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The National Security and Investment Act 2021

Becky Tsang

Becky Tsang

The National Security and Investment Act 2021 (the “Act”) came into force on 4 January 2022, giving the UK government an additional screening process on the grounds of national security.

The Act covers a broad range of transactions, requiring mandatory notification if it is connected to one of 17 key sectors.



The 17 key sectors included in the Act are:

  • advanced materials
  • advanced robotics
  • artificial intelligence
  • civil nuclear
  • communications
  • computing hardware
  • critical suppliers to the government
  • cryptographic authentication
  • data infrastructure
  • defence
  • energy
  • military and dual use
  • quantum technologies
  • satellite and space technology
  • suppliers to emergency services
  • synthetic biology
  • transport

Transactions that meet the criteria have to be approved by the Secretary of State of Business, Energy and Industrial Strategy (“Secretary of State”) or it could be declared void, and there could also be a risk of financial and criminal penalties being incurred for non-notification.

The Act also acts retrospectively, allowing transactions that have completed between 12 November 2020 and 3 January 2022 to be called-in by the Secretary of State for review, if they relate to a qualifying transaction.

What transactions will meet the requirements of the Act?

The regime applies where there has been a trigger event. A trigger event includes:

  • an acquisition of votes or shares in a qualifying entity exceeding: (i) 25%; (ii) 50%; or (iii) 75%;
  • an acquisition of voting rights that enable or prevent the passing of any class of resolution governing the business of the qualifying entity;
  • an acquisition of material influence over a qualifying entity’s policy; or
  • an acquisition of a right or interest in a qualifying asset and having the ability to: (i) use the asset, or use it to a greater extent than prior to the acquisition; (ii) direct or control how the asset is used or direct or control how the asset is used to a greater extent than prior to the acquisition.

Will I need to notify?

If the proposed acquirers of the qualifying entity or assets are involved in the specified sectors and a triggering event is likely to occur, then notification to the Investment Security Unit (the “ISU”) is mandatory.

A secondary notification system, which is voluntary, can be completed by the parties if there are concerns that the transaction could potentially give rise to a national security concern, but does not fall under the mandatory regime.

However, where a transaction could give rise to national security concerns and has not been notified, the Secretary of State has powers to ‘call-in’ and review the transaction. This can be exercised within a six-month period that the Secretary of State becomes aware of the transaction (through company discussions or press coverage), and is valid from before the transaction completes until five years after completion. This power does not apply to transactions within the mandatory notification level.

Who will have to notify and how?

The notification process and screening regime is conducted by the ISU and is the same process for mandatory or voluntary notification. The acquiring party will have to make the application, and this has to be done in writing.

This application can be made through an electronic portal along with any additional information as specified by the NSI Notices Regulation.

How does this impact your business?

The responsibility to file an application at the ISU falls onto the acquiring party, so as the buyer of an entity or assets, one of the first things to consider is whether a proposed transaction could give rise to a national security concern.

If the parties or assets contemplated are connected to one of the 17 key sectors, then notification is mandatory. In the case of a voluntary notification, there is a 30-working day period for the Secretary of State to decide whether to approve the application or exercise its call-in power to review the transaction. If this call-in power is exercised, there may be additional timelines to consider before the final decision is made. If a notification isn’t made voluntarily, there is still the risk that the Secretary of State could exercise their call-in powers to review the transaction.

Since the Act also acts retrospectively, the Secretary of State could call-in and review any transaction completed between 12 November 2020 and 3 January 2022, provided it is a qualifying transaction.

The Act covers entities or assets that carry out activities or are used in connection with carrying on activities in the UK. Aside from foreign investment or the purchase of entities or assets, intra-group transactions could trigger notification under the Act. In addition to this, acquisitions of a minority interest which constitute as a ‘material influence’ or incremental increases to shareholdings that result in the acquiring party exceeding 25% of shareholding or voting rights could also be considered a trigger event for the purposes of the Act.

The penalties for failing to notify transaction that qualify under the mandatory regime are also quite severe. They can come as financial or criminal penalties and are at the discretion of the Secretary of State. The maximum financial penalty that can be imposed is the higher of either £10 million or 5% of the company’s worldwide turnover. The criminal penalties can result in an imprisonment term of up to five years.

As can be appreciated, the implementation of the Act on 4 January 2022 has far reaching implication for those transactions falling within the 17 noted key sectors and impacting on national security. Given its retrospective effect to 12 November 2020, it is advisable for all clients who have completed transactions in these sectors to review the specific terms and consider whether a notification to the Secretary of State should have been made at the time or should now be made.

Get in Touch

If you want more information about the items raised in this article, or about coporporate law generally, please contact:

Our Head of Corporate, Jon Davage

t: 0161 827 4618


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