Foreign Investment and National Security

The National Security and Investment Act 2021 ("the NSI Act" or "the Act") came into effect on 4 January 2022 and introduced a new national security regime, allowing the UK government to scrutinise and intervene in certain qualifying acquisitions of entities or assets that may potentially pose a threat to UK national security. Some acquisitions in "sensitive" areas of the economy are subject to a mandatory notification requirement, whilst others not falling within the scope of these requirements may be voluntarily notified to the government.

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If you think you will be involved in a transaction which may require mandatory or voluntary notification to the government under the Act, we can advise you on whether such a notification is required, and can submit a notification on your behalf to the Investment Security Unit (ISU).

We have extensive experience in assessing transactions across a range of sectors, providing clear and practical advice which is tailored to reflect your business' commercial concerns.

We continuously monitor trends and developments in the national security regime, integrating our up to date knowledge into our advice to clients, whilst also sharing insights and updates here.

Our expertise means that we can help you navigate complex transactions, co-ordinating and submitting notifications so that your transaction can proceed smoothly.

Our integrated legal services means that advising on and making national security notifications fits seamlessly alongside any merger control or corporate work.

We have been making successful NSI Act notifications since January 2022 when the Act first came into force, and the team has extensive experience engaging with the government in relation to national security. Our understanding of the government's objectives and practices means that we can advocate for you and guide you through the notification process in a way that will best ensure a positive outcome for your business.

What is the NSI Act?

The National Security and Investment Act 2021 (‘the NSI Act’) came into force on 4 January 2022 and gives the UK government powers to assess, intervene and if necessary block investments and other acquisitions of control of UK businesses that may give rise to national security risks. It imposes a legal requirement to inform the government about certain qualifying acquisitions of entities in one of 17 sensitive areas of the UK economy, with notification being made via an online form. For further information on the provisions of the Act, please refer to our guide here.

What are the Sensitive Areas?

The 17 sensitive areas of the economy 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.

If an entity you are acquiring performs certain activities within one or more of these sectors, it could put you in scope of the NSI Act and you may be legally required to tell the government about it (a "mandatory notification").

When will an acquisition be "called in" by the government?

The Secretary of State in the Cabinet Office has the power to ‘call in’ acquisitions for detailed scrutiny if they reasonably suspect that it could give rise to national security risk. National security is not defined in the Act, giving the government a potentially broad remit for intervention.

However, the Secretary of State will weigh up the "target risk" (whether the nature of the entity or asset is more likely to give rise to national security risk), the "trigger event risk" (the potential of the underlying acquisition of control to undermine national security), and the "acquirer risk" (national security concerns relating to the specific acquirer).

The power is likely to be exercised where there may be a potential for immediate or future harm to UK national security. Examples include a risk of harm to the UK's critical infrastructure or government and defence assets, or where a hostile actor may develop capabilities posing a security threat to the UK.

What happens if the acquisition poses a threat to national security?

If, following scrutiny of an acquisition, the Secretary of State believes, on the balance of probabilities, that a risk to national security has arisen or may arise, the Secretary of State may make a final order. A final order may impose certain conditions, prevent the acquisition from completing, or unwind it if the acquisition has already taken place.

The Government confirmed in its most recent annual report (covering the period April 2022 to March 2023), 65 notifications were called in for an in depth review and final orders were imposed in relation to 15. For further information regarding the operation of the regime, please read our insight here, and for further details of findings in the annual report and trends in relation to clearances and call ins, please refer to our insight here.