The UK government has announced its plans to reform the scope of investment screening rules.
The National Security and Investment Act 2021 (NSIA) provides a mechanism intended to manage national security risks that are perceived to arise from the acquisition of control over entities and assets in certain sectors of the economy.
At present, 17 sectors are within the scope of NSIA (a full list is here). Each sector is covered in NSIA regulations, which detail what type of activities in that sector are covered by NSIA.
If you’re investing in or acquiring control over entities in those sectors, it’s essential to consider whether you have a duty to notify the secretary of state of the transaction to enable an assessment of whether it poses a national security risk.
Failing to give notice of a ‘notifiable acquisition’ carries the risk of substantial criminal and civil penalties. Notifiable acquisitions that are completed without the approval of the secretary of state are void, so it’s important to establish whether your corporate transaction is within the scope of NSIA.
Forthcoming changes to the scope of NSIA
As discussed in our blog in July last year, the government’s been consulting on updates to the relevant legislation to change the scope of activities caught by certain sectors.
It’s considered the responses to the consultation and made some changes to its initial proposals. The updates include:
- Making changes to the scope of the critical minerals and semiconductors sectors, while still maintaining the proposal to make them standalone sectors
- Amending the scope and definitions of the artificial intelligence sector to (among other things) avoid capturing businesses who use third-party AI systems but don’t create or modify AI themselves, and to exclude from the scope of the regime non-consumer AI systems for routine business activities
- Making amendments to various other existing sectors, including critical suppliers to government, data infrastructure, and suppliers to the emergency services
- Providing updated, more detailed guidance across the 17 sectors to address topics raised in feedback
In principle, the reduced reach of the AI sector definition and updated and more detailed guidance are welcome steps towards reducing the burden and clarifying elements of the existing legislation which are often a source of uncertainty for businesses considering whether they’re in scope of the relevant sector.
It’s worth mentioning that the government hadn’t proposed any changes to the defence, military and dual-use and transport sectors, and it’s still the government’s intention to leave these sectors untouched.
With respect to the types of transaction which may be ‘notifiable acquisitions’, we’re awaiting further details on initial proposals to remove the mandatory notification requirements for certain types of internal reorganisations and the appointment of liquidators, special administrators and official receivers.
When's this changing?
The government intends to introduce the legislation in parliament later this year, and we’ll be tracking its progress.
What should I do now?
If you’re unsure whether your corporate transaction is a ‘notifiable acquisition’ under NSIA – either at present, or after the implementation of the proposed changes – you should seek legal advice. Our expert team has experience advising clients with activities across the spectrum of the 17 sectors and assisting clients through in-depth NSIA reviews by the government.
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