The Government has published its first statutory review of the National Security and Investment Act's mandatory notification requirements. The report concludes that the regulations that define the high-risk sectors of the economy that fall within the Act's mandatory notification regime are broadly fit for purpose, although some possible improvements have been identified.
Mandatory notification regime
The National Security and Investment Act gives the Government powers to intervene in investments and other acquisitions of control in the UK economy to protect national security. Acquirers must notify the Government of certain acquisitions of control over entities that carry out particularly sensitive activities in 17 areas of the economy in the form of a mandatory notification, and acquirers must receive approval before completing the acquisition. The 17 high-risk areas are defined in the National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021 (NARs). For an overview of the Act's mandatory and voluntary regimes, please refer to our overview here: Mishcon National Security and Investment Act Hub.
Call for evidence under previous Government
The previous Government published a call for evidence on the NSI Act in November 2023, to which it responded in April 2024. It sought views on how the NSI Act regime, including the NARs, could be more business friendly while maintaining essential national security protections. It sought feedback on areas including the impact of the NSI regime on businesses and investors and whether the scope and requirements of the regime, in particular the mandatory notification requirements, were proportionate and effective. The questions included whether there were activities currently included in the NARs which should not be, and whether there are activities/areas of the economy not currently included which should be included. See our briefing: Government confirms overhaul of National Security and Investment Act regime for businesses amid evolving security threats.
The report: key findings
The Government's statutory review of the NARs found that generally the NARs were achieving their objectives: evidence showed that they largely identified high risk activities warranting mandatory notification requirements without placing disproportionate burdens on businesses. Worth highlighting are the following findings:
- Non-notified acquisitions leading to call-ins: out of 123 call-ins between January 2022 and March 2024, only 14 involved non-notified acquisitions identified through the Government's market monitoring. Of these, 9 were asset acquisitions and so were out of the scope of the mandatory regime. This does therefore not suggest that high risk acquisitions are routinely not being captured by the NARs.
- Areas not covered by the NARs: feedback to the call for evidence highlighted specific areas not currently covered by the NARs that the respondents felt should be, such as Generative AI in the Artificial Intelligence area and Life Sciences Research and Development and Pharmaceuticals in the Synthetic Biology area. While concluding that the NARs broadly cover high risk acquisitions as intended, Government sector experts are of the view that further consideration should be given to a few areas not currently covered, for example in the Artificial Intelligence and Data Infrastructure areas.
- Large majority of mandatory notifications not called in: of a total of 1471 mandatory notifications and retrospective validation applications reviewed between commencement and the end of March 2024, only 72 were called in.
- Sectors covered by the NARs: the majority of feedback provided by stakeholders to the call for evidence noted that the activities specified in the NARs were appropriate and that no particular sector needed to be removed. Some stakeholders noted the breadth of activities covered under Advanced Materials, Artificial Intelligence, Communications and Defence.
- Clarification of certain sectors: the feedback received suggested the majority of stakeholders were confident with the scope of the NARs, but some areas were identified which would benefit from clarification and more guidance: in particular, Advanced Materials, Artificial Intelligence, Defence and Synthetic Biology, due to the breadth and highly technical nature of these areas.
Next steps
The report concludes that the current mandatory notification regime is largely meeting its objectives, but that in order to keep in line with emerging threats, changing market practices and best practice, the Government will continue to keep the NARs under review.
While confirming the Government's commitment to the development of the legislation to make improvements that have surfaced during the review, no timeframe is given for the drafting of amended regulations.