On 18 April 2024, the UK Government published the outcome of its call for evidence into the operation of National Security and Investment Act 2021 ("NSIA") regime in the UK. This follows the Government’s call for evidence in November 2023 (the "Call for Evidence") to consider changes to the NSIA regime and consider refining the mandatory notification requirements, improve notification and assessment processes and improve the Government's public guidance and communication regarding the application of the regime.

In response to the Call for Evidence, the Government will prioritise five areas based on the feedback received, which are:

1.Publish updated guidance on the Government’s risk assessment considerations 

In the Call for Evidence, respondents requested more clarity on the sensitive areas of the economy, how the Government assesses national security risks and when it will “call-in” transactions for review. 

Accordingly, the Government will publish updated guidance on its risk assessment considerations, the so-called “Section 3 Statement”, in an effort to provide greater clarity on when deals might be “called in” for in-depth review. 

The Government also confirmed that whilst it aims to minimise delays and uncertainty for transactions unlikely to create national security concerns, it will not be considering a fast-track process.

2. Publish updated market guidance

The Government will publish further market guidance on the following:

• The factors the Government expects to take into account when assessing risk;
• The application of NSIA to academia and research areas;
• The calculation of statutory time limits; 
• The application of the NSIA to Outward Direct Investment; and
• Transfers of control under Automatic Enforcement Provisions.

3. Consult on clarifying and expanding the 17 sensitive sectors subject to mandatory notification  

Later this year, the Government plans to conduct a formal public consultation on updating the 17 mandatory “sensitive sector” definitions,[1] including proposals for introducing new standalone sectors covering Semiconductors and Critical Minerals. The Government is also exploring adding water to the list of NSI mandatory notification areas.

4. Consider technical exemptions to the mandatory notification requirement 

The Government plans to bring forward secondary legislation to exempt the appointment of liquidators, official receivers and special administrators from the NSIA clearance process.

Respondents to the Call for Evidence also requested an exemption for certain internal company reorganisations as this can impact investment or restructuring timelines. Whilst the Government intends to make the regime business-friendly, its priority remains not to compromise national security protections. Accordingly, before deciding on whether to introduce an exemption for internal re-organisations, it will undertake a thorough national security risk assessment to determine feasibility and potential impact.

5. Improving the operation of the NSIA system and processes

In response to the Call for Evidence, the Government also stated that it will continue to refine the operational processes (including notification forms, NSIA portal as well as providing parties with better access to the Investment Screening Unit (including calls and senior contacts) as appropriate in an effort to ensure that the NSIA system remains balanced and focused while being pro-business and pro-investment without compromising the government's ability to conduct proper scrutiny. 

6. Next steps and timing

In May 2024, we expect the Government to release revised guidelines regarding several aspects, including the transactions that the Secretary of State is most likely to exercise its “call-in” power with respect to: (i) the application of the NSIA to transactions in academia and research fields, (ii) the calculation of statutory time limits, (iii) the application of the NSIA to outward direct investment, and (iv) the applicability of the NSIA to specific lending structures.

Additionally, later this year, the Government will launch a consultation on potentially updating the definitions for the 17 sensitive areas of the economy.

For more information, please contact Anthony Rosen and Tenisha Cramer.

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[1] The current 17 sensitive sectors include Advanced Materials, Advanced Robotics, Artificial Intelligence, Civil Nuclear, Communications, Computing Hardware, Critical Suppliers to Government, Cryptographic Authentication, Data Infrastructure, Defence, Energy, Military and Dual-Use, Quantum Technologies, Satellite and Space Technologies, Suppliers to the Emergency Services, Synthetic Biology, and Transport.