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UK government seeks input on National Security & Investment Act updates


A new consultation aimed at gathering input on potential updates to the UK’s 2021 National Security & Investment Act (NSIA) has been welcomed by one legal expert.

The UK government said it wanted to ensure that its investment screening powers remain current, proportionate and transparent for businesses, all while maintaining a focus on national security. Merger control expert Paul Williams of Pinsent Masons said: “It is positive to see the UK government focused on further clarifying and streamlining the regime. Increased legal certainty and a reduced administrative burden will be welcomed by businesses investing in the UK.”

Among the main areas under consideration are the mandatory notification requirements. The government aims to refine these requirements to ensure that businesses and investors only need to notify the government about deals that genuinely warrant consideration on national security grounds. This includes a review of the current 17 sensitive areas of the economy subject to mandatory notification, such as artificial intelligence (AI), to ensure they remain relevant and up to date.

Alongside AI, other existing sensitive areas of the economy the government seeks to clarify and update include advanced materials, communications, data infrastructure, defence, energy, suppliers to emergency services, and synthetic biology. The government will also consider producing additional guidance on the interactions between academia and the NSIA, but is not considering creating a standalone ‘academia’ category for mandatory notification. Potential new areas for mandatory notification include semiconductors and critical minerals – these would be carved-out from the existing categories of computing hardware and advanced materials.

In addition to updating the categories of sensitive areas, the government is exploring options for exemptions from mandatory NSIA notification in relation to internal reorganisations; the appointment of liquidators, official receivers and special administrators; Scots law share pledges; and acquisitions by certain public bodies. The government is also seeking views on the need for more guidance on “certain narrow and specific situations” where the NSIA can apply to outward direct investment (ODI).

“It is particularly welcome that the UK government is recognising areas of the regime that can be further improved, including revisiting sector definitions which are currently drafted widely and which are catching a large number of transactions, and considering an exemption from the application of the NSIA to internal reorganisations,” Williams said.

Additionally, the government is scrutinising the notification and assessment processes to streamline administrative procedures for businesses, while still providing ministers with the necessary information for national security assessments. The content of government guidance is also on the table for review, with proposals designed to enhance understanding among businesses regarding the goals of the NSIA and the steps required for compliance.

Having fully come into force in January 2022, the NSIA grants the UK government the authority to scrutinise, impose conditions on, or block acquisitions of businesses and assets deemed vital to the UK's national security. The latest figures suggest that the majority of businesses have not needed to engage with the investment screening powers. Of those that have, 93% of notifications have been cleared without further assessment.

Williams added: “Notably, the government said that that any changes resulting from the consultation, which will close on 15 January 2024, will not require new primary legislation.”

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