Key takeaways from the 3rd NSIA Annual Report 

On 10 September 2024, the UK government published its latest annual report on the operation of the UK National Security and Investment Act 2021 (NSIA). The 2024 Annual Report covers the period between 1 April 2023 and 31 March 2024. 

Key takeaways

• The NSIA remains highly relevant for transactions involving companies with UK activities or UK assets. Between 1 April 2023 and 31 March 2024, the government received 906 notifications.
• There was a significant decrease in call-in notices issued in the reporting period, down 36.9% compared to the previous year.
• Similarly, there was a significant decrease in the number of final orders imposed in the reporting period: five compared to 15 in the previous reporting period.

Background

The NSIA came into force on 4 January 2022. It significantly strengthened the UK government's powers to investigate and potentially prohibit transactions on national security grounds by requiring mandatory notification for transactions in 17 sectors thought most likely to raise national security concerns. In addition, the Act introduced a voluntary notification process (underpinned by a "call-in" power) for other transactions. The Investment Security Unit (ISU) within the Cabinet Office is responsible for administering the regime. For further background, see our Quickguide.

The NSIA requires the UK government to publish an annual report. The latest report covers the period between 1 April 2023 and 31 March 2024.

Notifications

During the reporting period, the government received a total of 906 notifications:

• 753 mandatory notifications;
• 120 voluntary notifications; and
• 33 retrospective validation applications.

Of the 906 notifications, 876 were accepted and 24 were rejected. Notifications can be rejected for a variety of reasons, including using the incorrect notification form, failing to provide sufficient information or because the transaction does not qualify for review. On average it took six working days for a mandatory notification to be accepted and eight working days for voluntary notifications.

The highest proportion of notifications related to the defence sector (48%), followed by critical suppliers to government (19%) and military and dual use (17%). Transactions can be notified in relation to multiple sectors. Reflecting the fact that this is a national security regime, 61% of notifications were associated with acquirers from the UK. Acquirers associated with the USA accounted for 26% of notifications and investors associated with each of France, Germany and Luxembourg accounted for 4% of notifications.

Call-ins

Over 95% of the notifications reviewed during the reporting period were notified that there would be no further action, with only 41 acquisitions called in (down from 65 in the previous reporting period). 22 of the call-in notices related to mandatory notifications and 15 to voluntary notifications. Notably, 4 call-in notices related to non-notified acquisitions.

The average time to issue a call-in notice was 29 working days for both mandatory and voluntary notifications. Following a call-in notice, it took an average of 26 working days to issue a final notification (final notifications are issued where the transaction was called in for an in-depth review and the ISU has determined that it does not give rise to any national security risks) and 34 working days to issue a final order. 

Of the call-in notices:

• 34% were associated with the defence sector and 29% with military and dual-use.
• 41% involved acquirers associated with China, 39% with the UK and 22% with the USA.

Final Orders

Only five final orders were issued in the reporting period which is a 66.7% reduction from the 15 final orders issued in the previous reporting period. No acquisitions were blocked or subject to an order to unwind. 

Notably, none of the final orders related to Chinese investors whereas over 50% of the final orders in the previous reporting period involved Chinese investors. 

Four of the final orders related to acquisitions in the defence sector. The remedies included requirements to: keep key research and manufacturing capabilities in the UK; perform due diligence checks on new customers; ensure government oversight (e.g. appointing government board observer or reporting details of new customers to the government annually) and meet physical and information security requirements.

Comment

While the number of notifications increased in this reporting period, the number of call-in notices and final orders issued decreased by 37% and 67% respectively. Since the end of the reporting period, there have been a further seven final orders: four of which were imposed by the new Chancellor of the Duchy (Pat McFadden) following the July 2024. 

In April 2024, the previous UK government announced that it intended to consult on updating the mandatory area definitions by summer 2024 and that it intended to consider technical exemptions (including an exemption for the appointment of liquidators, official receivers and special administrators) from the mandatory regime (see our May 2024 update for further details). Further work was also proposed in relation to possible exemptions for certain internal reorganisations, Scots law share pledges and public bodies, as well as a review to better understand the risks associated with outward direct investment. While the timing and scope of these reforms is uncertain following the general election, the Labour Government has been clear that protecting national security continues to be a key priority.  

With thanks to Aanya Verma for her contribution.