CFIUS’s U.K. Landing Now Complete – The National Security and Investment Act is Now in Full Force

The U.K.’s new national security regime under the National Security and Investment Act (the “NSI Act”) officially commenced on 4 January 2022. While the U.K. government can review any transactions which completed on or after 12 November 2020 (using its “call-in power”), the mandatory notification requirement only applies to transactions that sign on or after 4 January 2022. Notifications under the NSI Act can now be submitted electronically, using a template notification form.

As highlighted in our previous alerts, CFIUS Has Definitively Crossed the Atlantic, but Is Yet to Complete Its U.K. Landing and Is CFIUS One of the Few Things Crossing the Atlantic?, the new regime substantially reforms the U.K.’s foreign investment rules, introducing a hybrid system of mandatory and voluntary notifications on grounds of national security similar to reviews by the Committee on Foreign Investment in the U.S. (“CFIUS”). The new regime is far-reaching, applying to share (including minority shareholding) and asset acquisitions in all sectors without imposing any minimum transaction value thresholds. It also applies to acquisitions of stakes in entities and assets located outside the U.K., where there is a sufficient connection with activities or supply in the U.K. It is also the case that acquisitions with no international element may be caught, so this is not just about vetting the deals of foreign buyers.

The U.K. government can intervene in acquisitions and investments that it determines to be a threat to the U.K.’s national security by imposing conditions on the transaction or preventing it from proceeding. Furthermore, the U.K. government can unwind a transaction that has already completed if it concludes that the deal raises national security concerns. Critically, the completion of any transactions that trigger a mandatory notification without the approval of the U.K. government will render the acquisition automatically void under U.K. law and may result in civil and even criminal liability.

Scrutiny of investments on national security grounds has been moving up the political agenda in the U.K. and internationally.  Many countries have introduced or strengthened existing investment screening regimes over the past two or three years.  The vulnerability of supply chains exposed by the COVID-19 pandemic and the resulting desire to have more control over takeovers of a broadening category of critical activities has accelerated this trend.  Even before the NSI Act came into force, the U.K. government was already showing itself more willing to make use of the national security powers already at its disposal under the regime put in place some twenty years ago by the Enterprise Act 2002, with an increased number of deals being subjected to review more recently.  Jurisdiction to review deals on grounds of national security now transfers to the NSI Act and it is clear that the U.K. government sees itself having a more prominent role in this area going forward.  

However, for most potential acquirers, investors and target companies it is not the risk of national security concerns actually being identified and a deal potentially being blocked that will be foremost in their minds.  Rather, they will be focused on getting to grips with the practical consequences of a new approval process (separate from any relevant competition merger filing process) which may place a legal obligation on them to notify deals and requires them to suspend completion until approval is obtained, with criminal sanctions for those who fail to comply with the rules. 

The U.K. government has provided helpful and relatively (compared with other regimes) detailed guidance around which types of transactions may fall within the new regime and, importantly, which deals will be subject to mandatory notification.  However, there are inevitably still grey areas, given it is a new regime and there is nothing by way of past practice of the Investment Security Unit (“ISU”), the unit within the U.K. Department for Business, Energy and Industrial Strategy which was set up to review investments under the new law.

Nevertheless, as notifications start to be made – and approval decisions start to be given - the experience to date with the process and the ISU has been positive.  The ISU has been efficient, quick to deal with questions and to confirm that filings are complete so that the formal clock can start (following which the ISU has 30 working days to issue its preliminary decision either to approve the transaction or to initiate a full review).  There have also been welcome signs of pragmatism in relation to transactions that appear to raise no concerns.

The U.K. government has indicated that it will provide additional guidance on the new regime later this year, after it has been in operation for a few months.  Any such further guidance is to be welcomed.  Currently, given the inevitable uncertainties with the new regime and the consequences of failing to make a mandatory notification when one is due, many investors are understandably taking a cautious approach and filing, even in cases where it may not be necessary.  It will be in the interests both of investors and the ISU to continue to sharpen as much as possible the lines to delimit which deals are subject to the mandatory notification obligation and which are not.