The NS&I Law will introduce mandatory notification and pre-clearance requirements for transactions in 17 ‘core’ sectors. This long-awaited piece of legislation, has passed through Parliament substantially un-amended, except that the investment threshold for mandatory notification has been raised from the acquisition of a 15 per cent. to 25 per cent. interest in shares or voting rights in an acquisition target. The UK Government retains extensive discretion to “call-in” investments for review, both within and outside the 17 ‘core’ sectors, including (i) acquisitions of control of assets and (ii) equity investments below the 25% threshold where “material influence” is acquired, if it reasonably suspects that a transaction gives rise to national security risks.
During this period, the UK government has continued to use its existing powers to investigate transactions on national security grounds under the public interest invention regime established under the Enterprise Act 2002. Of particular interest in this regard was the decision, on 19 April 2021, by the Secretary of State for the Department for Culture Media & Sport to issue a public interest intervention notice in respect of the proposed acquisition of the UK semi-conductor company ARM Limited by Nvidia Corporation.
Scrutiny of Foreign Investment
The adoption of the NS&I Law brings the UK in line with many other countries that have enhanced their powers to scrutinise foreign investment during the past two years and particularly over the last year, influenced by COVID-19 and other global trade and supply concerns. The UK’s Five-Eyes partners all have well-established regimes for the review of foreign investment – several of which have been recently updated. The European Union began cooperating in the review of foreign direct investment (“FDI”) in October 2020 under the EU FDI Regulation and via individual Member State laws, newly adopted or recently expanded.
What is significant about the UK’s NS&I Law is that is introduces mandatory notification obligations for investments into the UK where none have existed before – contrasting with the UK’s merger control regime under which filing is voluntary and associated public interest intervention laws (each under the Enterprise Act 2002) under which the UK Government discretion to intervene in transactions where certain defined public interest considerations are raised.
Under the NS&I Law, transactions subject to mandatory filing obligations and completed without clearance will be deemed void, ushering in a suspensory review regime in the UK for qualifying transactions for the first time. This change in approach has led to concern from the UK’s business and investment and innovation communities, as well as politicians, that the NS&I law will act to deter investment in the UK. There is concern, in particular, that uncertainty for investors is presented by the absence of a definition “national security”, potentially allowing the UK Government considerable discretion in the application of the new NS&I regime.
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