On 13 November 2023, the UK Government issued a call for evidence to gather feedback from stakeholders on potential changes to the NSIA with the view of making it "as pro-business and pro-investment as possible" whilst retaining and refining the protections needed to protect the national security of the UK.

In his foreword to the call for evidence, Deputy Prime Minister Oliver Dowden stated that he is seeking a "small garden, high fence" approach, safeguarding the UK against a small number of harmful deals while leaving most transactions unaffected.

The NSIA came into force on 4 January 2022 and introduced a framework allowing the Government to scrutinise and intervene in acquisitions that had the potential to harm the UK's national security by requiring mandatory notification to be made for acquisitions falling within 17 sectors of the economy thought most likely to raise national security concerns.

Since the NSIA came into force, the UK has seen significantly more notifications than many other foreign comparator regimes (866 within the last financial year compared to 320 in the US), thereby raising concerns as to whether the NSIA places excessive burdens on companies and investors and operates without the adequate transparency.

Myerson Solicitor's Corporate Team explore the potential changes to The National Security and Investment Act 2021 (NSIA).

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The Call for Evidence

The Government has stated that it will use the Call for Evidence to consider changes to the NSIA, in particular: 

  • To hone the scope of the mandatory notification requirements to ensure that it is not notified of the large majority of deals that pose no national security risk.
  • To improve the NSIA notification and assessment process to minimise the burden on businesses as much as possible.
  • To develop the Government's public guidance and communications on how the NSIA works.

The Government's specified goal is to obtain a better understanding of the impact of the NSIA on businesses and investors and their experience in interacting with the process, whether the scope and requirements of the NSIA are proportionate and effective, and how well stakeholders understand the NSIA system and the national security risks it seeks to address.

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Key areas proposed for review

The following are some of the key areas covered by the Call for Evidence:

  • Mandatory Notification – Internal Reorganisations. A prominent consequence of the NSIA, which is imposing a disproportionate burden on businesses undergoing such processes, is that internal reorganisations can trigger a mandatory notification even where the control over the target changes very little, and the reorganisation is not likely to raise national security concerns. The Government is therefore exploring the introduction of exemptions for some internal reorganisations and has asked for views about which types of reorganisations are more likely to result in substantial changes to the ownership of the target.  
  • 17 Sectors of the Economy. Given that the majority of acquisitions do not pose a national security risk (with 93% of notifications during the financial year 2022/2023 being cleared without the need for a detailed assessment), the Government has asked for views on whether there are activities within the 17 sectors which are unlikely to create national security risks. It is also considering whether more clarity can be provided through its guidance.
  • Additional Sectors. The Government is also exploring the idea of introducing new sectors to the existing 17 sectors, such as semiconductors and critical minerals, both of which currently fall within the scope of the advanced materials sector.  

Key Areas Proposed for Review

  • Liquidators, Official Receivers and Special Administrators. Currently, the NSIA has the potential to require the appointment of a liquidator, official receiver, or special administrator to be notified as a mandatory notification. The Government has acknowledged the challenges that this may present in a liquidation or administration, as any onward sale of shares or voting rights would already (if relevant) trigger a mandatory notification. The appointment of administrators is already exempt from the mandatory notification regime, and the Government is therefore seeking views on widening this exemption to liquidators, official receivers and special administrators.
  • Transparency and Process. One of the main criticisms of the NSIA has been the lack of transparency in the decision-making process. For example, after the Government blocked the acquisition of Newport Wafer Fab in 2022, Nexperia (the acquirer) publicly stated that it was "shocked by the Government's refusal to enter into meaningful dialogue". The Government is also seeking feedback on procedural aspects, such as the notification forms, the online portal for making notifications and the submission of classified material.

While the outcome of the Call for Evidence remains to be seen, the Government's commitment to refining and improving the operation of the NSIA has been welcome news for many and is likely to increase confidence in the UK as an investable jurisdiction.

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If you think you will be involved in a transaction that may require a mandatory or voluntary notification under the NSIA, or If you have any questions or would like to discuss this article in further detail, please contact our Corporate Solicitors, who would be happy to assist.