Government sets out next steps for the National Security and Investment Act system
The Cabinet Office has published its Response to a Call for Evidence in relation to the National Security and Investment (NSI) framework.
The Response sets out the Government’s plans, and key areas of focus, for the NSI system from now until Autumn 2024.
The Response notes that these changes are “fine tuning” the current NSI system. This may reflect that, on the whole, feedback to the Call for Evidence on the operation of the system, and business understanding on how the National Security and Investment Act 2021 (NSI Act) works, was positive.
Five key areas of focus
The Response notes that the Government intends to focus on five key areas between now and Autumn 2024.
1. Updated Section 3 Statement to be published in May
An updated statement setting out how the Secretary of State expects to exercise its power to issue a call-in notice (a Section 3 Statement) will be published in May. This follows responses to the Call for Evidence that businesses would welcome more transparency on where the Government sees risk arising, and the factors the Secretary of State will consider when exercising the call-in power.
The Response also notes that the Government has rejected calls from respondents of a “fast-track” process for certain types of acquirer (for example, if an acquirer has already had a previous transaction cleared through the NSI system) noting that some targets are so sensitive that they will always need to be screened.
2. Updated market guidance to be published in May
The Call for Evidence sought views on further guidance and around 80% of respondents requested further specific guidance to be provided across a broad range of areas including how the NSI Act applies to transactions in academia and research areas, how statutory time limits are calculated and the situations in which the NSI Act can apply to outward direct investment. The Government has committed to publish guidance on the topics raised.
Respondents to the Call for Evidence also provided views on the application of mandatory notification requirements to automatic enforcement provisions in secured lending agreements. Based on this feedback, and the small number of notifications received by the Investment Security Unit in respect of these transactions, the Government does not expect to exempt transfers of control under automatic enforcement provisions, but it will consider if it can provide further guidance.
3. New public consultation to be launched by Summer 2024
The Response notes that the Government will launch a new public consultation by Summer 2024 on updating the sensitive areas of economy falling within scope of the mandatory notification requirements.
This follows requests in response to the Call for Evidence for clearer definitions in a number of areas including Artificial Intelligence and Advanced Materials.
The Response also notes that the Government is considering adding water to the list of areas subject to mandatory notification.
4. The Government will consider technical exemptions to the mandatory notification requirement for inclusion in legislation to be laid in Autumn 2024
The Government will consider targeted exemptions from the mandatory notification requirements. It is intended that these exemptions will be included in secondary legislation to be laid in the Autumn (subject to parliamentary time).
The Government has agreed to expand the existing exemption for administrators to also include the appointment of liquidators, official receivers and special administrators noting that respondents to the Call for Evidence had considered this omission to be an anomaly.
Responses were also provided on potential exemptions for certain internal company reorganisations, transactions involving Scots law share pledges and exemptions for public bodies. In relation to these, the Government intends for the Investment Security Unit to undertake a national security risk assessment to allow the Government to understand whether exemptions are feasible, and if they can be implemented in a way that does not compromise the integrity of the NSI Act.
5. Measures to improve the operation of the NSI system
The final area of focus set out in the Response relates to the operation of the NSI system itself.
The Response notes that the Government has already implemented a number of improvements to operational processes raised by respondents. While that is the case, the Investment Security Unit will consider further improvements following feedback on its engagement with transaction parties, and the length of the assessment process.
The Investment Security Unit will also assess the technical feasibility of suggestions raised in response to the Call for Evidence to improve the portal itself.
Next steps
Whilst the areas of focus set out in the Response are not intended to make wholescale changes to the NSI system, as these reforms are all set to be implemented between now and Autumn 2024, we should start to see improvements and key changes to the NSI regime.
We will issue further updates once further measures are introduced over the coming months.
For more information, please contact John Morrison, Partner in our corporate finance team or Christina Sinclair, Professional Support Lawyer.