The UK National Security and Investment Act 2021 will come into force on 4 January 2022. The newly created Investment Security Unit ("ISU") within the Department for Business, Energy and Industrial Strategy will take the lead for the Government in assessing deals under the new regime. It will need to interact with a number of other regulators that already exercise a supervisory function over corporate transactions. Recent guidance from the Government identifies various agencies that may be relevant, and attempts to demarcate the responsibilities of the different bodies.
The Competition and Markets Authority
The current framework for public interest interventions (under the Enterprise Act 2002) allows the Secretary of State to initiate a national security assessment if a deal meets the thresholds for UK merger control (including the lower thresholds for deals with national security sensitivities). The Competition and Markets Authority (CMA) reports to the Secretary of State on any competition issues but may also give its views and recommendations, as well as a summary of representations received from third parties, on the national security consideration: see, for example, the CMA's recent report on the proposed acquisition by NVIDIA Corporation of the Intellectual Property Group business of Arm Limited.
The NSI Act will take national security out of the public interest intervention regime, which will continue to apply to the other stated public interest considerations: the stability of the UK financial system, resilience in relation to public health emergencies and issues around media accuracy and plurality.
The NSI guidance reaffirms the CMA's function as "the independent and expert authority responsible for competition assessments." If there are grounds for an acquisition to be considered for both competition and national security reasons, "the ISU will work closely with the CMA to manage the case". However, once an inquiry under the NSI Act has concluded, the Government can issue a direction to the CMA "to do or not do anything under Part 3 of the Enterprise Act, as long as the government reasonably considers that the direction is necessary and proportionate for the purpose of preventing, remedying or mitigating a risk to national security". In effect, the guidance reasserts the primacy of the Government in deciding issues of national security, and indeed suggests that there may be more conflict between the NSI and competition regimes than might be assumed.
There is currently a consultation on the scope of a new targeted power to allow the Government, on national security grounds, to prevent a company from listing in the UK. This power is intended to complement the existing sanctions and anti-money laundering framework. However, the NSI Act does not make any provision in relation to listing rules, and the Takeover Panel has also confirmed that it has no current plans to amend the Takeover Code as a result of the Act. Conflict between an NSI notification and the takeover offer timetable will be avoided by invoking the provisions of the Code that deal with outstanding "official authorisations or regulatory clearances". These provisions will allow acquirers (offerors) who are awaiting a decision under the NSI Act to ask the Takeover Panel to suspend or pause the offer timetable prescribed by the Code. This is intended to enable the two regulatory regimes to operate together.
The mandatory notification regime under the NSI Act will apply to acquisitions of targets involved with products, software or technology that are subject to export control legislation, such as advanced materials, AI, and military and dual-use goods.
The NSI regime will not necessarily overlap with the work of the Export Control Joint Unit (ECJU), the UK body that administers the UK export control and licensing system. The ECJU is primarily focused on controlling the export of listed items, rather than the ownership of the companies that produce them or of the restricted assets themselves. However, where the work of the ECJU does cross paths with the NSI regime, the Government guidance notes that it will "take account" of any controls or licences issued by the ECJU when using its NSI powers.
Financial Conduct Authority / Prudential Regulation Authority
The Government guidance includes a section on the FCA and the PRA, but apparently just as examples of other bodies that can place obligations on entities. The guidance states that it is "possible, but highly unlikely" that NSI Act orders could impact on other obligations, and that the NSI Act "is not intended to prevent persons complying with their statutory obligations". However, parties are invited to make the ISU aware of any concerns that an order under the NSI Act could conflict with other regulatory obligations.