Guidance

The National Security and Investment Act alongside regulatory requirements

Updated 19 June 2023

Overview

The National Security and Investment (NSI) Act came into force on 4 January 2022. This guidance tells you how the NSI Act interacts with other regulators and codes.

The government understands that acquisitions may require consideration by multiple bodies, and it may need to manage the interactions with other regulators as appropriate. Unless specified, operating under the NSI Act does not change regulatory requirements that already apply to acquisitions imposed by other regulators.

You can contact the Investment Security Unit (ISU) for general enquiries or advice about the Act on investment.screening@beis.gov.uk

Enterprise Act 2002 - public interest interventions

The Enterprise Act 2002 (EA02) allows the government to intervene in mergers and acquisitions on public interest grounds.

Under the EA02, the government maintains the power to intervene in mergers and acquisitions that raise public interest concerns in relation to the stability of the UK financial system, maintaining the UK’s capability to combat, and to mitigate the effects of, public health emergencies, and media plurality. The public interest provisions of the Enterprise Act continue in force, but the NSI Act replaces the national security consideration of the EA02.

Cases can only be called in for a national security assessment once, unless false or misleading information has been provided. Any merger which has previously been subject to a national security intervention under the EA02 – either through an intervention notice, a special intervention notice, or a European intervention notice – cannot be called in under the NSI Act.

Competition assessment

The Competition and Markets Authority (CMA) is responsible for investigating competition issues raised by mergers and acquisitions under the EA02. The CMA remains the independent and expert authority responsible for competition assessments.

A CMA merger control investigation assesses the impact of a transaction on competition to protect consumers. If there are grounds for an acquisition to be considered for both competition and national security reasons, the Investment Security Unit will work closely with the CMA to manage the case.

Where a final order is in force or a final notification that no further action is to be taken has been given under the NSI Act, the government can issue a direction to the CMA to do or not do anything under Part 3 of the Enterprise Act, as long as the government reasonably considers that the direction is necessary and proportionate for the purpose of preventing, remedying or mitigating a risk to national security.

Prior to issuing any direction, the government will consult with the CMA (and with other parties where appropriate).

Export Control

The Export Control Joint Unit (ECJU) administers the UK’s system of export controls and licensing for military and dual-use items. It remains a key method of regulating trade in strategic goods and only covers the export of certain military and dual-use assets.

Export control and the NSI Act have the shared objective of safeguarding national security but with different remits and factors considered. Export control operates with specific regard to the exporting of items specified on a ‘control list’. These export control lists form the basis of determining whether any products, software or technology that are intended for export are ‘controlled’ and therefore require an export license. Additionally, there are some circumstances in which export controls can apply to non-listed items.

Asset acquisitions are not subject to the mandatory notification requirements under the NSI Act and so you are not required to submit a notification in relation to the acquisition of an asset. However, the government may call in an asset acquisition if there is reasonable suspicion that it has given or may give rise to a risk to national security. For more detail on how the government decides whether to call in an asset acquisition please refer to the Section 3 Statement.

In the case where the 2 systems both consider the same asset, the government, when using the powers under the NSI Act, will take account of any controls and licenses issued by the ECJU.

The ECJU does not have the ability to screen acquisitions of UK entities, nor the ability to intervene in the acquisition of sensitive assets outside the control list, unlike the NSI Act.

Takeover Code

The Takeover Code is a set of rules, administered by the Takeover Panel, that apply to publicly traded companies and certain other public and private companies. The Takeover Panel has no current plans to amend the Takeover Code as a result of the NSI Act. However, acquirers need to consider any existing requirements under the Takeover Code, before proceeding with an acquisition.

The Takeover Code currently provides the framework to allow acquirers (offerors) awaiting a decision under the NSI Act to suspend or pause the offer timetable prescribed by the Code. Further details can be found in the Code Committee’s Response Statement to the consultation on ‘Conditions to offers and the offer timetable’.

Financial Conduct Authority and Prudential Regulation Authority

The Financial Conduct Agency (FCA) and Prudential Regulation Authority (PRA) are regulatory bodies responsible for regulating financial services. They operate independently of the government and maintain the integrity of the UK financial markets. The PRA is part of the Bank of England.

Under the NSI Act, the government’s powers to intervene in an acquisition take the form of orders, which may put certain conditions on an acquisition.

The NSI Act sits alongside regulatory bodies that may place obligations on entities, including requirements from the FCA and PRA. It is possible, but highly unlikely, that orders under the NSI Act could have an impact on other obligations, and the NSI Act is not intended to prevent persons complying with their statutory obligations.

Throughout the review and assessment periods and in any interactions with the ISU, you should remain mindful of the other legislative obligations that you may be under. For example, if you are a relevant issuer, you will still need to comply with applicable transparency and disclosure obligations such as the obligation under the UK Market Abuse Regulation to disclose inside information to the public as soon as possible. If your disclosure obligations give rise to any doubts or concerns about your ability to comply with any specific requirements raised during the review and assessment process, please contact the ISU. Visit the FCA site for further information on the UK Market Abuse Regulation.

Applications for a gas or electricity licence in Great Britain

The Office of Gas and Electricity Markets (Ofgem) is Great Britain’s independent energy regulator. The Gas Act 1986 and the Electricity Act 1989 make it an offence to carry out certain activities unless you hold a licence, or are exempt from this requirement. Ofgem is responsible for granting licences to parties who are seeking to carry out these activities.

If Ofgem is considering a licence application at the same time that a related qualifying acquisition is called in under the NSI Act, Ofgem will ‘stop the clock’ on the processing time period until the applicant confirms the outcome of the NSI assessment. Further details can be found in Ofgem’s guidance on how to become a licenced gas or electricity company.

You may want to read the guidance on the Applicability of the NSI Act to New Build Downstream Gas and Electricity assets, which indicates licensable activities which may also be called in under the NSI Act.