We use cookies
Our site relies on them (cookie policy). You can opt out of one of them, but we only use it to analyse traffic
Only essential

A primer on the National Security and Investment Act

Written by
Charles Frank
Last updated
8th February 2022

National Security and Investment Act

The UK’s National Security and Investment Act (NSI) came into force on 4 January 2022. Under the NSI, the UK government can now scrutinise and intervene in certain business acquisitions that they deem could harm the UK’s national security - they can impose certain conditions on an acquisition, and in rare cases may even reverse or block an acquisition completely.

TODO - Uploaded image description

The new rules apply to acquisitions that are in progress, and even those that are just being considered.

If you are planning an acquisition of a “qualifying entity” in one of 17 defined sensitive areas of the UK economy, you may need to get approval from the government before you can complete it. This is called a “notifiable acquisition”. Completing a notifiable acquisition without approval will mean the acquisition is void and may mean that the acquirer is subject to civil or criminal penalties.

How the rules work

  1. Check if the rules apply to your acquisition. This will depend on what you are acquiring and how much control you have over it.

  2. Check if you need to tell the government about your acquisition. You are legally required to inform the government about certain acquisitions of entities if your acquisition is in a sensitive area of the UK economy.

  3. Tell the government about your acquisition. You can do this online by submitting a notification using the National Security and Investment service.

  4. The government will review your acquisition. It can either clear your acquisition, impose certain conditions, or block or unwind it.

The NSI will apply to an acquisition if all of the following apply:

  1. The acquisition is of a right or interest in, or in relation to, a qualifying asset or qualifying entity (as explained below).

  2. The entity or asset you are acquiring is from, in, or has a connection to the UK.

  3. The level of control you acquire over the qualifying entity or qualifying asset meets or passes a certain threshold (for example, your stake or voting rights in a qualifying entity becomes higher than 25%).

  4. The acquisition was not completed before 12 November 2020.

If the government reasonably suspects that an acquisition meets these criteria and that it has given rise to, or may give rise to, a risk to national security, it can scrutinise the transaction.

In addition, if an acquisition that falls into the above criteria is of an entity in one of the 17 defined sensitive areas, it may have to be notified to the government. Qualifying acquisitions outside the 17 defined areas do not need to be notified to the government, but it can still scrutinise them.

Qualifying entities and assets

A “qualifying entity” is any entity other than an individual, including a company, a limited liability partnership, any other “body corporate”, a partnership, an unincorporated association and a trust.

“Qualifying assets” include land, tangible assets, ideas, information or techniques which have industrial, commercial or other economic value (ie. “intellectual property”).

Sensitive areas

The 17 deemed sensitive areas of the economy are: advanced materials, advanced robotics, artificial intelligence, civil nuclear, communications, computing hardware, critical suppliers to government, cryptographic authentication, data infrastructure, defence, energy, military and dual-use, quantum technologies, satellite and space, technologies, suppliers to the emergency services, synthetic biology and transport.

Check if you need to tell the government about your acquisition

You are legally required to tell the government about certain acquisitions of qualifying entities in the 17 sensitive areas referred to above. These are mandatory notification requirements, known as ‘notifiable acquisitions.’

You must get approval from the government before you complete the acquisition, otherwise the acquisition will be void. You can do this by submitting an online form to the government (called a ‘mandatory notification form’).

The government will then review your acquisition to see if it could cause a national security risk. If the government clears the acquisition, it cannot assess it again, unless false or misleading information was submitted.

If you have an acquisition that is not covered by mandatory notification

You are not legally required to tell the government about your qualifying acquisition if it is not covered by a mandatory notification requirement. You can still submit a voluntary notification if you are a party to a completed or planned qualifying acquisition that is not covered by mandatory notification and want to find out if the government is going to call it in.

Even if you do not notify an acquisition, if the government reasonably suspects it may give rise to a national security risk it may still be called in for a national security assessment. The government can assess acquisitions up to 5 years after they have taken place and up to 6 months after becoming aware of them if they have not been notified.

Review period

The government’s initial review period lasts up to 30 working days. The government may extend this period by a further 45 working days, subject to certain criteria being met. Any further extension beyond those 45 working days must be with the written agreement of the acquirer.

Carrying on an acquisition whilst review is ongoing

You can continue to progress an acquisition during the review period up to the point of completion, unless the government has told you not to through an interim order. Interim orders can only be issued during the review period, and may place immediate and temporary controls on the parties to prevent any action which could have the effect of undermining conditions the government may seek to put in place through a final order.

In the case of mandatory notification, you must not complete the acquisition until you have received clearance from the government. If you do complete without clearance, the acquisition will be legally void.

In the case of a voluntary notification, you may choose to continue your acquisition unless the government has told you not to do so. However, if you choose to complete your acquisition before the government has made its decision, the acquisition can later be unwound if the government finds that there are national security concerns.

Compliance and enforcement

Responses available to the government in dealing with non-compliance with the NSI include:

← Back to all of the articles

Try us for free with no commitment

You can start a funding round in minutes with a free FounderCatalyst account, experiment with our service and see how easy it would be to save time, money, and emotional resources by using FounderCatalyst when raising your next funding round.

You can see a sample of the paperwork we'd generate, invite colleagues to act as investors, and truly experiment with how easy we make it. Then cancel the experiment round when you're ready to start a real one!

Need help?

Ask away...