Beyond Brexit transition

A new UK national security investment screening regime

Contacts: Mark Jones, Stelios Charitpoulos

What's the issue?

Unlike many countries, the UK has, hitherto, not had a specific regime for national security review of foreign investments.  Instead, national security concerns have been tackled through a process allowing the UK Government to intervene on public interest grounds in the UK merger control regime under the Enterprise Act 2002.  However, in recent years the Government has become increasingly concerned about the need to vet more effectively investments in the UK by foreign players (in particular by those perceived to be potentially adverse to UK interests), including in sensitive sectors involving advanced technologies as well as defence. 

Where are we now?

The UK Government has recently introduced draft legislation for a new National Security and Investment (NS&I) screening regime.  The rules will have a wide reach.  They will apply to acquisitions of control of bare assets as well as of businesses.  They will apply to domestic acquirers as well as to foreign ones.  The Government’s plans include a mandatory notification regime for transactions relating to specific key sectors.  This will be complemented by an option for parties to submit voluntary notifications in respect of transactions in other sectors which might raise national security concerns, and a general power for the Government retrospectively to call-in and review transactions on its own initiative in the five years following completion (shortened to six months if the Government is made aware of the transaction). 

What impact does this have?

The UK Government expects that the NS&I regime could result in over 1000 transactions annually being subject to the new notification requirement, with 100 of these being called in for further scrutiny and approximately ten being subject to remedial measures.  The NS&I regime will thus form an important piece of the puzzle in the post-Brexit world when it comes to the UK’s regulatory screening of transactions.  The new regime could come into force in the first half of next year.  The retrospective call-in power will also apply to transactions completed between now and then.  Transaction parties are therefore well advised to consider whether they may be subject to notification obligations and/or exposed to Government review retrospectively as a consequence of the new NS&I regime.

For more information on this issue please read Strengthening the defences: the new UK national security investment screening regime.

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