Policy paper

Policy Statements regarding statutory instruments required for the commencement of the NSI regime

Updated 2 March 2021

This was published under the 2019 to 2022 Johnson Conservative government

This document sets out policy statements for each of the statutory instruments within the National Security and Investment Bill (‘the Bill’) which are necessary for the commencement of the regime provided for by the Bill.

This is intended to complement the Delegated Powers and Regulatory Reform memorandum published upon introduction of the Bill and provide further information on the government’s intended use of the delegated powers in the Bill.

This document is accurate on the day of publication. It may later be revised to take account of Parliamentary scrutiny.

Summary of the statutory instruments

There are 10 delegated powers within the Bill, of which eight are needed for the commencement of the regime, including a commencement order. Two of these instruments will be subject to the affirmative resolution procedure and five will be subject to negative procedure. The commencement order has no procedure attached to it.

Timing

Our intention is to ensure that the National Security and Investment regime is commenced by the end of 2021, subject to further Parliamentary scrutiny and debate on the statutory instruments provided for this Bill.

The government intends to begin the process for making the statutory instruments subject to the affirmative resolution procedure as soon as possible following Royal Assent.

Detail on each statutory instrument

Publication of a policy statement regarding call-in. Clause 3

The National Security and Investment Bill requires the Secretary of State to have regard to a statement of intent when exercising the power to call in completed or anticipated trigger events for a formal national security assessment. The statement describes how the Secretary of State expects to use the call-in power. The Secretary of State proposes to illustrate in the statement the three risk factors that he expects to consider when deciding whether to use the call-in power.

The purpose of the statement is to provide additional predictability and transparency in relation to the Secretary of State’s expected use of the call-in power. In particular, it is intended to assist entities and their advisers to foresee which acquisitions are more likely to be called in for scrutiny. The statement is also intended to assist parties in deciding whether to voluntarily notify the Secretary of State of their trigger events.

The draft statement describes the following risk factors:

• the target risk – the nature of the target and whether it is in an area of the economy where the government considers risks more likely to arise;
• the trigger event risk – the type and level of control being acquired and how this could be used in practice;
• the acquirer risk – the extent to which the acquirer raises national security concerns

The Bill requires that the Secretary of State, as a minimum, reviews this statement every five years. The Secretary of State may review and revise the statement more frequently to adapt and respond to national security threats.

A draft statement was published alongside introduction of the Bill on 11 November. Proposals for changes to the draft statement have been received and are being considered. The Secretary of State intends to launch a formal public consultation on the statement as soon as possible following Royal Assent of the Bill. The Secretary of State will incorporate changes to the statement following this consultation and lay a copy before both Houses following commencement of the regime.

Notifiable acquisition regulations. Clause 6

The NSI regime makes provision for a mandatory notification regime requiring acquirers of “notifiable acquisitions” (acquisitions of certain shares or voting rights in qualifying entities specified in regulations) to obtain clearance from the Secretary of State for their acquisitions before they take place. This mandatory regime will enable the government to intervene in potential acquisitions in sensitive sectors where the risks to national security have been identified as most acute.

Under Clause 6, the Secretary of State has the power to make regulations to:

a) specify the description of a qualifying entity for the purpose of identifying a notifiable acquisition;

b) amend the circumstances in which a notifiable acquisition takes place or does not take place, including provision about the circumstances in which the acquisition of control over a qualifying asset of a description specified in regulations is a notifiable acquisition;

c) exempt acquirers with specified characteristics from the mandatory notification regime, meaning that they would not need to notify or obtain prior approval for acquisitions that are otherwise within scope of the regime;

d) make consequential amendments of other provisions of the Bill resulting from provisions set out in paragraphs (b) and (c).

For the commencement of the regime, the Secretary of State intends to make regulations only to specify the sectors subject to mandatory notification.

For the definition of sectors subject to mandatory notification, 17 sectors of the UK economy have been identified as core areas where certain acquisitions could give rise to elevated national security risks and therefore should be subject to the mandatory notification requirement. A consultation on the draft definitions of sectors which will be in scope of the mandatory notification regime was published in November alongside the Bill and was open for 8 weeks, closing on 6 January 2021. The descriptions in the consultation have been revised, taking account of the consultation responses. Further targeted engagement will take place with relevant sectors to continue to refine the definitions before regulations are laid setting out the acquisitions within the 17 sectors subject to mandatory notification.

The descriptions of the qualifying entities in the 17 sectors will only cover activities of entities in those sectors which give rise to elevated national security risks.

The government response to the consultation, which includes revised definitions of sectors, has been published prior to Lords Grand Committee to aid Peers in scrutinizing the Bill.

