Policy paper

Overview of the National Security and Investment (NSI) Bill factsheet

Updated 3 March 2021

This was published under the 2019 to 2022 Johnson Conservative government

This policy paper was withdrawn on 3 November 2021

This page is out of date. Read the latest guidance on how to prepare for new rules around acquisitions which could harm the UK’s national security.

Overview

The UK has a proud record of welcoming investment and the government is determined that it should remain one of the best places to start and grow a business. Globalisation and technological advances are creating a wealth of opportunities for people and businesses both here and around the world. However, we are also seeing long-term shifts in the balance of global economic and military power, increasing competition between states, and the emergence of more powerful non-state actors.

Our economy’s success and our citizens’ safety rely on the government’s ability to protect national security while keeping the UK open for business with the rest of the world.

Screening investments is an important part of the work the government does to protect security. The overwhelming majority of investments raise no national security concerns.

Our current powers largely in this area date from 2002 – technological, economic and geopolitical changes mean that reforms to the government’s powers to scrutinise transactions on national security grounds are overdue. Several of our allies, including the United States, Australia, Canada, have also made changes to their investment screening processes in recent years.

The National Security and Investment Bill will provide the government with new powers to screen investments so that screening stays effective now and into the future. It will also give businesses and investors a clear and predictable process, so that they can continue to do business in the UK with confidence.

The UK, and UK businesses, face continued and broad-ranging hostile activity from those who seek to compromise our national security and that of our allies. Such behaviour left unchecked can leave the UK vulnerable to disruption, unfair leverage, and espionage. It is crucial that the government is able to fully combat these threats coming from ever more determined overseas actors.

What are we going to do?

• introduce a separate national security investment screening regime, divorced from competition regulation
• establish a clear, easily available platform to facilitate companies’ and other entities’ interaction with the regime, including having clear statutory timelines for each aspect of the process

How are we going to do it?

• establish a requirement for companies and other entities operating in sensitive sectors of the economy to seek authorisation for specific types of transactions
• create a voluntary notification system to encourage notifications from parties who consider that their transaction or other acquisition may raise national security concerns (where the business in question is not one of those automatically required to notify)
• enable the Secretary of State to ‘call in’ statutorily defined transactions or other events to undertake a national security assessment (whether or not they have been notified to the government)
• the power to apply remedies to address risks to national security, sanctions for non-compliance with the regime and the mechanism for legal challenge

What changes have been made prior to the Bill?

The government’s existing powers to intervene in mergers and acquisitions on the grounds of national security are set out in the Enterprise Act 2002. The government has reviewed these powers and concluded that they are no longer sufficient to address the challenging and changing national security threats the UK faces.

The government legislated in 2018 to amend the ‘share of supply’ and ‘turnover’ thresholds in the Enterprise Act. This enabled the Secretary of State to intervene in more mergers on public interest grounds in three sectors of the economy: military or dual-use goods which are subject to export control; computer processing units; and, quantum technology.

Two further Orders were made in 2020 to make 3 further sectors of the economy subject to the lower intervention thresholds: Artificial Intelligence (AI), cryptographic authentication technologies and advanced materials.

The 3 broad areas of reform:

• thresholds: with limited exceptions for the most sensitive parts of the economy, the government is currently unable to intervene where specific thresholds relating to an enteprise’s turnover and its share of supply of products to the UK economy are met. That means that, for example, a merger involving a small enterprise working in advanced technology might not be covered.
• process: the existing process is cumbersome – for example, it involves the Competition and Markets Authority even where they have no competition concerns and even though decisions on national security are for the Secretary of State to make.
• scope: the powers in the Enterprise Act only apply where a business is being taken over. They cannot be used to intervene in asset acquisitions, for example, if a hostile actor sought to buy sensitive assets, such as intellectual property, rather than acquiring the business that owned them.

Key features of the NSI Bill:

The key features are:

• a separate national security screening regime, divorced from competition regulation
• broadening of the range of investments in scope by removing the turnover and share of supply thresholds, including a new definition of ‘entities’ and including acquisitions of assets
• a statutory requirement for parties to notify relevant transactions in the most sensitive areas of the economy;
• the new regime provides a clear process for businesses and investors, which is supported by a ‘call-in’ power that enables the government to assess deals which may give rise to national security risks
• a predictable statutory process, which includes: a Statement of Policy clarifying the parts of the economy in which the government considers national security risks are most likely to arise – this will be updated regularly; time limits for the government to assess cases and make decisions; and appeal routes. More information on the process is available in a separate fact sheet.