On 29 April 2021, there was a significant development in the evolving European national security landscape, when the National Security and Investment Act (the “Act”) was granted Royal Assent and passed into law in the United Kingdom.
Originally published in November 2020, the Act represents one of the biggest shake-ups of the UK’s investment screening regime in 20 years, enhancing the UK government’s powers to investigate and intervene in foreign direct investment, including through a new mandatory filing regime for transactions in “key sectors.” While aligning the UK’s approach to foreign investment screening more closely with its partners in the United States and the European Union, the Act also reflects a broader trend toward protection of the UK’s national security, and is likely to be followed by reforms to the Official Secrets Acts and the introduction of a UK version of the U.S. Foreign Agents Registration Act (FARA) in the coming months.
The Act made it through parliament largely unscathed, with the most significant change being raising the control threshold in relation to notifiable acquisitions under the mandatory regime to more than 25% of the shares or voting rights in a relevant entity. While this should result in fewer transactions being caught by the mandatory regime, a filing may still be triggered where an investor is able to secure or prevent the passage of any class of resolution governing the affairs of a relevant entity, and the UK government will still be able to “call-in” transactions for review where “material influence” is acquired.
The new regime that sits behind the Act has not yet commenced, and is not expected to do so until late 2021. This gap period is the result of the need for additional guidance on the regime and its scope, as well as secondary legislation to address more practical aspects relating to its operation. Commentators and advisers will be on the lookout for developments in the coming months, including any further changes to the definitions of the key sectors (the UK government published its consultation response in early March 2021 National security and investment: mandatory notification sectors – GOV.UK (www.gov.uk)), and the final statement of policy intent which is designed to provide guidance regarding the new “call-in” power that impacts transactions falling outside the scope of the mandatory regime.
While we wait for the new regime to commence, investors should be mindful that it will have retrospective effect, with the UK government having the ability to use the “call-in” power in respect of transactions closing on or after 12 November 2020.
For further information, please refer to our original Client Alert of November 2020.