What you need to know about the National Security and Investment Act (NSI Act)

January 17, 2022

At the beginning of January the UK’s “National Investment and Security Act” came into force, providing the UK Government with powers to intervene in both foreign and domestic deals that raise national security concerns. In this video, our UK Competition team take it back to basics with the key facts you need to know about the NSI Act including who’s in scope, what deals are in scope and the potential penalties.

To find out more about global foreign investment regimes, visit our Foreign Investment webpage, or get in touch with one of the team or your usual Eversheds Sutherland contact.

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The National Security Investment Act is a new screening mechanism which gives the UK government the power to scrutinize to intervene and to approve transactions across a broad range of sectors. So the NSI Act marks a real departure for the UK's regulatory regime. The companies for investors and for the UK government. This is the first time that the UK government has had a mandatory notification system for reviewing both investments and M&A transactions into the UK. The regime covers national security and that is a very broad concept and has become increasingly broad over the last few years. And so the regime is expected to be very wide ranging. And so because of that, there are expected to be a large number of deals and investments that will be subject to the mandatory regime where notification will be required and clearance will need to be obtained before a deal can close. And a large number of those deals will actually be deals which don't raise any national security issues whatsoever. And so that is a real departure for the UK and its regulatory regime. So, in terms of the types of transactions which are caught by the act, the NSI Act is deliberately broad and wide ranging. In terms of the mandatory regime, there are certain triggers for filing and that includes where a shareholding goes from below 25% to above 25%, below 50% to above 50%, and from below 75% to above 75%. Acquisitions of shares below 25% can also be caught and asset acquisitions as well. And in those cases, the government could intervene both before and after completion of the deal. Crucially, the act also covers acquisitions by UK investors as well as non UK investors. So it is in essence not a foreign investment regime. There are no fine thresholds under the NSI regime, whether turnover based or market share based. So deals of any size can be caught under the new regime. In terms of the sectors and activities covered, the government has identified 17 sectors subject to mandatory notification, where prior approval from UK government will be needed before a deal can close. In terms of the activities covered, they're really quite broad ranging from, say, artificial intelligence, through computing hardware, all the way through to energy, or synthetic biology, alongside many more. For deals taking place after January 4, 2022, it will be absolutely crucial to take advice as soon as possible and to make a notification to the investment security unit as soon as possible. Once an assessment has been undertaken that that transaction is caught. If in fact the conclusion is that the deal is caught and a notification needs to be made, then there will need to be a gap between signing and closing in order for approval to be obtained. For deals happening before January 4, 2022, that have signed and completed after November 12, 2020, then it is still necessary to consider the application of the act because it applies retroactively to those deals and to consider the possibility of needing to go in to informally speak to the investment security unit. In terms of the consequences of getting it wrong, there is a possibility of significant fines and criminal prosecution and a transaction will automatically be void where there has been a failure to file. One of the questions we've been asked a lot by clients recently is whether the new UK regime is in step with what other governments around the world are doing. And in fact, what we can say is that this really is similar to what many other governments have been doing in recent years. There's been a real global expansion in screening of inward investment into domestic markets. We've seen, for example, the European Union institute a new broad EU wide regime. There are many EU countries which have either introduced new regimes or they have significantly expanded their regimes. And in the US, which has a longstanding foreign investment regime called CFIUS, they've recently substantially expanded that as well. So in that sense, the UK is very much doing what other governments around the world have been doing. It's absolutely imperative for clients to be considering the application of the National Security Investment Act on virtually every deal. And it's really important to get advice as to whether or not the act applies. And in which case, then we can make the notification or engage with the Investment Security unit as soon as possible. Equally, we may be able to reach a conclusion fairly quickly that the act doesn't apply.