What are the latest developments?
On 20 July 2021, the UK Government announced that the National Security and Investment Act 2021 (“NSI Act” or “Act“) will enter into full force on 4 January 2022. To help businesses and investors prepare for the commencement of the regime, the Government also published alongside this announcement a series of further guidance notes and materials (see here).
As mentioned in our previous blog posts on this topic (see here, here and here), the NSI Act, initially introduced before the UK Parliament on 11 November 2020, will establish a new standalone UK foreign investment regime and significantly expand the Government’s powers to screen investments on national security grounds. The Act was enacted on 29 April 2021, however only certain miscellaneous provisions were brought into force from that point, and the substantive regime still required further secondary and implementing legislation to be operative. The Government’s announcement effectively confirms that these will be in place, and the regime will commence, on 4 January 2022.
The key features of the regime are as follows:
- Broad jurisdictional nexus criteria to catch investments, including, for certain investments into non-UK businesses;
- Mandatory notification for qualifying investments in 17 sensitive sectors (which will be void if they close prior to clearance), with voluntary notification also potentially advisable for certain investments outside these sectors. The mandatory filing requirement is triggered both for UK and non-UK investors alike;
- A power for the UK Government to “call in” for review qualifying investments (regarding both deals notified to it and deals in the wider economy that do not need to be notified) that give rise to national security concerns;
- Investments that are reviewed will either be cleared, subjected to conditions, or unwound or blocked; and
- Possibility of significant criminal and civil sanctions for non-compliance.
The Act received minimal changes in the UK Parliamentary process, and enjoyed broad cross-party support. The only significant amendment in this process was the removal of a separate 15% notifiable event threshold from the Act’s jurisdictional provisions. This removal means that, once the regime commences, the lowest threshold beyond which transactions in the 17 sensitive sectors will be mandatorily notifiable will be 25% shares or voting rights for an acquirer (or the ability for an investor to secure or block a class of resolution).
The Government has been keen to stress that the UK remains open for foreign investment, and our experience to date of dealing with the Investment Security Unit – the UK Government body responsible for administering the regime – has been largely positive. However, the NSI Act remains one of the broadest and most aggressive investment review regimes globally. While its intervention and assessment practice under the regime remains to be seen, it is to be hoped that the UK Government is true to its word in calling in for review only a very small proportion of deals genuinely harmful to national security, and speedily clearing all other notified investments.
How we can help
Baker McKenzie’s Foreign Investment Review team has substantial expertise in liaising with UK Government stakeholders and advising a range of clients on all aspects of the NSI Act. Stay tuned to our Foreign Investment and National Security Blog for the latest updates and developments, and please do contact our team below directly if you have any questions on the implications of the NSI Act for your next deal. We will also be producing a client alert on the latest developments regarding the Act – if you are interested in receiving this please contact Alex Phillips to be added to our mailing list.
Finally, as part of our 2021 Virtual Annual Compliance Conference, Baker McKenzie is hosting two webinars on foreign investment rules. The first will address the NSI Act in detail, while the second will cover global developments in foreign investment restrictions. Both webinars will be held on Thursday 7 October 2021. To register, please click here and select sessions 17 and 18 – we look forward to having you there!