Changes to UK national security and investment regime trailed

In its recent industrial strategy paper, the government confirmed that it plans to “shortly announce specific new exemptions to the mandatory regime” that applies under the UK’s National Security and Investment Act 2021 (NSIA).

Under the mandatory pre-notification regime that operates under the NSIA, businesses and investors must notify the UK government of certain ‘notifiable acquisitions’ that relate to 17 sensitive areas of the economy. Notifiable acquisitions include the acquisition of a 25% stake or more, or equivalent levels of voting rights (including, in certain cases, certain shareholdings or voting rights which carry extensive ‘veto’ rights), in an entity carrying on activities in the UK or supply goods or services to people in the UK, as well as to certain increases in interest above the 25% threshold.

In addition to introducing new exemptions to this mandatory regime, the government has promised to open a consultation on changes to how the 17 sectors of the economy in-scope of the mandatory regime are defined. This consultation, the government said, will “propose amendments to ensure that regulatory requirements remain targeted and proportionate, protecting national security and giving certainty to investors”.

Further changes to “bring greater transparency to the NSIA process and ensure that it protects national security while minimising burdens and supporting growth” are also under consideration, the government said, adding that it would “continue to update guidance to ensure there is clarity for investors on how the Act works, including decision-making processes”.

The various interventions are aimed at ensuring the UK operates “a predictable, proportionate, and transparent investment screening framework”, according to the government’s strategy.

Competition law and merger control experts Giles Warrington and Paul Williams of Pinsent Masons said the UK government’s plans resurrect changes to the NSIA that were under consideration by the previous government before last year’s general election. In May 2024, the last government updated guidance on the Act after calls to 'fine tune' the NSIA regime following a consultation.

The new industrial strategy sets out the government's intention to provide targeted and priority support to businesses in eight specific sectors, to help grow the UK economy. The eight sectors – advanced manufacturing; clean energy industries; creative industries; defence; digital and technologies; financial services; life sciences; and professional and business services – are considered to have “high-growth” potential.

There is significant crossover between the eight sectors at the heart of the government’s strategy and the 17 sensitive sectors within scope of the NSIA’s mandatory notification regime.

“Hopefully the forthcoming targeted exemptions will reduce the regulatory burden on firms engaging in certain M&A transactions that may currently be subject to mandatory notification under the NSIA regime despite posing minimal national security risk – such as, for example, certain internal reorganisations,” said Warrington.

Williams added: “Businesses may wish to respond to the UK government’s NSIA consultation once it opens. It is hoped that future changes to the 17 sensitive sector definitions will lead to a more streamlined and transparent NSIA regime.”

“The Competition and Markets Authority (CMA), which may separately review certain M&A deals to assess their potential impact on competition within the UK, is likewise cognisant of the government’s pro-growth and pro-innovation objectives and plans to reduce regulatory uncertainty, leading the CMA to consult on reviewing various mergers guidelines, as well as embedding its ‘4Ps’ framework – pace, predictability, proportionality, and process – in its merger control and wider competition work”, said Williams.

In its separate recent new national security strategy, the government said the NSIA, and the Investment Security Unit (ISU) that operates under the legislation, is “central” to its approach to economic security. The ISU is a body sitting within government that provides administrative and policy support to support the operation of the NSIA and the exercise of the powers of the Secretary of State to scrutinise transactions under the Act.