The Secretary of State will keep under review the need for regulations to amend the provisions that describe when a notifiable acquisition takes place by reference to when a person gains control of the voting rights or interest in a qualifying entity, the definition of a qualifying asset or exemptions for acquirers. These are important powers which the Secretary of State must have to ensure the regime can be updated and amended in response to emerging threats.

These regulations are made under the powers in clause 6 and are subject to the affirmative procedure.

Prescribe the form and content of a mandatory notification. Clause 14

The Bill proposes to require a person who gains certain shares or voting rights in relation to a ‘notifiable acquisition’ (defined through regulations made under Clause 6) to notify the Secretary of State of the proposed acquisition. This is done by submitting a mandatory notice to the Secretary of State.

These regulations will prescribe the form and content of a mandatory notice, to ensure that the Secretary of State receives the information he needs to decide whether to issue a call-in notice in relation to a proposed notifiable acquisition. The form will be clear and require the person acquiring certain shares or voting rights to provide information about the acquisition, (e.g. information to identify key parties, key dates of the acquisition, main terms, details of the qualifying entity over which control is being acquired and details of the acquiring party etc.). The form will not require the person acquiring certain shares or voting rights to demonstrate whether national security issues have or have not arisen.

BEIS will continue to engage interested parties to test the ease of completing the form and the clarity and relevance of the questions.

The government has published a draft form on GOV.UK. and intends to lay regulations specifying the form and content of a mandatory notification. shortly after Royal Assent.

These regulations are made under the power in clause 14(4) and are subject to the negative procedure.

Prescribe the form and content of a retrospective validation application. Clause 16.

Clause 6 of the Bill requires a person who gains certain shares or voting rights in relation to a notifiable acquisition to notify the Secretary of State of the proposed acquisition prior to completion, and any notifiable acquisition that is completed without the approval of the Secretary of State has no legal effect and is void in law.

Any person who has been materially affected by the voiding of a notifiable acquisition is able to apply to the Secretary of State for a validation notice, which has the effect of treating the acquisition as having been completed with the approval of the Secretary of State and therefore means that the acquisition no longer void.

Regulations under Clause 16 will prescribe the form and content of a validation application, setting out the types of information that will be required to ensure that the Secretary of State receives the information he needs to assess each application.

The Secretary of State intends to publish the form and make regulations shortly after Royal Assent specifying the form and content of a validation application. The form will be clear and require the affected person to provide basic information about the acquisition, (e.g. information to identify key parties, reason for the request, main terms of the acquisition, details of the qualifying entity over which control is being acquired and details of the acquiring party etc.) The form will not require the affected person to demonstrate whether national security issues have or have not arisen.

BEIS will continue to engage interested parties to test the ease of completing the form and the clarity and relevance of the questions.

These regulations are made under the power in clause 16(3) and are subject to the negative procedure.

Prescribe the form and content of a voluntary notice. Clause 18.

Those persons who are not subject to mandatory notification, are able to voluntarily seek clearance for an acquisition by notifying the Secretary of State that a trigger event has occurred or is under progress.

These regulations will prescribe the form and content of a voluntary notice, setting out the types of information that will be required in the voluntary notification to ensure that the Secretary of State receives the information he needs to consider the trigger event. The form will be clear and require the notifying party to provide basic information about the trigger event, (e.g. information to identify key parties, reason for voluntary notification, main terms of the trigger event, details of the qualifying entity/asset over which control is being acquired and details of the acquiring party). The form will not require the notifying party to demonstrate whether national security issues have or have not arisen.

BEIS will continue to engage interested parties to test the ease of completing the form and the clarity and relevance of the questions.

A draft notification form was published for comment on GOV.UK. No further consultation is planned, however BEIS will continue targeted engagement with interested parties to test the form.

The Secretary of State intends to publish the form and make regulations, specifying the form and content of a voluntary notification, shortly after Royal Assent.

These regulations are made under the power in clause 18(4) and are subject to the negative procedure.

For the purposes of penalties, amending definition of business, amending control, and amending maximum penalty. Needed for specifying how turnover will be defined. Clause 41.

Under the NSI Regime, the Secretary of State is able to impose a monetary penalty on a person if he is satisfied beyond reasonable doubt that the person has committed a qualifying offence. Offences include, completing a notifiable acquisition without approval, failing to comply with an interim order or final order, and offences in relation to supplying information or the attendance of witnesses.

The Bill sets out maximum penalties for the different offences. Dependent on the offence committed, the maximum penalties for business are either a specified amount or a percentage of the worldwide turnover of the business and of any businesses it owns or controls.

