It's great to see the UK government came good on the promise
in its recent response to the "call for evidence" on the
NSI regime that it would publish new market guidance in May, as
well as an updated version of the statement on how the Secretary of
State exercises the call-in power – both of which were
published on Tuesday 21 May 2024.
The Secretary of State's statement on use of the call-in power
is an important document, being the only real guidance on when a
transaction might raise substantive concerns and therefore be
called-in for a full assessment (instead of cleared at the first
review stage, or not reviewed at all if a mandatory notification
isn't needed), possibly then leading to remedies or even
prohibition. The new version includes some useful additional detail
and examples, such as regarding overarching concerns, potentially
problematic acquirer characteristics and the importance of
sensitive supply chains to name a few. But there's no material
change in overall approach – this still primarily focuses on
the assessment of control risk, acquirer risk and target risk,
although the new version helpfully adds that wider government
policy on national security in certain sectors, including published
sector strategies, are another relevant consideration.
More apparent from the new content is that target risk is
particularly important – so a target may be so sensitive that
a transaction needs to be called-in for a full assessment even if
acquirer risk is low, which might apply, for example, if the target
is strategically important or owns critical national infrastructure
(such as a UK public communications network or energy
infrastructure provider) or if there are risks around a
target's company structures or security processes. This is
consistent with the government's insistence that even UK-owned
acquirers must be subject to the NSI regime.
Another change to the statement on the call-in power is a bit more
emphasis that the NSI regime is used solely to safeguard national
security and "not to promote any other objectives". But
national security deliberately isn't defined to ensure the
regime can be applied flexibly, so the lines between nationality
security and other objectives are blurred.
Further guidance is always welcome, although there isn't
really much new that applies to transactions in general in the
latest market guidance. The guidance for higher education and
research-intensive sectors seems to have seen the most changes,
whereas changes to the more general guidance are fairly limited and
often on discrete points – for example, a bit more
clarification on the approach to expedited reviews where parties
are in material financial distress, how timelines are calculated,
and expanded "top tips" for completing the notification
forms.
There is also new guidance on how the regime applies to outward
direct investment (ODI), but that doesn't really add much that
wasn't already known – the gist being that acquisitions
of non-UK entities or assets can trigger an NSI review if the usual
criteria are met, including that the foreign entity or asset has a
sufficient nexus to the UK, meaning carries on activities in the UK
or supplies goods or services to the UK. But there's no change
in this regard.
Other next steps identified in the government's response to its
call for evidence included a consultation over the summer regarding
possible changes to the sectors that are subject to mandatory
notification and how those sectors are defined, and possible
legislation in the autumn that might exempt certain transactions
(e.g. internal reorganisations) from the mandatory notification
requirements (subject to further work to assess the risks). Both
these developments are eagerly awaited given difficulties applying
many of the current sector definitions and concerns about the
breadth of the regime.
However, the general election on 4 July will have a big say in whether/when we might see these.
All eyes will now be on the consultation that's expected over the summer regarding possible changes to the sectors that are subject to mandatory notification and how those sectors are defined.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
We operate a free-to-view policy, asking only that you register in order to read all of our content. Please login or register to view the rest of this article.