Even though the National Security and Investment Act 2021 (the NSI Act) has been in force for less than two years, the government published on 13 November a Call for Evidence, seeking views on its impact, scope and operation. To summarise, the Call for Evidence is seeking views on issues including whether:

• certain group reorganisations (where there is no change in the ultimate beneficial ownership of the group) should not be subject to the mandatory reporting regime;
• the Artificial Intelligence specified sector should be narrowed in scope;
• standalone Semiconductor and Critical Mineral specified sectors should be created;
• to introduce an exemption to bring the appointment of liquidators, official receivers and special administrators in line with the treatment of the appointment of administrators;
• the grant of security over shares in secured lending agreements is appropriately dealt with;
• the administration of the NSI Act by the ISU could be streamlined.

It is commendable that the government is soliciting feedback on this consequential piece of legislation so soon after its introduction into law and is evidence that it is taking a dynamic approach to assessing the shifting nature of UK national security threats.

Certainly, based on our experience in advising on the NSI Act since January 2022, a number of transactions have fallen within the ambit of the mandatory reporting regime where the target’s operations on any reasonable measure do not pose a national security risk; one example would be a small, owner-managed digital marketing agency serving a limited market that deploys some form of AI as part of its operations. In my blog of 23 January, I remarked that “one sector that is also featuring in the UK government’s decision-making is artificial intelligence. As previously reported, this sector is defined extremely widely in the legislation (with no materiality qualifications), thereby bringing within its scope many transactions that might not present an obvious national security risk.” Clearly, this is a widely-held concern since the Call for Evidence states that: “The Government has however received feedback that this section of the Regulations [AI] captures activities that do not present national security risks. The Government would therefore welcome feedback on whether there are activities within the AI section of the Regulations that stakeholders believe should be removed”.

The potential carving out of some internal reorganisations from the mandatory regime is also welcome – we may be left with a subset of reorganisations that remain subject to the mandatory reporting regime, such as those involving the transfer of shares or assets out of the UK where other laws designed to protect the UK (such as export controls) do not apply.

Arguably, the Call for Evidence could have been yet broader in scope: for example, one area not specifically covered is how the NSI Act impacts on ‘non-standard’ transactions, such as the settling of shares of a qualifying entity into a trust or similar structure or the granting of rights to trust beneficiaries over the trust assets which include a qualifying entity. The NSI Act appears to have been drafted with conventional deal structures and types in mind.

The Call for Evidence closes on 15 January 2024; I will provide further commentary once we have digested the results.

Read more about the National Security and Investment Act:

• Blog post: The UK national security regime a year on – what have we learned?
• Webinar: National Security & Investment Act 2021
• Blog post: National Security and Investment Act: the Q1 results are in
• Blog post: It’s a matter of national security

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