on whether activities that are currently captured by this definition could be removed on the basis that they do not pose a risk to national security, and whether new areas should be put into the definition such as ‘generative AI’.
Changes to the ‘Communications’, ‘Critical Suppliers to Government’, ‘Data Infrastructure’, ‘Suppliers to the Emergency Services’ and ‘Synthetic Biology’ definitions have also been proposed.
- Operation of the NSIA
Currently the government acknowledges that there is limited opportunity for contact with the Cabinet Office once a notification is submitted under the NSIA.
In continued efforts to increase transparency throughout the notification process, the government is considering and inviting feedback on the following proposals: -
- Offering calls at key stages of the NSIA review process, such as when issuing call-in letters.
- Introducing explanatory calls for more complex information notices.
- Providing a named contact within the Cabinet Office if the deal is called in.
- Updating the notification service portal.
The Call for Evidence will will close on 15 January 2024.
If you would like to discuss how the NSIA could have an impact on a potential acquisition, please contact our specialist team.
" As decision maker under the Act, I want this system to be as pro-business and pro-investment as possible." Oliver Dowden, Deputy Prime Minister and Chancellor of the Duchy of Lancaster