The UK government has recently published its first NSIA Annual Report covering a full year (from 1 April 2022 to 31 March 2023). The Report provides useful details about how the UK government is applying and enforcing the NSIA in practice, which are broadly consistent with our own experience of advising on the NSIA.

In summary

In its last financial year (the reporting period), the UK government:

• received 866 NSIA notifications;
• cleared the vast majority (93%) of notifications within 30 working days;
• called in 65 of the acquisitions it reviewed for further assessment (including 10 which had not been notified to it); and
• intervened in 15 cases on the basis of national security – issuing final orders to block, unwind or impose conditions on acquisitions.

Many call-ins and final orders concerned transactions in the defence sector. The other sectors subject to the most final orders were: communications; energy; advanced materials; and computing hardware.

Notifications received and assessment period

Of the 866 notifications received, more than 66% (671) were mandatory notifications. The remainder were voluntary notifications (180) and retrospective validations (15). Unsurprisingly, most of the notifications we have worked on have been mandatory notifications.

The total number of notifications received was below the level originally forecast (between 1,000 and 1,830 notifications each year).

Of the mandatory notifications, 47% related to the defence sector, followed by critical suppliers to the government and data infrastructure (each around 20%). The top sectors for voluntary notifications were advanced materials, defence, military and dual use, and energy (each around 17% of total voluntary notifications). Notifications can and often do relate to more than one sector.

Both mandatory and voluntary notifications were accepted on average within four working days (median), though we have seen several notifications accepted faster than that average. Of the 43 notifications that were rejected, it took an average of 10 working days to reject mandatory notifications and seven working days to reject voluntary notifications. Rejection was for reasons such as using the wrong notification form or the provision of insufficient information.

There were 766 mandatory and voluntary notifications and retrospective validations reviewed within the reporting period. Of these, the government issued call-in notices for 55 transactions (7.2%) and clearances for 711 transactions (92.8%). All notifications were either called in or cleared within the statutory time limit of 30 working days after being accepted. Of those notifications that were called in, the government took on average 27 to 28 working days to decide to call in the acquisition.

Call-ins and the areas of the economy involved

During the reporting period, 65 acquisitions were called in. Of those 65 call-ins, 37 were made following a mandatory notification and 17 following a voluntary notification. One call-in notice was made for a retrospective validation application and 10 call-in notices were issued for acquisitions that had not been notified.

Of the acquisitions called in, 37% were associated with the military and dual use sector, 29% with defence and 29% with advanced materials. 

42% of call-ins were of acquisitions involving acquirers associated with China, 32% with the UK and 20% with the US (an acquisition can be associated with more than one country). As noted below, acquisitions associated with China also received the highest number of clearances following call-ins.

Clearances, final orders and enforcement

There were 72 acquisitions put to the Secretary of State (now the Deputy Prime Minister in his role as the Secretary of State in the Cabinet Office) for final determination. Of these, the Secretary of State issued 57 clearances, with final orders made in around 20% of cases (15) (one final order was revoked). The total number of call-ins was below the number originally forecast (70-95 call-in notices each year).

Of those 57 clearances, 42% concerned acquisitions in the military and dual use sector, 32% advanced materials and 26% defence. On average, it took 25 working days after being called in to issue a clearance (11 clearances were issued to acquisitions which did not complete and so scrutiny under the NSIA stopped). Of those 57 clearances, 40% involved acquirers associated with China, 30% with the UK and 19% with the US.

Of the 15 final orders, the relevant sectors were as follows: military and dual use (four orders); communications (four); energy (three); defence (three); computing hardware (three); and advanced materials (three). Eight of the final orders involved acquirers associated with China, four with the UK and three with the US. On average, it took 81 working days to issue a final order (with parties agreeing voluntary extension periods).

No penalties were issued, nor any criminal prosecutions concluded during the reporting period. Interestingly, there is no mention of any ongoing judicial review proceedings against the government

Final comments

The government's inclusion of data relating to origin of investment is to be welcomed. Dentons submitted (in response to a Parliamentary sub-committee call for evidence) that publication of such data would be useful for investors. Whilst the Report is keen to point out that the NSIA is country agnostic (and, indeed, UK investors do not escape scrutiny or remedies), it is possible to start to draw some initial trends – for example, of the five prohibition orders to date, four were imposed on Chinese investors (although this is not explicitly stated in the Report). 

While the information in the Report is welcome, a frequent criticism of the NSIA system is that it is a "black box", particularly when compared with, for example, merger control.

The government would appear to recognise that the NSIA system can still be improved and interested parties should consider attending government engagement events to learn more and make their views known.

On a practical note, we can expect the ISU's email address (currently investment.screening@beis.gov.uk) to change during the course of the year 2023-24, now that the ISU has moved to the Cabinet Office. Full details will be made available on gov.uk.

If you have any questions or comments, please contact one of our team.