National Security and Investment Act 2021
What is the National Security and Investment (NSI) Act 2021?
The NSI Act entered into force on 4 January 2022. The Act gives the government powers to scrutinise and intervene in business transactions, such as takeovers, and certain acquisitions to protect national security, while providing businesses and investors with the certainty and transparency they need to do business in the UK.
The legislation gives HM Government significant powers to investigate, amend, block, or cancel transactions on national security grounds, where it is notified or becomes aware of a qualifying transaction. It is made up by a hybrid of mandatory and voluntary notification regimes, in respect of qualifying transactions, in turn constituted of Qualifying Entities and Qualifying Assets, respectively, within or related to any of the following 17 sensitive areas of the economy:
The Notifiable Acquisition Regulations apply to acquisitions of control concerning entities, other than individuals, that operate within or close to any of the 17 sensitive areas of the economy. In such transactions the acquiring party is legally obligated to notify HM Government in advance and receive authorisation to proceed before completing the Qualifying Acquisition. Examples of Qualifying Entities relevant in the context of higher education activities may include:
The requirement for mandatory notification applies to acquisitions of control in Qualifying Entities within or proximate to 17 sensitive areas of the economy considered by HM Government as likely to present potential national security risks. In such transactions the acquiring party is legally obligated to notify HM Government in advance and receive authorisation to proceed before completing the Qualifying Acquisition.
A voluntary notification can be made for transactions that involve acquisitions of control in Qualifying Assets, such as intellectual property. In addition, a voluntary notification may be made in relation to an acquisition of a shareholding/voting rights of less than the percentage that requires mandatory notification in an entity operating in one of the 17 sensitive areas where this results in the acquirer obtaining “material influence” over the entity and this gives rise to national security concerns. The government’s ‘call-in’ power is exercisable in respect of all these scenarios and assessing the likelihood of a transaction being called in for review will be a key factor in determining whether to make a voluntary notification.
How will the NSI Act 2021 affect the College?
The legislation requires the acquiring party to make mandatory notifications to the Investment Security Unit (ISU) within BEIS for each planned Qualifying Acquisition of control in Qualifying Entities (also known as a ‘Trigger Event’). It is possible that a single notification may be made in respect of multiple connected acquisitions, but advice should be sought from the ISU to confirm the suitable approach in each case. As most core College business does not concern acquiring control of Qualifying Entities, the following guidance focuses principally on the voluntary regime. It is anticipated that most Qualifying Acquisitions connected to the College within the mandatory regime will be made by third parties, or other College group entities, who shall be responsible for making the required submissions under the Notifiable Acquisition Regulations.
What is the College’s position on the NSI Act 2021?
As with all its legal obligations, the College regards a suitably informed, responsible, and legally compliant approach to national security as indivisible from its academic mission and values. Equally, individual staff who are overseeing or undertaking activities, in particular Principal Investigators and Doctoral Supervisors, have responsibility for ensuring compliance with applicable legislation concerning national security. Consideration should be given to national security during the planning and conduct of College activities, including consulting the published guidance. Details on the administration of the College’s NSI Act screening process can be found on the NSI Act 2021 - College Implementation page (internal to College staff). Further advice may also be sought from the Research Office
Further guidance on the NSI Act 2021 can be found in the accordion section below.
1. Trigger Events / Qualifying Acquisitions – What transactions are subject to the voluntary regime?
Under the National Security and Investment Act 2021 (‘NSI Act’) assets are within scope of HM Government’s call-in power but are not subject to the mandatory notification requirements. Therefore, there is no legal obligation for a party to submit a notification in respect of a transaction involving a qualifying acquisition of an asset. Parties may make a voluntary notification to the Secretary of State about an acquisition if they wish to be certain whether the acquisition will be called in.
The legislation applies to the following classes of asset (see Section 7 of the NSI Act):
- tangible moveable property (e.g., equipment, components, materials)
- ideas, information, or techniques which have industrial, commercial, or other economic value (i.e., intellectual property)
Such assets must have sufficient connection to the UK, generally including being used in connection with activities carried on in the UK, or the supply of goods and services to persons in the UK.
