UK Government Consults on Changes to Application of National Security and Investment Act

The UK government recently issued a Call for Evidence seeking input from stakeholders regarding potential changes to how it enforces the National Security and Investment Act (NSIA), which enables the UK government to scrutinise certain investments in the United Kingdom on national security grounds. The Call for Evidence is open until 15 January 2024 and is an opportunity for stakeholders to share their views on how the application of the NSIA can be more business-friendly, proportionate, and effective.

POTENTIAL CHANGES

The UK government will use the Call for Evidence to, among other things, consider the following:

1. Exempting certain internal restructurings from the NSIA regime: Currently internal reorganisations can fall within the mandatory filing regime, even though the level of control held over the target does not change or changes very little. The UK government has received feedback that this is disproportionate, and it is therefore exploring exemptions for certain internal reorganisations.
2. Amending the scope of certain of the 17 sensitive areas of the economy subject to mandatory notification requirements[1]: Possible reforms include
   • simplifying the Advanced Materials sector, following feedback that the definition is too complex;
   • amending the Artificial Intelligence (AI) sector, following feedback that the Notifiable Acquisition Regulations capture activities that do not present national security risks. The UK government is also interested in views on whether generative AI, currently not in scope, should fall within the mandatory regime;
   • expanding the Communications sector to include (1) public electronic communications networks or services (PECN/S) with less than £50 million (about $63 million) in UK turnover;and (2) providers of “associated facilities” to PECN/S that have less than £50 million in UK turnover;
   • clarifying the scope of Critical Suppliers to Government area, following feedback that it is difficult for businesses to know if they are within scope;
   • clarifying and expanding the scope of the Data Infrastructure area, among other things to include colocation data centres;
   • refining the Defence area to reduce the number of filings for transactions raising no UK national security concerns;
   • refining the Energy sector to include multi-purpose interconnectors;
   • expanding and clarifying the Suppliers to Emergency Services sector to potentially include subcontractors thereto; and
   • clarifying the Synthetic Biology sector to make it easier for parties to determine whether they are covered.
3. Adding sectors subject to mandatory clearances: These may include
   • The Semiconductor area – focusing on compound semiconductors, design, and intellectual property; and
   • the “Critical Minerals” area – to include 18 minerals deemed critical to UK interests.
4. improving the NSIA notification and assessment process, to limit burdens on business.
5. further developing the UK government’s public NSIA guidance.

Depending on the responses to the Call for Evidence, the UK government may consider whether a more detailed consultation on specific reforms is necessary.

COMMENT

While the UK government is not currently considering changes to the basic provisions of the NSIA, such as, for example, amending the 25%, 50%, or 75% shareholding or voting rights thresholds for mandatory notifications, the review will still be welcomed by business and law practitioners alike.

In the latest reporting year, the UK government had received 866 notifications under the NSIA, of which only 65 were subject to a further assessment, and of these, only 15 required an intervention on UK national security grounds via final orders to block, unwind, or impose conditions on acquisitions.

These figures suggest that the large majority of filings raise no national security concerns and that the scope of the NSIA’s mandatory filing regime may be too broad.

HOW WE CAN HELP

Morgan Lewis is committed to following these developments and supporting our clients in navigating the evolving legal landscape surrounding foreign direct investment screening regimes in the United States and globally. Morgan Lewis will continue to provide legal advice, risk assessment, compliance support, and representation in investigations, as well as strategic guidance in response to opportunities, risks, and challenges posed by foreign direct investment screening regimes.