Clause 41 (8) enables the Secretary of State to make regulations to:

a) Provide that a person of a description specified in the regulations is or is not a business for the purposes of this section.

b) Make provision for determining when a business is to be treated as controlled by another business for the purposes of this section.

c) Make provision for determining the turnover (both in and outside the United Kingdom) of a business for the purposes of this section.

d) Amend the percentage of turnover which is used to calculate the maximum penalty.

e) Amend the figures specified for the maximum fixed penalties.

The Secretary of State intends to make regulations shortly after Royal Assent to specify how to determine the turnover of a business for the purposes of calculating penalties and to define when a business is to be treated as controlled by another business. This is essential for the calculation of any penalty and the enforcement of the regime.

The Enterprise Act 2002 (Mergers) (Interim Measures: Financial Penalties) (Determination of Control and Turnover) Order 2014 (SI 2014/533) definition of turnover is expected to be the basis on which turnover is defined for the purposes of these regulations.

The powers available under this clause on amending maximum fixed penalties and the percentage of turnover used to calculate penalties will not be used in the regulations made for the commencement of the regime. While they are crucial delegated powers to ensure that the regime, for example, takes account of changing forms of businesses and adapts appropriately over time, they are reserve powers and as such are not necessary for the commencement of the regime.

As the Secretary of State is making regulations under this clause for limited purposes, and as closely following precedent, we do not intend to consult prior to laying regulations for these purposes.

These regulations are made under the powers in clause 41 and are subject to the affirmative procedure.

Specify the procedure for giving documents. Clause 53.

The NSI Bill provides the Secretary of State with the power to call in investments for assessment, to require information from parties involved, and to require parties to change the nature of their investments or even prevent them. It also carries civil and criminal penalties for breaching the regime.

The Secretary of State will therefore need to issue notices and other documents to parties, for example to require them to take certain actions, to provide information or to impose civil penalties. Parties will similarly need to submit notices and other documents to the Secretary of State.

These regulations will specify how such documents should be served. The Secretary of State may by regulations make provision as to:

a) The manner in which a document must be given or served.

b) The address to which a document must be sent.

c) Requiring, or allowing, a document to be sent electronically,

d) When a document is treated as having been given, received or served.

e) What must, or may, be done if an intended recipient is not an individual.

f) What must, or may, be done if a person is treated by virtue of Schedule 1 as holding an interest or right for the purposes of this Act.

g) What must, or may, be done if an intended recipient is outside the United Kingdom.

The Secretary of State intends to make regulations shortly after Royal Assent to specify the procedure for serving notices. These regulations are intended to cover all of the points listed above, apart from (f). The Secretary of State does not, at this stage, intend in these regulations to use the power to specify what must, or may, be done if a person is treated by virtue of Schedule 1 as holding an interest or right for the purposes of this Act.

As these regulations relate to procedural issues, the Secretary of State does not intend to consult prior to laying regulations for these purposes.

These regulations are made under the powers in clause 53 and subject to the negative procedure.

Commencement regulations.

These regulations will set out commencement provisions, along with any necessary transitional and saving provisions not already included on the face of the Bill in clause 62 to ensure the regime can commence.

These provisions will in general share a common commencement date. The Secretary of State intends to commence limited provisions separately for the effective functioning of the regime.

These regulations are made under the powers in clause 66. As is usual with commencement powers, regulations made under this clause are not subject to any parliamentary procedure. Parliament has approved the principle of the provisions of the Bill to be commenced by enacting them; commencement by regulations enables the provisions to be brought into force at the appropriate time.

 

No.	Section, and procedure	Purpose	Consultation required before laying	Intended commencement (subject to parliamentary time)
1	S1-4 Negative	Publication of a statement regarding call-in	Formal consultation was committed to during Commons passage.	By end of 2021
2	S6 Draft affirmative	Notifiable acquisition regulations	Following formal consultation on sector definitions, further targeted engagement is planned.	By end of 2021
3	S14 Negative	Specifying the form and content of a mandatory notice	Targeted engagement is planned with businesses.	By end of 2021
4	S16 Negative	Prescribe the form and content of a validation application	Targeted engagement is planned with businesses.	By end of 2021
5	S18 Negative	Prescribe the form and content of a voluntary notice	Targeted engagement is planned with businesses.	By end of 2021
6	S41 Draft affirmative	For the purposes of civil penalties, amending definition of business, amending control, and amending maximum penalty. Needed for specifying how turnover will be defined.	No consultation planned as we intend to follow precedent from the Enterprise Act 2002 (Mergers) (Interim Measures: Financial Penalties) (Determination of Control and Turnover) Order 2014 (SI 2014/533).	By end of 2021
7	S53 Negative	Specify the procedure for serving documents	No consultation planned as this a procedural matter.	By end of 2021
8	S66 No procedure (as Parliament has already approved through the Bill)	Commencement regulations	No consultation planned.	By end of 2021