Search our website... OUR EXPERTISE OUR PEOPLE WHERE WE WORK CAREERS ALUMNI ABOUT US NEWS CONTACT US YOU ARE HERE Home Insights Geopolitics and Business Transactions & Dealmaking UPDATED: UK NATIONAL SECURITY ACT 2021 - WHAT INVESTORS NEED TO KNOW UPDATED: UK NATIONAL SECURITY ACT 2021 - WHAT INVESTORS NEED TO KNOW 17 November 2021 | Insight A significant new execution risk is coming to UK acquisitions from January. On 4 January 2022 the UK National Security and Investment (NSI) Act enters into force, introducing a new foreign direct investment (FDI) regime with standalone powers for the review of FDI in the UK. The new regime replaces the existing public interest merger regime provisions of the Enterprise Act 2002 insofar as a transaction involves national security considerations. On 15 November 2021 the Government published further guidance for businesses on how to prepare for the new rules (General Guidance) and detailed guidance on the mandatory notification applying across 17 sensitive areas of the economy (Notifiable Acquisitions Guidance). The new regime represents an important new execution risk factor, with a similar risk profile to merger control rules. Broadly speaking, the new regime will apply to any acquisition of “material influence” in a company (which may be deemed to exist in relation to a low shareholding, potentially even below 15%), as well as the acquisition of control over assets (including land and intellectual property), which potentially gives rise to national security concerns in the UK. It is worth noting that qualifying acquisitions that are part of a corporate restructure or reorganisation may also be covered. The regime will apply equally to both UK and non-UK investors (although the Government has acknowledged that UK investors will be less likely to give rise to national security concerns in practice), and may capture acquisitions of non-UK entities or assets in certain circumstances (see Guidance on how the NSI Act could affect people or acquisitions outside the UK). A mandatory notification obligation (and a corresponding prohibition on completion prior to clearance) will apply to certain transactions involving target entities which carry out specified activities in the UK in 17 sectors (including energy, transport, communications, defence, artificial intelligence and other tech-related sectors). The 17 sectors are defined in the Notifiable Acquisitions Regulations and additional guidance, with examples, is set out in the Notifiable Acquisitions Guidance. Such transactions include the acquisition of a shareholding/voting rights of more than 25%. This mandatory notification obligation will be combined with an extensive call-in power enabling the Government to call-in qualifying transactions for review, which extends to any sector and is not subject to any materiality thresholds in terms of target turnover or transaction value. Acquirers will also have a corresponding option to voluntarily notify a qualifying transaction to obtain clearance, which may be advisable in the interests of legal certainty where potential national security concerns arise. The substantive provisions of the Act will enter into force on 4 January 2022. However, the Government will have retroactive powers to call in for review as of that date (or potentially up to five years thereafter) any qualifying transaction completed between 12 November 2020 and the commencement date. This means that it is critical for investors to consider the potential application of the new regime for all transactions completed from 12 November 2020 onwards which could potentially raise national security concerns. KEY PRACTICAL TAKEAWAYS FOR INVESTORS DETAILED ANALYSIS OF THE KEY ELEMENTS OF THE NEW REGIME NEXT STEPS SHARE Share to Facebook Share to Twitter Share to LinkedIn Email Print PDF Download RELATED TOPICS Transactions & Dealmaking FEATURED INSIGHTS TECH, DIGITAL & DATA GEOPOLITICS AND BUSINESS NEW BUSINESS LANDSCAPE RELATED ARTICLES Foreign investment: Rising tides of politics in regulation Cartel Intel – updates from our EMEA network A very British energy crisis – Keep calm and transition faster KEY CONTACTS If you have any questions, or would like to know how this might affect your business, phone, or email these key contacts. VERONICA ROBERTS PARTNER, LONDON +44 20 7466 2009 Email Read more TIM BRIGGS PARTNER, LONDON +44 20 7466 2806 Email Read more KRISTIEN GEEURICKX PROFESSIONAL SUPPORT CONSULTANT, LONDON +44 20 7466 2544 Email Read more ABOUT US NEWS CAREERS SUBSCRIBE TO LATEST THINKING BLOGS COVID-19 – MEETINGS AND EVENTS DIVERSITY AND INCLUSION PRO BONO AND RESPONSIBLE BUSINESS ALUMNI ALUMNI NETWORK TERMS DATA ROOMS CONTACT US STAY CONNECTED Twitter LinkedIn YouTube © HERBERT SMITH FREEHILLS LLP 2021 Modern Slavery and Human Trafficking Statement Site Map Accessibility Legal and Regulatory Privacy Policy Report Fraud Whistleblowing Cookie Control