The Cabinet Office has published the National Security and Investment Act 2021: Annual Report 2023. This is the first annual report to cover a full year of the National Security and Investment Act regime, and it offers some useful insights on navigating the Act's notification process.
More information than last year
While the annual report is required to be published by statute, the level of information in this year's report goes beyond the statutory minimum. As we discussed when we reported on last year's annual report, clarity and transparency around the review process were issues discussed during BEIS Committee sessions on the regime last year.
The Deputy Prime Minister's foreword to this year's annual report stresses his "ongoing commitment to be as transparent as possible". As well as the information that was included in the first annual report (including the total number of notifications organised by month, and the number of notifications organised by mandatory and voluntary categories), this year's report includes categories of information not previously published. These include the number of call-in notices organised by origin of investment and the number of retrospective validation notices approved by month.
Numbers of notifications: the statistics
The NSI Act regime consists of a mandatory notification and clearance regime in relation to transactions involving entities in specified high-risk sectors, and a voluntary regime in relation to other types of transactions (for more detail, please see our in depth briefing: The National Security and Investment Act: protecting UK assets and infrastructure). The annual report reveals that during the reporting period from 1 April 2022 to 31 March 2023, 866 notifications were received. Of these, 671 were mandatory notifications, 180 were voluntary notifications and 15 were retrospective validation applications. Both mandatory and voluntary notifications were accepted on average within 4 working days (median).
Of the 766 mandatory and voluntary notifications and retrospective validations reviewed, 7.2% (55) were issued a call-in notice and 92.8% (711) were notified that there would be no further action. All notifications were either called in or cleared within the statutory time limit of 30 working days after being accepted. It is worth noting that 10 transactions that were not notified were called in for review – the Government has the power to investigate transactions that may present a risk to national security whether or not a notification has been made by the acquirer.
Which sectors of the economy prompted transactions to be called in for review?
Of the transactions called in for review, the Secretary of State made 57 final notifications (i.e. the relevant transaction was cleared) and 15 final orders (i.e. the transaction was blocked or unwound, or conditions were imposed). Of the 57 final notifications, 42% went to acquisitions in the Military and Dual Use area of the economy, 32% went to Advanced Materials, and 26% to Defence. Of the 15 final orders, targets carrying on activities in the Military and Dual Use and the Communications areas of the economy received 4 each, and 3 went to targets carrying on activities in each of Energy, Defence, Computing Hardware, and Advanced Materials.
Origins of investments: which countries featured in called in transactions?
The origin of investment associated with the most call-ins by the Government was China, with 42% of call-ins during the reporting period. Of the 57 final notifications made by the Secretary of State, 40% involved acquirers associated with China, 30% with acquirers associated with the UK and 19% with the USA (an acquisition can be associated with more than one country). Eight of the 15 final orders made involved acquirers associated with China, four were associated with the UK, and three with the USA. Despite publishing this information on the origins of investment, the Deputy Prime Minister stresses in the report that "the Act remains country agnostic".
Taking care to use the right notification form
43 notifications made during the review period were rejected, with the most common reason for rejecting a notification being that the relevant acquisition had been notified using the wrong form (i.e. a mandatory notification that should have been made as a voluntary notification or vice versa).
Next steps and other resources
The report states that the Minister is keen to keep communicating with businesses and to look at how the system can be improved.
While the Government's annual report makes more information available than last year, some may query whether it could go further in terms of transparency around the process. During last year's BEIS Committee sessions, the point was made that while other Government departments feed into the review process, it is difficult for an investor or acquirer to see that. It was noted that in other jurisdictions, such as the US and Australia, it is made public whether other departments feed in and how they do so, and that a certain level of information is important in giving investors confidence that decisions are made in a way that is not political and that brings expertise to bear.
Our NSI Act checker offers a series of simple questions to help you understand whether notification under the NSI Act is likely to be required or at least considered for your transaction.