Moves towards greater transparency under the UK National Security and Investment Act?

The National Security and Investment Act 2021 (NSIA) introduced a new standalone UK regime for the review of certain transactions and investments on national security grounds, which entered into force in January 2022 (see our earlier detailed briefing). Concerns have been raised by both businesses and advisors about the lack of transparency of decision-making under the new regime, and consequent difficulties in predicting how it will apply to a particular transaction.

Restrictions on the disclosure of information relating to national security concerns are of course not surprising. However, the approach of the Investment Security Unit (ISU) to reviewing transactions under the NSIA is often described as resembling a "black box", at least in the initial stages of a review, and can also be inconsistent.

The vast majority of transactions notified under the NSIA are ultimately cleared within the initial 30 working day review period, but the lack of transparency means it can be difficult to predict whether a particular transaction will be "called-in" for detailed investigation or not, and what undertakings might be acceptable to enable a conditional clearance decision to be reached. Businesses active in one of the 17 sensitive sectors in which mandatory notification obligations apply can also encounter difficulties when seeking to determine whether a particular transaction would trigger mandatory notification, due to the broadly drafted definitions of relevant sensitive activities and the reluctance of the ISU to provide informal guidance.

However, there have been some welcome signs that the Government is listening to these concerns and will be seeking to make the NSI regime more open and transparent:

• An ongoing Parliamentary inquiry into information sharing by the ISU recently invited expert witnesses – including Veronica Roberts, who leads Herbert Smith Freehills' Global Foreign Investment Regulation Group – to give evidence about their experience dealing with NSI filings at an oral hearing held on 28 March 2023.  It was clear from the discussions that the NSI sub-committee of the Business, Energy and Industrial Strategy Select Committee (BEIS Committee) is keen to address the concerns raised by businesses and to minimise any "chilling" effect on investment into the UK.
• A Memorandum of Understanding between Oliver Dowden (Secretary of State in the Cabinet Office ultimately responsible for decisions under the NSI regime) and the BEIS Committee was agreed on 14 March 2023. This sets out high-level principles governing scrutiny of the ISU's work by the BEIS Committee and confirms that relevant information will be shared by the ISU, including in a confidential annex to the Annual Report presented to Parliament on the work of the ISU. Parliamentary oversight of the NSIA review process and the agreement of such an MoU was always intended, but it has taken almost two years since the NSIA gained royal assent to finally reach agreement due to both ministerial changes and negotiations on substance.
• On 27 April 2023 the Government published updated Market Guidance setting out additional guidance and clarifications for investors, including:
  • updating the NSI main guidance in relation to issues such as acquisitions involving parties who are in material financial distress, advice on the timing of notification, the stages of the NSI review process and the use of information and attendance notices, and the Government's powers to provide financial assistance to businesses and other parties affected by a final order under the NSIA;
  • updating the guidance on mandatory notification in the 17 sensitive sectors to include slightly more detail on how to engage with Government if there is significant uncertainty about whether an acquisition is notifiable;
  • updating the guidance on completing and registering a notification form to include additional advice in relation to the information to be includes, and how to submit information which is classified above "official"; and
  • a short public statement on information gathering powers under the NSIA, explaining how the Government may gather open-source information and use third-party service providers to obtain information.

Shortly after the oral evidence hearing in the Parliamentary inquiry into information sharing by the ISU, Oliver Dowden publicly stated that he recognises that the NSI regime needs to be more open and transparent. There are also plans to hold roundtables to help companies to understand better what to expect when a transaction is reviewed under the NSI regime, following on from the publication of updated Market Guidance. The Annual Report on the first full year of the regime is expected to be published in the early summer and it is hoped that the Government will use this as an opportunity to give more information about the types of filings it is dealing with.

It remains to be seen precisely what further steps will be taken to publish more detailed information about decisions taken under the NSIA and whether any other changes will be made to the way in which the ISU shares information during the review process. However, it is clear that the Government wishes to emphasise that the UK remains open for investment, despite the marked increase in intervention on national security grounds under the new regime.