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Expert Insights

14 December 2020

UK Government to introduce new national security review regime

The UK Government has announced the introduction of new powers to review investments on national security grounds. The powers are set out in the National Security and Investment Bill and will establish a new regime for the review of mergers, acquisitions and other types of transactions that could threaten national security.

Under the current proposals, certain acquisitions of businesses active in sensitive sectors would require mandatory notification to and clearance by the Government before they could be completed.

The Government is currently consulting on the proposed scope of the mandatory notification regime, with responses required by 6 January 2021. The Government has indicated that it would particularly welcome views from those operating in the relevant sectors in order to develop and refine the scope of the regime.

What are the new powers?

The new Bill will:

  • enable the Government to investigate transactions which involve the acquisition of control or influence over an entity or asset, whether or not the transaction has been notified to the Government
  • require mandatory notification of certain types of acquisitions of shares or voting rights in companies and other entities operating in sensitive sectors of the economy. In such cases, completion of the acquisition will be prohibited unless and until approval has been given by the Government.
  • render void any transaction subject to mandatory notification which is completed without approval. Such action will also constitute a criminal offence.
  • introduce a voluntary notification system for transactions that do not require mandatory notification but which may still raise national security concerns
  • allow the Government to impose remedies to address risks to national security (including prohibiting a transaction where considered necessary) and sanctions for non-compliance with the regime.

What types of transaction can be investigated by the Government?

The Government will be able to investigate transactions that involve the acquisition of a certain level of control or influence over an entity or asset. An entity for these purposes includes a company, a limited liability partnership, any other body corporate, a partnership, an unincorporated association and a trust.

An asset for these purposes includes land, tangible moveable property and ideas, information or techniques which have industrial, commercial or other economic value (such as intellectual property).

Each of the following types of acquisition will qualify for investigation:

  • the acquisition of more than 25%, more than 50% or 75% or more of the votes or shares in an entity
  • the acquisition of voting rights that enable or prevent the passage of any class of resolution governing the affairs of an entity
  • the acquisition of material influence over an entity’s policy
  • the acquisition of a right or interest in, or in relation to, an asset providing the ability to:
    • use the asset, or use it to a greater extent than prior to the acquisition; or
    • 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.

The power to investigate a transaction will apply where the Government reasonably suspects that:

  • one of the relevant types of acquisition has occurred or is in progress or contemplation; and
  • the acquisition has given risen to or may give rise to a national security risk.

When will mandatory notification be required?

An acquirer will be required to notify the Government of certain types of acquisitions of shares or voting rights in entities operating in sensitive sectors of the economy.

The relevant types of acquisition are:

  • the acquisition of 15% or more, more than 25%, more than 50% or 75% or more of the votes or shares in an entity
  • the acquisition of voting rights that enable or prevent the passage of any class of resolution governing the affairs of an entity.

In relation to the first type of acquisition (15% or more of the votes or shares in an entity), the Secretary of State would only be able to investigate the transaction if it constitutes an acquisition of material influence over the entity’s policy.

Material influence is already used in the context of the UK merger control rules and, by way of example, may arise where an acquisition would in practice allow the acquirer to block a special resolution with a shareholding below the usual level (more than 25%), based on historic voting patterns.

The Government is currently consulting on which sectors (and which types of entities within these sectors) should fall within the mandatory notification regime.

The current proposed sectors are:

  1. Advanced Materials
  2. Advanced Robotics
  3. Artificial Intelligence
  4. Civil Nuclear
  5. Communications
  6. Computing Hardware
  7. Critical Suppliers to Government
  8. Critical Suppliers to the Emergency Services
  9. Cryptographic Authentication
  10. Data Infrastructure
  11. Defence
  12. Energy
  13. Engineering Biology
  14. Military and Dual Use
  15. Quantum Technologies
  16. Satellite and Space Technologies
  17. Transport.

If the acquirer involved in a transaction subject to mandatory notification completes the transaction without first receiving clearance from the Government, the transaction will be legally void and completion will constitute a criminal offence. The acquirer can also be fined up to £10 million or 5% of its worldwide revenue, whichever is the greater.

However, the Government will also be able to validate retrospectively non-approved notifiable acquisitions in certain circumstances.

How will transactions be assessed?

The Government has published a draft statement of policy intent setting out how it expects to use its new powers, including the three risk factors that it expects to consider when deciding whether to intervene to protect national security.

The three risk factors are:

  • the target risk – the nature of the target entity or asset and whether it is in an area of the economy where the Government considers national security risks more likely to arise. The statement indicates that the areas where risks are more likely to arise are those covered by the mandatory notification regime
  • the trigger event risk – the type and level of control being acquired and how this could be used in practice to undermine national security. The statement gives the example of a transaction that would allow the acquirer to have unauthorised access to sensitive information
  • the acquirer risk – the extent to which the acquirer raises national security concerns. The statement indicates that relevant factors will include those in ultimate control of the acquiring entity and their track record in relation to other acquisitions or holdings.

What will be the timing for the review process?

Where a transaction is notified, the Government will have a maximum of 30 working days to decide whether to investigate the transaction.

Where a transaction is not notified, the Government will be able to investigate up to five years after completion, although there will be no time limit for investigating transactions that fall within the mandatory notification regime and are not notified.

In addition, transactions which take place after the date of the Bill’s introduction to Parliament (11 November 2020) but before enactment will retrospectively fall within the scope of the power to investigate once the Bill is enacted.

Once it has decided to investigate, the Government has up to 30 working days to carry out a detailed national security assessment. This can be extended by a further 45 working days. If more time is needed beyond this, a further voluntary period may be agreed between the Government and the acquirer.

Any of these time limits can be extended where the Government requests information and it is not provided within the required deadline.

What remedies can the Government impose?

If the Government considers that a transaction gives rise to national security concerns, it can issue orders prohibiting or requiring certain actions to be taken by the parties. Such orders can extend to prohibiting the transaction entirely or requiring the acquired entity or asset to be sold.

The Government will also have the power to impose interim measures while it is undertaking its review, including hold separate requirements.


For more information please contact Paul Stone.

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