The National Security and Investment Act 2021 (“NSIA”), which came into effect on January 4, 2022, established a standalone regime granting the UK Government enhanced authority to scrutinise and intervene in acquisitions and investments to safeguard national security. For an introduction to the NSIA, refer to our previous article here and for further details of findings in the first annual report, please refer to our other article here.
Call for Evidence
The Government has launched a consultation (open for feedback until 15th January 2024) inviting stakeholders from both the UK and overseas to contribute their perspectives on potential updates to the NSIA regime. The focus of this consultation includes:
- potentially expanding the scope of the areas subject to mandatory notification requirements and exploring updates to the 17 sensitive sectors;
- considering improvements to the notification and assessment process including updates to the notification forms and online portal; and
- considering changes to the public guidance and communications from the UK Government about the NSIA.
The Government has stated that based on the responses received, more detailed consultation on specific measures or legislative changes may be considered. However, we understand that changes requiring further primary legislation are not expected.
Comment
The Government recognises that the majority of acquisitions in the UK economy pose no national security risk, and therefore the Government is interested in ensuring that the notification trigger and assessment process for low-risk acquisitions causes minimal delay or uncertainty. The second NSIA annual report, released on July 11, 2023, revealed that 93% of notifications cleared in the financial year 2022–2023 were approved without requiring a detailed assessment. One of the aims of the consultation is to review the 17 sensitive areas subject to mandatory notification requirements to see if they can be updated to only capture transactions which may present a genuine risk to national security.
One of the mandatory notification areas under which many notifications have been made to date and which is likely to trigger many more mandatory notifications going forward, is that of Artificial Intelligence. As drafted, the NSIA regulations focus on the specific work being undertaken by the qualifying entity, including businesses which develop or produce goods and services that use AI, rather than whether the entity is primarily focused on AI or incorporates or develops AI as part of a wider approach to their sector or business. Hence, as drafted, the regulations regularly capture entities that do not necessarily identify as “AI companies”.
Other mandatory notification areas that have been highlighted by the Government for consultation and possible updates are: Advanced Materials, Communications, Data Infrastructure, Defence, Energy, Suppliers to Emergency Services and Synthetic Biology. The introduction of new sensitive areas is also being considered, creating a distinct Semiconductors and a Critical Minerals area which currently falls within the Advanced Materials area.
The Government is also considering options for exemption from mandatory NSIA notifications in relation to some forms of internal reorganisations. Internal reorganisations often fall within the scope of the notifications, notwithstanding there is no change in ultimate beneficial ownership, as they result in a certain intermediate entity gaining more control over another entity.
Richie Clark, Head of Corporate at Fox Williams, commented, “The Government consultation is very much welcomed. Currently, the NSIA regulations are drafted broadly, capturing transactions without an obvious national security threat which can create unnecessary delay and costs. It is positive that the Government is open to feedback, and we hope to see revisions to the NSIA next year, particularly in relation to AI and internal reorganisations.”
Next Steps
We will be keeping a watch as to what the Government reports following this Call for Evidence and look forward to the conclusions and possible solutions reported.
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