16 August 2021

In our previous post, we summarised the key features of the National Security and Investment Act (the 'Act') which was introduced in parliament on 11 November 2020 and given Royal Assent on 29 April 2021. Once the Act is fully in force it will create the UK’s first stand-alone national security and foreign direct investment regime, and give the government the power to review, impose conditions on or even block deals where it considers that the deal poses a national security risk.

On 20 July 2021, the Department for Business, Energy and Industrial Strategy ('BEIS') published detailed guidance on the application of the regime and confirmed the regime will come fully into force on 4 January 2022.

Relevant transactions

Transactions that may be caught by the regime involve a specific ‘trigger event’. This can include the acquisition of:

  • more than 25 per cent, 50 per cent or 75 per cent or more of votes or shares in of a qualifying entity
  • voting rights that enable or prevent the passing of any class of resolution governing the affairs of the qualifying entity
  • material influence over a qualifying entity’s policy
  • a right or interest in, or in relation to, a qualifying asset (e.g. land, other physical property and IP), providing the ability to use the asset, or direct control of how the asset is used (although acquisitions of qualifying assets do not at this stage form part of the mandatory regime).

This is a relatively broad definition and has been drafted to align with the approach taken under the existing competition merger control regime, particularly with regards to ‘material influence’, e.g. a trigger event could exist where the acquirer acquires only a 15 per cent shareholding but has material influence by the right to appoint the majority of board members of the target company.

Mandatory regime

Once the regime comes into force, transactions involving the acquisition of qualifying entities (including the acquisition of minority stakes or material influence, as described above) in any of the 17 mandatory sectors will have to be notified to BEIS (to a new dedicated Investment Screening Unit) and receive clearance prior to completion.

Qualifying entity

A ‘qualifying entity’ is an entity that carries on activities in the UK; or if it is a foreign company, it supplies goods or services to people in the UK, e.g. a regional office in the UK or exports to the UK, has staff who regularly work in the UK (even if here is no local office).

For foreign entities, the activity or supply of goods/services requires the target to be ‘sufficiently involved’ in doing so in order for the regime to apply, so more remote connections, e.g. having owners or investors who are based in the UK, even if the target is not, is unlikely to be sufficient.

Mandatory notification sectors

The guidance published also includes a draft statutory instrument which sets out the 17 proposed sector definitions in more detail. These definitions will be passed into law and form part of the mandatory notification regime. The sectors covered are:

  • Advanced Materials
  • Advanced Robotics
  • Artificial Intelligence
  • Civil Nuclear
  • Communications
  • Computing Hardware
  • Critical Suppliers to Government
  • Cryptographic Authentication
  • Data Infrastructure
  • Defence
  • Energy
  • Military and Dual-Use
  • Quantum Technologies
  • Satellite and Space Technologies
  • Suppliers to the Emergency Services
  • Synthetic Biology
  • Transport

Voluntary regime

Transactions involving the acquisition of entities in all other areas of the economy can be voluntarily notified to BEIS if they involve a ‘trigger event’ (i.e. an acquisition of certain thresholds of shares or voting rights, material influence or a qualifying asset) and the parties consider that there is a risk they will be called in. It is worth noting that transactions involving the acquisition of less than 25 per cent of shares or votes in a qualifying entity that is active in any of the mandatory sectors may fall within the voluntary regime if this constitutes an acquisition of ‘material influence’.

Call in power

Once the regime comes into force, the Secretary of State will have the power to ‘call in’ a transaction that is not notified, if it considers that it may give rise to a national security risk. It will do so by way of issuing a ‘call in notice’ to the parties and can apply to both completed and anticipated acquisitions of qualifying entities or assets where a trigger event has taken place in respect of those qualifying entities or assets.

