Report provides insight into first three months of UK’s new national security and investment regime

Under the 2021 National Security and Investment Act (NSIA), businesses and investors must notify the government of certain ‘notifiable acquisitions’ that relate to 17 sensitive areas of the economy. Voluntary notifications can also be made in relation to qualifying deals that are not ‘notifiable acquisitions’ under the NSIA. According to the report (31 pages / 3.92 MB PDF), published by the Department for Business, Energy and Industrial Strategy (BEIS), officials received a total of 222 notifications during the 3-month period between January and March this year.

Paul Williams, competition law expert at Pinsent Masons, said the number of notifications was “slightly lower than initially expected by BEIS,” which had predicted between 1,000 and 1,830 notifications annually. Based on the 3-month data included in the report, the department is set to receive around 888 notifications over the course of the year. Williams added: “The regime has, however, only recently commenced and BEIS acknowledges the initial figures may not be representative of future volumes.”

According to the report, while mandatory notifications were received in each of the 17 sensitive industry sectors, the five sectors with the most notifications were: ‘defence’, ‘military and dual use’, ‘critical suppliers to government’, ‘artificial intelligence’ and ‘data infrastructure’. By contrast, ‘synthetic biology’ was the sector that accounted for the smallest proportion of mandatory notifications. BEIS said mandatory notifications can be associated with more than one sensitive industry sector, meaning the number of notifications associated with each sector is higher than the number it received in total.

The five sectors with the most voluntary notifications were: ‘professional, scientific, and technical activities’, ‘data infrastructure’, ‘other service activities’, ‘energy’ and ‘computing hardware’. The report said several mandatory notifications had been rejected because they should have been voluntary notifications. “Other notifications were rejected because they did not include enough information about the acquisition or parties to it, or the notification covered multiple qualifying acquisitions that should instead have been submitted as two notifications,” it added.

Williams said: “Three of the industry sectors attracting the most voluntary notifications – ‘data infrastructure’, ‘energy’ and ‘computing hardware’ – overlap with the 17 sensitive sectors, as do a number of other sectors where voluntary notifications were accepted. The ‘data infrastructure’ sector also featured as one of the top five sectors for mandatory notifications under the NSIA.”

“Transactions in the 17 sensitive industry sectors that fall below the relevant ‘trigger event’ thresholds could fall under the voluntary regime. Much will also depend on the interpretation of the complex sector definitions as set out in the guidance issued by BEIS. If a notification is made under the incorrect mechanism, it may be rejected by the Investment Security Unit (ISU) within BEIS and need to be refiled – adding delay, cost and uncertainty,” Williams said.

Williams said: “The government has committed to publishing ‘market guidance notes’ to supplement the extensive guidance that has already been issued by BEIS. BEIS has said that the market guidance notes ‘will give practical advice about using the system to help businesses and advisers when dealing with the NSI Act’s requirements’ and we hope this will provide additional clarity and reduce uncertainty for businesses, in particular when assessing the position in ambiguous or complex cases.”

He added: “As with other filings, like merger control, businesses can help reduce the risk of rejected notifications or delays by ensuring all relevant information is provided at the outset to enable the ISU to conduct a full NSIA assessment.”

Under the NSIA, the secretary of state for BEIS has 30 working days to evaluate a notification once it has been accepted and can ‘call in’ a qualifying acquisition for further a further 30-working day assessment period. The secretary of state can extend that assessment period by 45 working days – or by even more with the consent of the acquirer. Previously, under the public interest intervention rules in the 2002 Enterprise Act, the government had had up to four months to intervene following the completion of a deal.

According to the report, 17 of the 222 deal notifications received between 4 January and 31 March 2022 were called-in by the government for further assessment. Of these, three were cleared while the other 14 cases were still being assessed at the end of the reporting period. The ISU called in deals within 23-24 working days on average after a notification was accepted, and did not exceed the 30-working day limit in any cases.

Mandatory filings were the most likely type of notification to be called-in for closer review in five industry sectors: ‘military and dual use’, ‘defence’, ‘critical suppliers to government’, ‘data infrastructure’ and ‘critical suppliers to emergency services’. In the first 3 months of the regime just four voluntary notifications were called in, covering the ‘academic research and development in higher education’, ‘advanced materials’, ‘computing hardware’, ‘energy’ and ‘professional, scientific and technical activities’ sectors.

As of 31 March, in the three cases cleared by BEIS - where a final notice was issued - on average this took 24 working days from when the transaction was called in. The secretary of state can impose ‘final orders’ on acquisitions to mitigate national security risks, which can place conditions on a deal prior to its completion, unwind it - or blocking the deal altogether. No final orders were made by the secretary of state, according to the report, and no penalties or other enforcement measures were imposed by BEIS. 

BEIS also published its new memorandum of understanding (MoU) with the Competition and Markets Authority (CMA) which establishes a framework for cooperation, coordination and information sharing in the operation of NSIA between the two bodies. The MoU sets out the legal framework and broad principles for collaboration on the timing of investigations, interim measures, remedies, and the sharing of relevant information between the CMA and BEIS.

The MoU outlines how the CMA’s merger control responsibilities under the 2002 Enterprise Act may intersect with both the NSIA regime and public interest interventions under the Enterprise Act on the grounds of media plurality, financial stability and public health emergencies. Under the terms of the MoU, the CMA will engage with BEIS in relation to mergers that the CMA is reviewing or becomes aware of which might be relevant to the ISU.

In situations where the ISU calls-in a transaction under the NSIA, the CMA will advise BEIS on the merger control status of the deal. BEIS will also be able to request information and assistance from the CMA and will engage with the CMA prior to issuing interim orders, final orders or final notifications under the NSIA in cases where the CMA is likely to have an interest. The CMA will liaise with BEIS before issuing interim orders, derogations, accepting undertakings or issuing final orders under the Enterprise Act in cases where BEIS is likely to have an interest under the NSIA.

To avoid potential conflicts between the NSIA and the Enterprise Act procedures, BEIS and the CMA will, where appropriate, seek to align their respective review processes. Potential conflicts between BEIS and the CMA’s remedies will be escalated internally to reach resolution, according to the MoU. Remedies under the NSIA will be taken on the basis of national security, while CMA remedies are intended to address competition concerns. BEIS will also liaise with the CMA before directing it to take or refrain from actions under the UK merger control regime for the purpose of preventing, correcting or mitigating a risk to national security.

Tadeusz Gielas, competition law expert at Pinsent Masons, said: “Transacting parties should be aware that BEIS may learn of notifiable transactions through its communications with the CMA, potentially increasing the risks for businesses that fail to submit mandatory notifications where required and increasing the possibility of BEIS proactively calling-in transactions. Where national security and merger control procedures are underway, under the separate NSIA and Enterprise Act regimes, the MoU may help facilitate a more aligned and smoother process, hopefully reducing the risk of conflicting or inconsistent outcomes in terms of timing and possible remedies that may be imposed.”

Gielas added: “It is also hoped that information sharing between the two bodies may create efficiencies by avoiding duplicative information requests addressed to transacting parties under the separate regimes.”