In our previous article about the National Security and Investment Bill last November, we outlined the key aspects of the proposed new regime to expand the Government’s powers to review, block or conditionally approve investments and takeovers in strategic sectors on national security grounds.
The Bill gained Royal Assent at the end of last month, but not before the Government made important amendments to the mandatory notification requirements and provided updates on how the regime will work in practice. The regime itself is due to commence at the end of this year and, in readiness for this, we provide a summary of the Government’s recent amendments and updates below.
The definition of proposed sectors subject to mandatory notification – In response to consultation feedback that the proposed sectors were too broad, the Government has narrowed and refined some sector definitions. The aim of this change is to make it as easy as possible for potential entities to self-notify under the regime. You can check whether your business may fall within the scope of the Bill in the Governments response document but it is worth noting that the Government will continue to refine these definitions during the remaining passage of the Bill up to Royal Assent. The Bill also contains scope for the Government to review and update these definitions in the future should this be required.
The Mandatory notification threshold – The threshold for mandatory notification under the regime was amended at the House of Lords Report stage. Previously, if the acquirer in a transaction became the holder of 15% or more of the shares/voting rights of an entity, they would be subject to mandatory notification. This threshold has now been increased so that only holders of more than 25% of shares/voting rights in an entity will be subject to the mandatory notification requirements.
Investment Security Unit – The Government’s Department for Business, Energy and Industrial Strategy (BEIS) has set up the Investment Security Unit (ISU) to help identity, address and mitigate national security risks identified under the Bill. If you have any queries on any aspect of the bill, the ISU is available to contact for assistance and can, for example, provide an initial view on whether a transaction is likely to be within the scope of the Bill. Once the Bill is in force, entities will be able to self-notify to the ISU through a digital portal. The Government expects fewer than 10% of the transactions notified to face a detailed national security assessment and expects most transactions to be cleared quickly.
National security interest – In order to “call-in” a transaction, the Secretary of State must determine whether there is a ‘national security interest’. Unfortunately, ‘national security interest’ is not defined within the Bill, however, the Government has recently updated its Statutory Statement of Policy Intent explaining the three risk factors that it will consider when deciding to call in transactions:
- The target risk – This risk concerns the target asset which is being acquired in the transaction. The Government will assess the nature of the target and whether it is part of an activity or within an area of the economy where the Government considers risks are more likely to arise. The core areas in which national security risks are more likely to arise are; Centre for the Protection of National Infrastructure, advanced technology, military and dual-use technologies and direct suppliers to the Government and the Emergency Services.
- The trigger event risk – This risk concerns the potential for the control acquired over the target to undermine national security. The Government will assess the type and level of control being acquired and how this could be used in practice. The Government will look at the potential for this control to lead to disruptive or destructive actions, espionage or inappropriate leverage. This may occur through, for example, gaining control of a crucial supply chain, or obtaining access to sensitive sites.
3. The acquirer risk – This risk concerns the extent to which the acquirer of the asset raises national security concerns. The Government will assess the background to those who acquire control of the target including; any relevant criminal offences or known affiliations to hostile states or organisations and ownership of parts of any other sectors in the core areas of the economy.
Factsheets – To assist your understanding of the upcoming regime, the Government published a process flow chart for businesses and a number of factsheets. These factsheets provide an overview of the Bill and explain the process for businesses and the function of the ISU.
Policy statements – The Government has also published policy statements for each of the 8 statutory instruments within the Bill which are required for the commencement of the regime. These policy statements relating to:
- Exercising the power to call in completed or anticipated trigger events for a formal national security assessment;
- The mandatory notification regime for acquirers of “notifiable acquisitions”;
- Prescribing the form and content of a mandatory notification;
- Prescribing the form and content of a retrospective validation application;
- Prescribing the form and content of a voluntary notice;
- Penalties, amending definition of business, amending control, and amending maximum penalty. These are required for specifying how turnover will be defined;
- Specifying the procedure for the government to issue notices and other documents to parties in order to provide information or to impose civil penalties; and
- Commencement regulations.
The Government is now planning to hold consultations on the Statutory Statement of Policy Intent and on some of the Policy Statements. The feedback from these consultations will help the Government to introduce the statutory instruments in time for the commencement of the regime at the end of this year.
Our highly experienced Business & Finance team specialises in corporate transactions. If you need help planning a transaction and are concerned it may be caught by these new requirements., please get in touch.