National Security and Investment Act – is my transaction in scope?

The National Security and Investment Act (the NSAI) came into force on 4 January 2022. This 2 minute read aims to give a short checklist of questions to help determine whether a transaction might be in scope of the NSAI.

1. Is there a "trigger event"?

The NSAI works by reference to "trigger events".  Broadly speaking, these are where a person gains "control" of:

i) an entity that is incorporated in the UK or which carries on activities in, or supplies of goods or services to, the UK (see NSAI s.7(2) and (3) for a detailed definition); or

ii) land, tangible moveable property or "ideas, information or techniques" used in connection with activities in, or supplies of goods or services to, the UK (see NSAI s.7(4) and (5) for a detailed definition).

Therefore, note that the NSAI can apply not just to company transactions, but also to asset transactions.

Control can include a minority interest (see NSAI s.8 and 9 for detailed definitions of control).

2. Is a mandatory notification required?

Transactions involving entities that operate in any of 17 specified areas of the economy require mandatory notification.  Note that mandatory notification can only apply to company/entity transactions, not asset transactions.

The 17 specified areas are:

i) advanced materials
ii) advanced robotics
iii) artificial intelligence
iv) civil nuclear
v) communications
vi) computing hardware
vii) critical supplies to government
viii) cryptographic authentication
ix) data infrastructure
x) defence
xi) energy
xii) military and dual-use
xiii) quantum technologies
xiv) satellite and space technologies 
xv) suppliers to emergency services
xvi) synthetic biology
xvii) transport

Detailed descriptions of what is included in each of these areas is set out in government guidance published here.

3. Should a voluntary notification be made?

 Even if a transaction is not in scope for mandatory notification, the government has the power to "call in" that transaction for review at any time up until 5 years after the transaction has completed.  Therefore, many parties to transactions may choose to make pre-emptive voluntary notifications to avoid the risk of a transaction subsequently being challenged or unwound.

To what extent a transaction is likely to be "called in", and therefore whether it is advisable to make a voluntary notification, is subject to the discretion of the government (more specifically, the Investment Security Unit which is the team within the Department for Business, Energy and Industrial Strategy (BEIS) which has been set-up to administer the NSAI).  The government will take into account the following risk factors:

i) the "target risk" – the nature of the target and whether it operates in an area of the economy where the government considers risks more likely to arise;

ii) the "trigger event risk" – the type and level of control being acquired and how this could be used in practice; and

iii) the "acquirer risk" – the extent to which the identity of the acquirer raises national security concerns.  This third factor is perhaps the most difficult and potentially controversial to apply. 

A government policy statement setting out more detail on the risk factors to be taken into account is set out here.

4. Conclusion

This blog is not a substitute for a full NSAI analysis.  However, it aims to help people understand the structure of the NSAI and the relevant questions to ask.