National Security and Investment Act 2021: Annual report 2022
The Department for Business, Energy & Industrial strategy (“BEIS”) published its first annual report on 16 June 2022 on the operation of the National Security and Investment Act 2021 (“NSIA”).
The report, a requirement under section 61 of the NSIA, assesses the implementation of the regime during its first ‘relevant period’ from its commencement on 4 January 2022 to 31 March 2022 (the 31st of March being the cut-off date each year for the relevant period).
Please see our previous insights on the NSIA regime:
• National Security and Investment Act 2021 – Who, What, How and When?
• National Security and Investment Act 2021: A Case Example?
• NSIA, what is it and does it affect your transaction?
Mandatory and voluntary notifications
The BEIS’ original yearly estimate of notifications was 1,000 to 1,830. 222 notifications were received during the relevant period, with the report suggesting that mergers and acquisition activity declined as a result of the COVID Omicron variant surging in October – December 2021.
Of the 222 notifications received,
• 196 were mandatory, out of which 178 notifications were accepted and 7 rejected;
• 25 were voluntary, out of which 22 were accepted and 1 rejected; and
• 1 retrospective validation application was received and accepted.
It is important to note the report identifies rejected notifications were due to submission as the wrong category of notification (i.e. the notification should have been voluntary or retrospective rather than mandatory) and for lack of information about the transaction. Companies should therefore be sure to include comprehensive details of the acquisition, and thoroughly assess the type of notification required to avoid unnecessary costs and time delays.
Although there is no statutory time limit to accept mandatory notifications, the average time for acceptance and rejection of mandatory notifications was 3 and 5 working days respectively. Voluntary notifications took slightly longer, with an average time of 4 working days to accept a notification and 12 working days to reject. It is likely, however, that decisions may take longer where the transaction is more complex or further information is required.
Exercise of the call-in power
Out of the 222 notifications, 17 were called in by the Secretary of State and three of which were issued with final notifications to end the call-in process. Whilst the remaining notifications were under review at the end of the reporting period, the figures positively reveal that notifications are being made that do not incur risks to national security.
The response time to respond to call in notifications following acceptance and issue of final notifications averaged 23-24 working days, falling within the statutory time limit of 30 working days and demonstrates the Government’s ability to deal with the notifications in a swift time frame.
It is no surprise that the ‘Defence’, ‘Military and Dual Use’, and ‘Critical Supplies to Government’ sectors were identified as the three most common sectors arising in mandatory notifications. Following closely behind were notifications in the ‘Artificial Intelligence’ and ‘Data Infrastructure’ sectors. Similar sectors were also identified as the top sectors receiving call in notices.
Voluntary notifications and call-ins saw common sectors such as ‘Professional Scientific and Technical Activities’, ‘Energy’, ‘Computing Hardware’ and ‘Data Infrastructure’.
Guidance moving forward
Following the annual report, the Government published ‘Market Guidance Notes’ on 19 July 2022 which cover problem points identified by the BEIS in the NSIA’s first 6 months of operation. These problem points focus on common practical issues with notifications themselves and confusion around ‘temporary acquisitions of control’ (e.g. the granting of security over shares or the appointment of liquidators or other insolvency measures). This is useful clarificatory guidance for anyone considering the relevance of the NSIA.
If you have queries on the NSIA or on this article, please do not hesitate to contact a member of the Corporate team.