Over a year into the new national security and investments regime: 3 deals prohibited, 2 transactions blocked and 10 transactions subject to conditions

The United Kingdom's National Security and Investment Act (NSI Act) gives the government the power to block mergers and acquisitions that pose a threat to national security. The NSI Act, which came into force in January 2022, replaces the previous merger control system and broadens the scope of transactions that can be reviewed.

Over a year into the new regime, the UK Government has now reviewed hundereds of mandatory notifications and also called in a significant number of transactions for detailed scrutiny. It has shown it is fully prepared to use its powers under the new NSI Act by: blocking 3 deals; requiring 2 transactions to be unwound (by ordering the sale of the acquired shares); and imposing conditions in respect of a further 10 transactions.

Under the new Act, the government can intervene in any deal that it deems a risk to national security, including investments in critical infrastructure, such as energy, transport, and communications, as well as in advanced technologies such as artificial intelligence and robotics.

This new regime has clearly been a significant change in the UK's approach to national security, with the government taking a more proactive stance to protect critical infrastructure and technologies from foreign interference.

In the early days, the government stated that it does not intend to block deals on political or economic grounds, but rather to ensure that national security is not compromised. The NSI Act provides a framework for a risk-based assessment of potential national security risks arising from transactions. It allows the government to review and impose conditions on transactions that may have a potential national security risk.

The NSI Act introduced a mandatory notification regime for certain transactions in specified sectors, including civil nuclear, defence, and military and dual-use technologies. Businesses are required to notify the government of certain transactions and provide information about the transaction, including the identity of the parties involved, the nature of the assets or entities involved, and the potential national security risks.

The Act also provides for voluntary notifications in other sectors where businesses can seek clearance from the government for transactions that may have national security implications.

The NSI Act introduces a two-stage review process, which is designed to ensure that the government's assessment of national security risks is robust and proportionate. The first stage is a screening process, which assesses whether a transaction raises any national security concerns. If it does, the government can initiate a second-stage review, which can take up to 30 weeks to complete.

During the second stage, the government can impose conditions on the transaction to address any national security risks identified. If the government considers that a transaction poses an unacceptable risk to national security, it can block the deal or require the parties to divest assets.

Overall, the new NSI Act provides the UK government with enhanced powers to scrutinize and intervene in deals that could potentially threaten national security. While there may be some concerns about the impact on foreign investment, the government has stated that the new regime is necessary to protect the UK's national security interests.

So far, the UK Government has shown that it is prepared to block and unwind trasactions, taking a proactive approach to safeguarding the country's national security, through the robust use of its powers under the NSI Act.