Draft statement on exercise of call in power

The Act requires that the Secretary of State issues a statement as a form of guidance on how this call in power will be used and the government has recently published a consultation on the proposed statement. The draft statement notes that each case will be assessed individually to see if it presents a national security risk, but that transactions that take place in the mandatory notification sectors (but are not notifiable under the regime), or even related to those sectors, are more likely to be of interest from a national security perspective. Other factors include the amount of control being acquired; whether the acquirer has ties or an allegiance to states that are hostile to the UK; the status of any pre-existing holdings; and the activity of the target and whether such activities could affect national security.


The Secretary of State will have the power to call in transactions within six months of becoming aware of the transaction provided this is done within five years of the ‘trigger event’ occurring. The Secretary of State will also have the power to retrospectively ‘call in’ transactions which have completed during the period from 12 November 2020 to when the regime comes into force on 4 January 2022, for up to five years from the commencement of the regime; however if the Secretary of State became aware of the transaction prior to the NS&I regime coming into force, the intervention period will be reduced to six months from the commencement of the regime.

Qualifying assets

The acquisition of a qualifying asset (e.g. land, other physical property and IP), will fall under the voluntary regime where the asset is in the UK or used in connection with activities carried on the UK, or in connection with the supply of goods and services in the UK. This makes the potential scope of the regime very broad - for example, it may capture the acquisition of machinery located overseas used to produce equipment in the UK or an offshore windfarm that generates electricity supplied to the UK.

It is worth noting that although assets are not part of the mandatory regime and so there is no legal obligation to notify such acquisitions to the Investment Screening Unit, acquisitions of qualifying assets can be called in if there is a national security risk, e.g. the acquisition of land located near a sensitive site. Again, assets that are closely linked to the mandatory sectors are more likely to be subject to the call in power.

Alignment with other regulatory regimes

As anticipated, the new regime will replace the existing national security provisions under the Enterprise Act 2002. However, the public interest regime will remain: transactions may be called in by the Secretary of State if they might affect certain specific public interest grounds such as the stability of the UK financial system, maintaining the capability to address public health emergencies and media plurality.

The Competition and Markets Authority (the 'CMA') remains responsible for competition assessments of transactions and BEIS has specified that where transactions need to be considered from both a national security and competition perspective, the Investment Screening Unit will work closely with the CMA. Where a final order is in force or a final notification that no further action is to be taken has been given under the NSI Act, the government can issue a direction to the CMA to do or not do anything (although it will consult with the CMA in advance before doing so).

The Takeover Code currently provides the framework to allow acquirers (offerors) awaiting a decision under the NSI Act to suspend or pause the offer timetable prescribed by the Code.

When will the Act come into force, and how long will reviews take?

The regime (including the mandatory notification requirement) will come into force on 4 January 2022.

  • Once a notification has been made - If a transaction is notified under the mandatory or voluntary regimes and it has been accepted, the government then has 30 working days to decide if it will take no further action or call in the acquisition (at which point a further 30 working day period would be triggered, as outlined below). Until BEIS has completed its assessment, transactions falling under the mandatory notification regime cannot close.
  • If the transaction is called in – if the transaction has been called in (either following a notification or simply because the government considers it necessary), the government can take up to 30 working days to assess the national security risk, and this can be extended by a further 45 working days if more time is needed. Based on this guidance, more complex transactions could take several months for BEIS to approve.


Sanctions for non-compliance with the new regime will include fines of up to five per cent of worldwide turnover or £10 million (whichever is the greater), director disqualification for up to 15 years, and imprisonment for up to five years, and transactions which are covered by mandatory notification which complete without clearance will be legally void.

How can we help?

Burges Salmon has significant experience advising domestic and international investors on UK merger control matters, including the national security and investment regime. If you have any questions in relation to the issues raised in this article, please contact Chris Worrall or your usual Burges Salmon contact.

This article was co-written by Chris Worrall, Shachi Nathdwarawala and Sandra Mapara.

Key contact

Chris Worrall

Chris Worrall Partner

  • Head of Competition
  • Mergers and Acquisitions
  • Financial Services

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