National Security and Investment Act 2021 – Potential Developments

By Tim Sadka & Elizabeth Howlett

The Government’s recent consultation, a call for evidence, signifies the consideration for potential changes to the National Security and Investment Act 2021 (NSIA or Act). Running from the 13^th November 2023 to 15^th January 2024, the call for evidence from both UK and international stakeholders sought to “hone the scope of the system’s mandatory notifications requirements; improve NSIA notification and assessment processes; and develop the Governments public guidance and communications on how the NSIA works and where the Government tends to see risk arising.”

In an interview with the Financial Times, Oliver Dowden, Deputy Prime Minister, highlighted the necessity that “government regulation keeps up with the dynamism of the private sector” and that the state applies “as little regulatory burden as necessary”, reiterating ”we can’t have yesterday’s regulation for tomorrow’s world”. Though the Act only came into force on the 4^thJanuary 2022, the Government’s bid to equip the Act with further enforcement power highlights the rapidly evolving nature required to manage transactions in a bid to ensure utmost security. In the first year alone, the Government issued 14 final orders and the proposition of a merger between telecommunications brand Vodafone and CK Hutchinson Holdings will be subject to the provisions and scrutiny under the Act. The proposed changes are set to reduce the number of transactions to fall within the scope of the Act and changes will be predominantly based on a number of prospective amendments, such as:

• Restructures
• Additional sectors

The exploration of updates to 17 sensitive sectors (known as ‘notifiable acquisitions’) including expansion of the scope of a number of areas subject to notification requirements which are mandatory.

Notifiable Acquisitions:

1. Advanced Materials
2. Advanced Robotics
3. Artificial Intelligence (AI)
4. Civil Nuclear
5. Communications
6. Computing Hardware
7. Critical Suppliers to Government
8. Cryptographic Authentication
9. Data Infrastructure
10. Defence
11. Energy
12. Military and Dual-Use
13. Quantum Technologies
14. Satellite and Space Technologies
15. Suppliers to the Emergency Services
16. Synthetic Biology
17. Transport

This narrowing approach to its scope will not render the NSIA redundant by any means, but instead should allow for the Government to more efficiently scrutinise those transactions the Government consider need review, especially those where there is a security concern, permitting the Government to prohibit transactions deemed to be in breach of national security. Notifiable acquisitions, as listed above, are deemed to be those which are most sensitive to the economy and of national significance, and therefore mandatory notification enables thorough review and potential interception in an expected crackdown on high-risk corporate transactions.

The NSIA has not been welcomed with open-arms, and has been construed less favourably by some commentators than the Government’s original aspirations expected. Some argue, including the Financial Times, that the NSIA has led to a decline in UK Mergers and Acquisitions.

As the Government seek to identify how best to tailor the NSIA and challenge the robustness even further, this may ensure that it serves to uphold the ultimate goal of maintaining national security. This would be as opposed to targeting smaller, non-threatening transactions. For example, AI on the whole, which is currently covered by the NSIA, was deemed to have very little national security implication and subsequently, according to Dowden, the remit should be narrowed. Time will tell if this political judgement proves correct.

If change is implemented to the NSIA, an increased focus will be put on more sophisticated AI which could pose potential military threats. Dowden has emphasised, “I always want to adhere to this principle of a small yard or garden and a high fence“. It is evident that, the Government hopes to achieve greater clarity and a boost to business confidence. From the call to evidence, arguably it is clear that the Government’s focus continues to be the promotion of national and international investment in UK industry.