The UK government has reported a successful start to the implementation of the National Security and Investment Act 2021 (the “NSIA” or “Act”). During the first three months (Jan-March 2022) in which the new NSIA regime has been active, the Investment Screening Unit (“ISU”) received 222 filings and reviewed 17 transactions in depth. Of those 17 transactions, three have been cleared unconditionally, with the other 14 transactions still under review at the end of the reporting period.

Mandatory NSIA filings, which represented 196 of the total flings, were most commonly made in six sectors: defence, military and dual-use, critical suppliers to government, artificial intelligence, data infrastructure and advanced materials.  There were significantly fewer filings in other sectors, with fewer than five filings per sector in areas such as synthetic biology, civil nuclear, advanced robotics and transport.

Collectively, these figures and other data suggest that the NSIA regime is operating, so far, broadly in line with expectations. While there are fewer filings than expected overall, this may reflect a broader global slowdown in M&A and investment activity. The ISU further reports that it is meeting, and often working well within, the maximum statutory time periods for the assessment of filings. The ISU indicates its willingness to complete reviews expeditiously where possible, including for in-depth assessments.

NSIA Regime

The NSIA came into force on January 4, 2022 and introduced mandatory filing and clearance requirements for transactions in 17 sectors of the UK economy in which a greater than 25% interest in equity or voting rights are acquired. The Act also broadened the powers of the UK government (specifically, the Secretary of State for Business, Energy and Industrial Strategy (“BEIS”)) to review any transaction in the wider economy of its own initiative based on national security concerns, for up to five years post-closing.

As outlined in our prior briefings, the scope of the NSIA is broad – not least, filing requirements apply to all investors (including from the UK) and mandatory filings can be triggered by transactions occurring outside the UK if the transaction target has a UK subsidiary or other operational presence in the UK. At its widest scope and through the powers granted to the Secretary of State for BEIS (acting via the ISU) to initiate a review of any transaction, the NSIA has potential application to companies globally that are engaged in any economic activity in the UK, including through the supply of goods into the UK, that presents or could give rise to a national security concern.

At the same time, the NSIA aims to balance the requirements of national security with the interests of the UK in remaining an open economy for investment and as a place which offers ease of doing business.  The first annual report published on June 16, 2022 (the “Report”) confirms this important objective and policy context for the Act. The Secretary of State prefaces the Report by highlighting that the NSIA regime has “an essential role in… ensuring that [the UK] open economy is also a secure one”.

NSIA: In practice and looking ahead

The Report necessarily only covers the short (3-month) initial period of operation of the NSIA regime (arising from a peculiarity of the Act by which the first annual reporting period commenced from the passage of the Act in April 2021).  The early insights offered in the Report can therefore be welcomed by the investment community but much is left to be tested and understood regarding the future operation of the ISU and enforcement trends within the NSIA regime. During April and May 2022 (periods not covered by the Report) the ISU appears to have increased its activity in relation to transactions of potential interest. The outcome of the review of the fourteen transactions mentioned in the Report (and others) that are undergoing in-depth assessment under the NSIA will be watched closely, where publicised (noting that the NSIA process is intended to be confidential in a number of respects).

In practice, the novelty and breadth of the regime will likely continue to present a degree of challenge for investors and companies planning transactions that have a UK component. The Act remains groundbreaking through the introduction of mandatory notification and pre-clearance requirements in a transactional context in the UK for the first time.  By contrast, merger control remains, through notification to the Competition and Markets Authority (“CMA”), non-mandatory.

To the extent that notification and clearance under the NSIA is a mandatory and suspensory process and as failure to meet these obligations can render transactions void, investors (and sellers) may be well-served to act with some caution. In the first instance, this means being prepared to conduct due diligence and the assessment of NSIA filing requirements in a timely manner, including facilitating access to persons suitable to assist with what, in many cases, is a technical assessment of the target’s activities. Although the UK government consulted widely on the types of activity covered by mandatory filing, the assessment of transactions continues to deliver up questions about the scope of the Act and the clarity of the sector definitions.

The Report rightly acknowledges that the implementation of NSIA regime will continue to develop and that the ISU intends to build upon its experience and market feedback. BEIS continues to take soundings from the market on the impact of the NSIA. It is possible, for example, that the government may receive calls to exercise the powers already available in the Act to exempt certain lower risk investors and transactions from filing. Additionally, there may be interest in clarification of the extent to which national security risk could arise within internal reorganisations.

