It has now been just over six months since the UK’s national security regime came into effect under the National Security and Investment Act 2021 (NSIA), enabling the UK Government to review and intervene in a variety of transactions on national security grounds. The first uses of the Government’s call-in powers under the regime were publicly disclosed a few weeks ago (see our prior client alert), and the Government has now published two further documents, namely, the first NSIA Annual Report for the period of 4 January 2022 to 31 March 2022 (the “Annual Report”) providing insights into the regime’s performance over its first three months in operation; and a memorandum of understanding (MoU) between the Department for Business, Energy and Industrial Strategy (BEIS) and the UK Competition and Markets Authority (CMA), clarifying how the regime will operate next to the UK’s existing merger control and public interest regimes. Based on the statistics set out in the Annual Report, the speed with which the Government has accepted and cleared notifications so far, including following the exercise of its call-in powers, is encouraging, although given the limited time period covered and the nascence of the new regime, it is too early to tell whether this will be reflective of the long-term operation of the regime.
The Annual Report summarises the performance of the UK’s new national security regime between the date that the NSIA came into effect (4 January 2022) and 31 March 2022. Notwithstanding the limited time period covered, the Annual Report contains some interesting statistics:
The Government also highlights in its report the willingness of the Investment Security Unit (ISU) to engage with parties and their advisers in relation to queries regarding the operation of the regime.
Some notable absences from the Annual Report include the average time taken to clear a transaction following notification, i.e., the initial 30 working day review period which applies to the vast majority of cases. Our experience is that cases are being cleared well within this period, with decisions being received as early as 20 working days following acceptance in the early months of the regime’s operation, although more recent experience suggests that the Government is increasingly using the full 30 working day period. The Annual Report also does not disclose the volume of notifications that relate relating to internal restructurings, which are deliberately caught by the regime and which we understand are generating a large proportion of filings in practice. It would be useful to see statistics on these points in future reports.
The relatively short average length of clearance for the three reported cases which were called in suggests that these were reasonably straightforward cases which presented limited national security issues. This short time period also suggests that there have not been many (if any) instances of stopping the clock in order to allow time for responses to information requests, which would be expected to materially extend the 30 working day assessment period in practice in a complex case. Our expectation is that complex cases are more likely to take several months to resolve in practice.
The Annual Report indicates that the overall volume of filings made is somewhat lower than anticipated by the Government (the original impact assessment suggested 1000–1800 notifications a year could be expected). The Government suggests that this may be related to a general decline in M&A activity, noting that three months provides a rather limited dataset. It is likely too early to draw firm conclusions from the Annual Report. However, taking account of the high number of notifications made in January 2022 to clear the backlog of deals which had signed but not closed at the time that the NSIA came into effect, and the fact that a higher rate of cautionary filings could be expected in the early months, the volume of notifications may well decline further as parties become more familiar with the ISU and the new regime.
Overall, these early indications of speed and efficiency are of course positive and it is comforting that the Government is actively comparing its performance in operating the regime with that of its international counterparts, such as the Committee for Foreign Investment in the United States (CFIUS) (e.g., highlighting that the Government’s time for accepting notifications is in line with CFIUS’s processing time of 4.7 days). This increases the prospects of being able to align regulatory timelines where filings are required in multiple jurisdictions, which is increasingly the case.
The new national security regime runs alongside (i) the UK’s merger control regime, which is managed by the CMA and (ii) the UK’s existing public interest regime, which allows the Government to intervene in merger transactions subject to review by the CMA on non-national security-related public interest grounds (e.g., the stability of the UK’s financial system, media plurality, or public health emergencies). Acknowledging the high likelihood for overlap among the administration of these three regimes in practice, the Government and the CMA have entered into an MoU setting out how they intend to work with each other. Unsurprisingly, the MoU provides that there will be coordination and alignment between the Government and the CMA during live cases where there is parallel review.
Given the wider powers of intervention held by the Government under the NSIA, the ISU will need to dedicate resources to market monitoring. Due to the voluntary nature of the UK’s merger control regime, the CMA is well established in this function through its mergers intelligence committee, which has a team dedicated to reviewing announced transactions and considering third-party “tip-offs” on non-notified deals. The ISU is expected to take a similar approach, and while the MoU makes it clear that each agency will conduct such monitoring independently and will not “rely on [the] other to identify transactions of interest”, it also clarifies that they will interact on an “informal basis” in relation to transactions which may be relevant to the other body. As a result, for deals being notified under the NSIA that also raise potential competition issues, it will be important to carefully consider the potential interplay between these regimes and, in particular, the need for proactive engagement with both the Government and the CMA where relevant.
These early indications of speed and efficiency are encouraging, but efficiency should be fully expected in relation to cases which raise no material national security concerns (including those involving internal restructurings), and the vast majority of filings are expected to fall within this category. It remains to be seen how some of the more complex cases will be treated, including the 14 cases that were subject to a more detailed assessment following a call-in as of 31 March 2022 (the end of the reported period).
More generally, while the transparency represented by the Annual Report and the ISU’s continued commitment to responding to enquiries and requests for guidance are welcome, it remains the case that the overall process is opaque in practice. Once filings are submitted, there is little engagement with the ISU until a decision is made, which can be somewhat unsettling for merging parties. In addition, the lack of publicised reasoned decisions will mean that it will continue to be difficult to assess risk and identify national security concerns in practice. In that regard, we understand that the Government intends to issue revised market guidance “in due course”. We understand that this is anticipated over the summer months.
MoFo’s Global National Security practice group has extensive first-hand experience in navigating foreign investment regimes all over the world and in particular the United States, Germany, and the UK (both in relation to the new NSIA and under the old Enterprise Act regime).
For background on the UK’s new national security regime, please see our previous alerts:
Julia Kotamäki, London trainee solicitor, contributed to the drafting of this alert.
 National Security and Investment Act 2021: Annual Report 2022. Note that future reports will cover years from 1 April to 31 March.
 The Annual Report states that the Government stayed within the 30 working day time limit for each notification received, suggesting the review period has ranged from 11 to 30 working days but does not provide a detailed breakdown or average time periods for clearance following notification. See 2022 Annual Report, page 13.