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Further guidance from the UK Government on the new national security investment regime and the likely impact on M&A

  • United Kingdom
  • Competition, EU and Trade - Foreign investment regimes
  • Mergers and acquisitions


On 20 July 2021, the Department for Business, Energy & Industrial Security (“BEIS”) published further guidance on the new UK national security and investment (“NSI”) screening regime.  It also published a consultation on the UK Government’s ability to scrutinise and intervene in acquisitions and investments to protect national security in the UK (“call-in power”) as well as a draft statutory instrument setting out the final definitions of the 17 key areas of the economy which will be subject to mandatory notification. 

BEIS has confirmed that the new standalone NSI regime will come into full effect on 4 January 2022 meaning that a wide range of transactions will be required to make a mandatory notification and obtain clearance before the deal can close.  The retroactive effect of the regime (meaning that it can apply to any transaction completed since 12 November 2020) means that the new regime may impact both historical M&A transactions and current M&A deals. 

The range of new guidance and the consultation gives some further insight into how the new regime is likely to operate. In this briefing we consider the main themes arising from the new documents published by BEIS and the likely impact on M&A deals and investments.

General information on the NSI regime, and the background to the National Security and Investment Act 2021 (“NSI Act) and its content can be found in our previous briefings, “UK Government gets CFIUS: new National Security regime moves one step closer” and “UK Government gets CFIUS with wide-ranging powers under the National Security and Investment Bill” 

Government will have broad discretion to call-in transactions on national security grounds

As well as introducing a mandatory notification regime for transactions taking place within 17 broadly defined key areas of the economy, the NSI Act enables Government to investigate or ‘call-in’ transactions of its own initiative where it considers that an M&A deal or investment will or may give rise to national security concerns.

The Government has published a statement which it is publicly consulting on as to how it plans to use this ‘call-in’ power.

The draft statement makes clear that the Secretary of State will have broad powers to call-in transactions on national security grounds. There are a number of indicators in the draft statement which implicitly suggest that the Government will investigate some transactions even if they are not subject to mandatory notification:

  • Transactions which do not fall within the 17 key areas of the economy which will be subject to mandatory notification but are ‘closely linked’ to those 17 areas are identified in the draft statement as potentially giving rise to national security issues. Although no definition is provided on what constitutes “closely linked to”, the draft statement provides an example of a transaction related to transport, but which does not fall strictly within the scope of the definition of transport under the regulations.  This means that given the broad scope of the NSI regime, businesses which are not active in those 17 areas but which have close links to those areas (e.g. they provide services to customers who are active in those areas) will need to consider the NSI Act in their future transactions. This could potentially impact a large part of the economy.

    The Government has reiterated explicitly that its policy is not to define national security to ensure that its powers are sufficiently flexible to protect the nation. Instead, it will consider each qualifying acquisition on a case-by-case basis, focussing on acquirer, target and control risk factors. The Government has provided more information on “acquirer risk”, which will include several factors including who the ultimate controller of the acquirer is, whether the acquirer might pose a security risk in light of pre-existing holdings; and/or whether an acquirer has committed or is linked to a criminal or illicit activity.
  • The draft statement also makes clear that, even though asset acquisitions are not subject to the mandatory notification requirements, acquisition of control over qualifying assets also falls within the scope of the call-in-power. This includes where there is a change in control in land, tangible moveable property, and Intellectual Property (including designs, software, trade secrets, databases, algorithms and formulae). This will mean that companies involved in asset deals in the 17 key areas identified by Government (or which may otherwise potentially give rise to a national security concern) will need to consider whether to make a voluntary notification under the NSI Act.

Far-reaching extraterritorial effect

The new guidance makes clear that the Government’s intentions are for the NSI Act to be broadly applied including in relation to companies or entities which are based overseas.

The NSI Act enables the UK Government to scrutinise and/or intervene in acquisitions which could harm national security, regardless of who they are made by and whether they are made in the UK. This means that entities which are formed or recognised outside of the UK but carry on activities in the UK or supply goods or services to people in the UK may be captured under the NSI Act. Similarly, land or tangible moveable property situated outside of the UK or its territorial sea or Intellectual Property which is used in connection with an activity carried out in the UK or in connection with the supply of goods or services in the UK may also fall under the remit of the NSI Act.

Examples of entities which may be scrutinised include entities which:

  • supply goods or services to the UK;
  • carry out research and development in the UK;
  • have an office in the UK from which they carry on activities;
  • oversee the activities of a subsidiary who carries out activities in the UK; and/or
  • supply goods to a UK hub which sends goods onto other countries.

An entity may also be captured if it has staff who travel to the UK for business, if the staff undertake business activities similar to working in a regional office. The entity will not, however, be captured if the staff travel solely for market research or as part of a sales team seeking new clients.

Although asset investigations are expected to be rare, the following are examples of assets which may be scrutinised due to the NSI Act’s far-reaching extraterritorial application:

  • assets used by someone in the UK;
  • assets used by someone outside of the UK to supply goods and services to the UK; and/or
  • assets used to generate energy or materials that are used in the UK.