For the purposes of core College activities, most qualifying acquisitions are likely to relate to grants of licences or assignments in respect of intellectual property (IP) but could in some cases encompass procurement or disposal of certain specialist items of equipment, materials etc.
HM Government has stated that it expects to call-in acquisitions of control over qualifying assets rarely compared to qualifying entities. However, it is possible that strategically sensitive IP and related technology (including that within any of the 17 sensitive areas of the economy or controlled under other legislation) could receive additional scrutiny, particularly where the Target Risk and Acquirer Risk are deemed to be moderate or high, thereby contributing to potential risks to national security.
2. Target Risk – What kind of ‘Qualifying Asset’ is more likely to be of interest?
Under the voluntary part of the NSI Act, the target of a qualifying acquisition is the qualifying asset that has been or will be acquired. When considering the ‘Target Risk’, HM Government seeks to understand (and therefore the parties to the transaction should have in mind) aspects including:
- The current, intended, or potential use or purpose of the asset – whether the any of the foregoing have given rise to, or may give rise to, a risk to national security, e.g. flight control systems or CFD modelling concerning civilian aircraft, with potential military applications
- The nature of the asset, including whether it is sensitive, hazardous and/or subject to export controls, or if it is proximate to sensitive sites, e.g. certain radioactive sources, viruses, pathogens
- The utility of the asset, including its technology readiness level (TRL) or ease of deployment e.g. low-TRL laboratory ‘proof of concept’, versus higher TRL work to develop existing technology for implementation in the field
See paragraphs 23-24 inclusive of the NSI Act Section 3 Statement for explanation of how HM Government assesses ‘Target Risk’: National Security and Investment Act 2021: Statement for the purposes of section 3 – GOV.UK (www.gov.uk).
3. Acquirer Risk – Who is gaining increased control over the ‘Qualifying Asset’?
Under the voluntary part of the NSI Act, HM Government considers whether the acquirer poses a risk to national security. When considering the ‘Acquirer Risk’, HM Government seeks to understand (and therefore the parties to the transaction should have in mind) aspects including:
- Characteristics of the acquirer including sector of activity
- Technological capabilities of the acquirer
- Links between the acquirer and entities that may seek to undermine or threaten UK security
- Ultimate control of the acquirer
- Threats posed by existing holdings of the acquirer
- Whether the acquirer, or their ultimate controller, has committed or is linked to criminal or illicit activities connected to national security, or that have or may give rise to a risk to national security
- Acquirer links to entities that pose a threat to national security will not automatically mean that a qualifying acquisition will be called in by HM Government
- Acquirer country of origin is not a sole determinant of call-in, but ties or allegiance to states or organisations hostile to the UK will be considered as part of assessing whether a qualifying acquisition has or may give rise to a risk to national security
See paragraphs 25-29 inclusive of the NSI Act Section 3 Statement for explanation of how HM Government assesses ‘Acquirer Risk’: National Security and Investment Act 2021: Statement for the purposes of section 3 – GOV.UK (www.gov.uk).
4. Control Risk – What degree of control is the acquirer gaining over the ‘Qualifying Asset’?
Under the voluntary part of the NSI Act, HM Government considers the level of control that has or will be gained by the acquirer over the qualifying asset. This includes controlling or directing its use, in addition to using it. Examples in the context of College activity might include the grant of licences to use and commercially exploit intellectual property (IP), or in the case of assignment of such IP, to a third party (including other universities). More control, e.g. by granting full ownership of an asset (including IP), may increase the possibility of a qualifying asset being used to harm national security, including by influencing market behaviour in a manner that may give rise to a risk to national security.
Control Risk is assessed alongside Target Risk and Acquirer Risk, on the basis that lower risk in the latter categories means the level of control acquired is less likely to give rise to a risk to national security, and the acquisition is therefore less likely to be called in.
See paragraphs 30-32 inclusive of the NSI Act Section 3 Statement for explanation of how HM Government assesses ‘Control Risk’: National Security and Investment Act 2021: Statement for the purposes of section 3 - GOV.UK (www.gov.uk).