On 29 April 2021, the principal legislation establishing the UK’s new national security regime – the National Security and Investment Act 2021 (the Act) – received Royal Assent. Although the new regime is not expected to come into force until much later in 2021, the granting of Royal Assent is a major milestone for the new regime which will significantly upgrade the UK Government’s powers to screen and impose conditions upon investments – bringing the UK closer in line with many of its major allies, including the USA, other Five Eyes allies and Member States in Europe.
In addition to protecting the UK’s national security from “foreign investors that seek to do us harm”, the Government’s press release flags that the new measures are also designed to make the investment screening process simpler and quicker for investors and businesses such that critical foreign investment in the UK is not deterred. This position echoes comments from Ministers and officials throughout the Bill’s passage through Parliament as they have sought to reassure investors and businesses about the limited number of transactions which are likely to give rise to concerns, notwithstanding the very significant number of transactions that are expected to be notified. As Business Secretary Kwasi Kwarteng stated, the UK is “sending a crystal clear message to overseas investors: the UK is open for business, but if you seek to threaten the safety of the British people we will move to protect our interests.”
To ensure the new regime strikes the right balance and enhances the UK’s business environment for foreign investors, the Government has also announced the creation of an Investment Council. Made up of private sector senior leaders from around the globe in a variety of industries – from technology and energy to infrastructure and financial services – the Council will operate alongside the recently formed Office for Investment (based in the Department for International Trade) to drive inward investment across the UK.
We have previously discussed the Bill’s key provisions and its progress through Parliament (see here and here). Since its introduction to Parliament in November 2020, much of the debate has focused on the regime’s wide scope and its potential for dampening vital foreign investment. The Government has, for the most part, successfully resisted repeated calls for the regime to be narrowed in scope by, for example, introducing definitions for “national security” or providing safe harbours for acquisitions of small entities. However, in March the Government did tighten the definitions of some of the sectors subject to mandatory notification (see below) and in the Bill’s final stages in Parliament, removed the requirement for acquisitions of shareholdings of 15 per cent or more in sensitive sectors from the scope of the mandatory notification regime:
- The lowest level of interest that could give rise to a mandatory notification is now an acquisition of shares/voting rights from 25 per cent or less to more than 25 per cent, rather than the previous 15 per cent.
- Given the significant penalties for failing to comply with a mandatory notification obligation, this change will be welcomed by many investors.
- However, investors should note that the Government has retained its ability to “call-in” acquisitions of shareholdings of less than 25 per cent. Acquisitions may still fall within the scope of the regime – and therefore be “called-in” and reviewed – where investors acquire the ability to exercise material influence over an entity (a threshold that can be met at levels as low as 15 per cent). In these cases, voluntary notification to the Investment Security Unit (ISU) may still be advisable for legal certainty, depending on the nature and identity of the target entity and acquirer.
Although the Act is not yet in force, investors now have a clearer idea of the type of regime they will face when it comes into effect. However, the regime is not yet in its final form. Before commencement there is a significant volume of secondary legislation which needs to be drafted and approved by Parliament. This delay gives business further opportunity to engage with the Government to ensure the regime is fit for purpose and meets the Government’s objectives of effective investment screening without undue burdens for business.
In particular, business will have the opportunity to feed into:
- The Government’s statement of policy intent. Although the Government has resisted calls to define what constitutes a “risk to national security” in the legislation, it is expected to provide clearer guidance on the criteria it will take into account in its assessments in an updated statement of policy intent. The Government has said it will launch a formal public consultation on the statement as soon as possible now that the Bill has received Royal Assent. The Government will then incorporate changes to the statement following this consultation and lay a copy before Parliament following commencement of the regime.
- The draft definitions of sectors subject to mandatory notification. Following publication of the original sector definitions in November 2020, the Government published updated drafts on 2 March 2021 and continues to engage with stakeholders to refine the definitions where appropriate. Revised sector definitions will be published in draft Notifiable Acquisition Regulations (NARs), which will need to be approved by Parliament before the regime takes effect. Once approved, the sector definitions will be kept under review and subject to change to ensure the regime continually adapts to the constantly changing threats to national security.
- The notification forms. The notification forms (mandatory, voluntary and retrospective) and accompanying Government digital portal for submissions are being developed and tested with input from business. The Government expects to lay regulations specifying the form and content of the notification forms before Parliament shortly.
The Government will also lay statutory instruments before Parliament setting out the mechanisms for calculating the permitted maximum penalties, the procedure for serving documents and detailing the commencement arrangements. However, none of these will be consulted on beforehand, although the penalties statutory instrument will be subject to the affirmative procedure.
The Government has stressed its commitment to “certainty and transparency for investors”. In line with this commitment, the Government will publish comprehensive guidance on the regime, with the first batch of guidance expected in July and more to follow later in the year.
If you have any questions on the above and/or would like to understand the best way of making your views heard to Government, please get in touch.
To read more about these issues and developments globally, please see our Global antitrust in 2021: 10 key themes report – Politics and antitrust.