This may be illustrated by the relatively high number of notifications that were received during the latest reporting period. From 1 April 2022 to 31 March 2023, 866 notifications were received in total, with the vast majority (93%) cleared within 30 working days. Although this figure is in line with the Government’s expectations it is more, for example, than the 440 transactions reviewed under the comparable CFIUS regime in the United States during 2022. Having a regime with a broad application has important consequences for transactions – making a notification under the NSI Act delays a transaction for the duration of the NSI review process, and not making a notification risks the transaction being unwound and creates potential exposure to civil and criminal penalties.

It is therefore welcome news that the Cabinet Office published a Call for Evidence on 13 November 2023, which seeks to gather evidence from stakeholders to help the Government “(i) hone the scope of the system’s mandatory notification requirements, (ii) improve NSI notification and assessment processes, and (iii) develop the Government’s public guidance and communications on how the NSI Act works and where the Government tends to see risk arising”.

Areas proposed for review

The Call for Evidence also clarifies that the Government’s intention is that the NSI system be a “proportionate and well-targeted” system, and “as pro-business and pro-investment as possible” while also safeguarding the UK against a small number of transactions that may be harmful to its national security.

We have summarised some of the key areas covered by the Call for Evidence below:

• Targeted exemptions and thresholds: The Government has asked for views on whether there are certain types of acquisitions which are currently within the scope of the mandatory notification regime which should not be; for example, acquisitions that give minimal control to an acquirer, or acquisitions which do not result in a change of control. The current thresholds applicable to the mandatory notification regime apply to acquisitions of more than 25%, more than 50% or 75% or more of the shares or voting rights in entities which fall within one of the 17 high risk sectors identified by the Government. Whilst the thresholds will not be changed as part of this review, exemptions could be provided for certain types of transactions.
• Internal reorganisations: A notable consequence of the NSI Act is that internal reorganisations can trigger a mandatory notification requirement even if there is no change to the ultimate beneficial owner of the target entity. The Government has expressed interest in introducing exemptions for those internal reorganisations which don’t warrant scrutiny and has asked for views about which types of reorganisations are more or less likely to result in substantive changes to the control or influence of a company.
• Appointment of liquidators, official receivers and special administrators: Currently, the mandatory notification regime under the NSI Act has the potential to capture situations where a liquidator, official receiver or special administrator is appointed. It is noted by the Government that the timing consequence of this may present challenges in a liquidation or administration, and that any onward sale of shares or voting rights by a liquidator would, where relevant, be a separate trigger event and potentially notifiable acquisition in any case. The appointment of administrators is already exempt from the mandatory notification regime and the Government is therefore seeking views on widening this exemption to liquidators, official receivers and special administrators,
• The 17 sensitive sectors: The Government has asked for views on whether there are activities within the 17 sensitive sectors, being those sectors covered by the mandatory notification regime, which are unlikely to create national security risks. It is also considering whether more clarity can be provided through its guidance. Certain sectors are identified in particular, such as Advanced Materials, Communications, Critical Suppliers to Government, Data Infrastructure, Defence, Energy, Suppliers to the Emergency Services and Synthetic Biology. In addition, and of particular note, is the Government’s request for views on refining the scope of application to the Artificial Intelligence sector, on which it has already received feedback that the current regulations capture AI activities which do not present national security risks. It is, however, worth noting that the Government is also asking whether the scope of the regulation should be expanded to include, for example, generative AI.
• New sensitive sectors: We noted in our NSI Act briefing that the field of semi-conductors seems to be a growing area of focus for the Government. Consistent with this focus, the Government is considering the introduction of a new standalone sector for semiconductors (which is already captured under the Advanced Materials sector) in the context of improving clarity. The Government is also considering introducing a new category for Critical Minerals.
• Other areas under review: these include Scots law share pledges, acquisitions by certain public bodies, and automatic enforcement provisions in secured lending agreements.

We will await to see what the outcome of this Call for Evidence will be – it closes on 15 January 2024 – but any “narrowing and refinement” of the scope of the NSI regime would be warmly welcomed and would boost certainty and confidence in the UK as an investable jurisdiction.