Further, the UK Government will be able to ask individuals for information in relation to an acquisition of an asset, even if the individual is outside of the UK. This includes: where the person carries on business in the UK, even where they are not directly involved in an acquisition; the person is a UK national or an individual ordinarily resident in the UK; the body is incorporated or constituted under UK law; and/or a person/body has acquired, are processing or are contemplating acquiring a qualifying entity or asset.

The guidance also lists examples of situations which are unlikely to fall within the rules, such as where staff work remotely for a non-UK office but are based in the UK and entities who list securities on a regulated or exchange-regulated market in the UK.

Government retains the ability to intervene in CMA investigations on national security grounds

The UK Government issued guidance on how the NSI Act will sit alongside other regulatory requirements including merger control, export control and the Takeover Code. It highlights the following:

  • The Competition Markets Authority (“CMA”) will remain the independent, expert authority responsible for competition assessments under the UK merger control regime. However, where national security reasons require that the transaction be considered by the Investment Security Unit (“ISU”) under the NSI Act as well, the ISU and the CMA will work closely together. Further, where an order or notification has been given under the NSI Act, the UK Government can issue a direction to the CMA to do or not do anything under Part 3 of the Enterprise Act 2002 (“EA02”), as long it is considered to be necessary and proportionate for the purpose of preventing, remedying or mitigating a national security risk.
  • The UK Government will maintain the power under EA02 to intervene in mergers and acquisitions on the grounds of public interest, including relating to the UK financial system, public health and media plurality. However, the NSI Act will replace the national security consideration under the EA02 so transactions previously considered under EA02 on the grounds of national security, will not be called-in under the NSI Act as well.
  • The Export Control Joint Unit (“ECJU”) administers the UK’s system of export controls and licensing for military and dual-use items. The NSI Act shares the same objective as export control, albeit with different remits and factors. Whilst asset acquisitions under the NSI Act will not be subject to mandatory notification requirements, the Government may call in an asset acquisition where it has reasonable suspicion that it has given or could give rise to a national security concern. Where the ECJU and the ISU are considering the same asset, account will be given to any controls or licences issued by the ECJU.
  • The NSI Act sits alongside regulatory bodies who can place obligations on entities, including the Financial Conduct Authority and the Prudential Regulation Authority.  In the event that orders under the NSI Act conflict with obligations placed on an entity by another regulatory body, the entity should make the ISU aware of this.
  • There are no current plans to amend the Takeover Code (the set of rules which apply to publicly traded companies and certain other public and private companies).

Unless otherwise specified, BEIS has confirmed that the NSI Act will not change the regulatory requirements that already apply to acquisitions as imposed by other regulators.

Definitions of 17 key areas of the economy further refined - particularly for communications and energy

The UK Government published a draft statutory instrument, which sets out the updated definitions of the 17 key areas of the economy which will be subject to the mandatory notification requirements under the NSI regime.

The “energy” and “communication” definitions have been substantially revised.

  • Communications: the definition has been amended in line with new headings. These are: “public electronic communications providers”, “associated facilities”, “repair or maintenance of submarine cable systems or cable landing stations” and “information services”.
  • Energy: this section is far more extensive than previous versions, including more detailed information in relation to the energy activity captured and the relevant conditions. 

Other notable changes include that the Data Infrastructure section contains a list of authorities referred to in the definition of “public sector authority”, “Critical suppliers of emergency services” is now referred to as “Suppliers of emergency services” and ambulance services are now treated separately from other suppliers of emergency services (such as police and fire).

New regulator for NSI regime

The new NSI regime will be overseen by the ISU, a new operational unit within BEIS, which is currently being set up in preparation for the regime to commence.  The ISU, which is already operational and engaging with companies informally on transactions which are happening now, will act as a “hub” to coordinate the UK Government’s responses to M&A deals.  It will be the notifying body for NSI filings and will provide a single point of contact for businesses wishing to understand the NSI regime.  In addition, the ISU will be responsible for identifying, addressing and mitigating national security risks to the UK, arising when a person gains control of a qualifying asset or qualifying entity.

Next steps

Parties interested in replying to the UK Government’s consultation on the “call-in” power can do so by 11.45pm on 30 August 2021. The next step will involve the Government finalising the NSI regime on the basis of the evidence collected from stakeholders. This is, therefore, the last chance to have your say before the new regime is adopted.  Eversheds Sutherland will respond to the consultation in due course. We are happy to discuss any points of concern for your business and to support you in developing your position on the UK Government’s consultation.

The consultation and guidance on the NSI regime can be found on the UK Government website.


We welcome the guidance provided by the UK Government to offer clarity on the NSI Act and the NSI regime, and to enable businesses to prepare for the introduction of the regime in January 2022. 

The Government’s press release indicates that the UK Government wants the NSI regime to be “simpler and quicker” in order that the UK economy remains attractive and open to investment. Companies and investors in the UK will welcome these statements. However, given the broad scope of the new regime, the expectation is that the NSI Act is likely to capture many transactions which do not raise any national security concerns.  It will be important therefore that the ISU is given the resources and support needed to fulfil the Government’s objectives for a “simpler and quicker” national security and investment process.

Find out more on the impact to finance transactions in this article from our Banking & Finance team, "What does the National Security and Investment Act 2021 mean for finance transactions?".

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What does the National Security and Investment Act 2021 mean for finance transactions?