Regulatory Connections

On June 16, 2022, BEIS also published its Memorandum of Understanding for cooperation with the CMA in relation to the NSIA regime. Importantly, the Memorandum envisages potential information sharing between the ISU and the CMA and cooperation in respect of matters such as the timing of investigations, interim measures and remedies. In particular, the ISU and the CMA will routinely share information about their interest in, and the status of engagement relating to, transactions that are subject to in-depth/Phase II assessment by the other organisation. The ISU will also consult with the CMA in respect of NSIA remedies proposed in relation to transactions in which the CMA has an on-going interest and will take into account the CMA’s views. The Memorandum acknowledges, nonetheless, that the ISU and CMA have different regulatory functions and no legally binding obligations are created. BEIS and the CMA also maintain separate marketing monitoring activities and (as would be expected) each organisation would act unilaterally to connect with transaction parties in respect of any transactions of potential interest within its regulatory mandate.

In the Report, BEIS also confirms that it has increased its engagement with “likeminded international partners” in relation to the screening of transactions on national security and public policy grounds.

FDI in Europe

The implementation of the NSIA regime largely accords with the emergence of enhanced FDI screening across Europe and globally. Elsewhere in Europe, the landscape of FDI regulation continues to shift and develop, following rapid change during 2020-1, as individual countries add to or amend their investment screening powers. 18 of the Member States of the European Union now have national FDI screening regimes. Most recently, in the Netherlands, following assent of Parliament in April and the Senate in May, there is now a clear path toward the introduction of new FDI screening powers for transactions in specified vital sectors or relating to sensitive technologies. The Dutch FDI regime is expected to come into force later in 2022. Belgium has also made further advances toward the adoption of general FDI screening powers and legislative proposals for a FDI screening regime have been presented to the local parliament. Elsewhere in Europe, Sweden and Switzerland are also expected to update their FDI laws.

Covington’s dedicated Foreign Direct Investment Regulation team in Brussels, Frankfurt, and London advises clients on foreign investment issues across Europe, including evolving FDI screening regimes. Our team has significant transactional, antitrust, policy, and trade expertise, and draws on the experience of colleagues who had national security responsibility in their former senior government positions in Europe.

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Photo of Thomas Reilly Thomas Reilly

Ambassador Thomas Reilly, Covington’s Head of UK Public Policy and a key member of the firm’s Global Problem Solving Group and Brexit Task Force, draws on over 20 years of diplomatic and commercial roles to advise clients on their strategic business objectives.


Ambassador Thomas Reilly, Covington’s Head of UK Public Policy and a key member of the firm’s Global Problem Solving Group and Brexit Task Force, draws on over 20 years of diplomatic and commercial roles to advise clients on their strategic business objectives.

Ambassador Reilly was most recently British Ambassador to Morocco between 2017 and 2020, and prior to this, the Senior Advisor on International Government Relations & Regulatory Affairs and Head of Government Relations at Royal Dutch Shell between 2012 and 2017. His former roles with the Foreign and Commonwealth Office included British Ambassador Morocco & Mauritania (2017-2018), Deputy Head of Mission at the British Embassy in Egypt (2010-2012), Deputy Head of the Climate Change & Energy Department (2007-2009), and Deputy Head of the Counter Terrorism Department (2005-2007). He has lived or worked in a number of countries including Jordan, Kuwait, Yemen, Libya, Iraq, Saudi Arabia, Bahrain, and Argentina.

At Covington, Ambassador Reilly works closely with our global team of lawyers and investigators as well as over 100 former diplomats and senior government officials, with significant depth of experience in dealing with the types of complex problems that involve both legal and governmental institutions.

Ambassador Reilly started his career as a solicitor specialising in EU and commercial law but no longer practices as a solicitor.

Photo of James Marshall James Marshall

James Marshall advises on all aspects of competition law and foreign direct investment (FDI) screening, with a focus on merger and FDI control, investigations and enforcement, commercial counselling, and abuse of dominance. He has strong experience in the life sciences, energy & infrastructure…

James Marshall advises on all aspects of competition law and foreign direct investment (FDI) screening, with a focus on merger and FDI control, investigations and enforcement, commercial counselling, and abuse of dominance. He has strong experience in the life sciences, energy & infrastructure, digital and technology, financial services, and sports sectors.

James regularly leads cross-border teams to steer clients through both the merger control and FDI aspects of major global deals. Clients turn to James to help them navigate complex global transactions, and to find innovative solutions to antitrust enforcement and counselling matters.

Earlier in his career, James worked with the UK Competition and Markets Authority (CMA), where he helped develop the UK’s antitrust and regulated sector enforcement regimes. He also practiced for several years in the Asia-Pacific region and has experience advising on competition, regulatory, and public policy issues in Asia and the Middle East.

James is a former Chair of the Competition Section Advisory Committee of the Law Society of England and Wales. He is highly recommended by Legal 500 and is recognized as leading adviser by Who’s Who Legal. James is dual qualified in England and Wales, and the Republic of Ireland.