Last month the Cabinet Office published the second Annual Report (the Report), for the period running from 1 April 2022 to 31 March 2023 (the Reporting Period), in respect of the implementation of the National Security and Investment Act 2021 (the Act).

The Report offers further operational insight and detailed statistics for the Reporting Period (which is the first full year period for which a report has been published) in respect of a piece of legislation which is having a significant impact on a wide variety of UK corporate transactions.


The Investment Security Unit (the ISU) is an operational unit within the Cabinet Office (formerly sitting within the Department for Business, Energy and Industrial Strategy) established to assess risks to the UK’s national security arising from “trigger events” under the Act (broadly, acquirers obtaining control over a qualifying entity or asset). The ISU is the unit responsible for receiving mandatory, voluntary and retrospective notifications.

During the Reporting Period the ISU received 866 notifications in total. We note this is lower than the 1,000 – 1,800 notifications which the Government anticipated for each year in its Impact Assessment in 2020. However, we expect that this reduction is consistent with the current economic climate and a downturn in M&A and investment activity.

We are interested to see how this figure changes in subsequent years as economic conditions change and the Cabinet Office continues to publish additional guidance to assist with interpretation of this complex legislation.

Of the 866 notifications received in the Reporting Period, 43 were rejected by the ISU. Of those rejected, 23 (53%) were rejected because they were submitted as mandatory notifications when they were in fact deemed by the ISU to be voluntary (or vice versa).

This highlights the importance of careful analysis of both the control being acquired (whether constituting a trigger event for a mandatory notification under the Act) and the activities of the qualifying entity (whether they fall within the National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021 (the Sensitive Sector Regulations). Choosing the correct form of notification first time will assist in limiting delays to transactions.

Approximately 77% of notifications received by the ISU during the Reporting Period were mandatory, demonstrating that many businesses are engaging with the Act and the notification process out of necessity. We are certainly finding that voluntary notifications tend only to be favoured in edge cases where there may uncertainty as to the application of the Sensitive Sector Regulations or a particular concern around national security risk factors.

In the region of 21% of notifications received by the ISU were voluntary. It isn’t clear from the Report what proportion of notifications were filed as voluntary notifications because they related to qualifying assets vs notifications relating to qualifying entities (e.g., where the parties were uncertain as to the applicability of the Sensitive Sector Regulations).

Fifteen retrospective validation applications were also received, for mandatorily notifiable acquisitions completed without prior necessary approval. However, no criminal or civil penalties were issued, nor criminal prosecutions concluded during the Reporting Period, which should give any parties needing to submit a retrospective validation notification some comfort.

Timeframes and Remedies

The ISU took averages of 4/5 working days to accept both mandatory and voluntary notifications, and all notifications were either cleared or called-in within the 30-working day statutory time limit, demonstrating that the Government is efficiently handling notifications during the initial review stage and in line with their statutory obligations.

Of the notifications reviewed during the Reporting Period, only 55 (7.2%) were called-in for further assessment, and the rest (circa 93%) were cleared during the initial 30 working day review period. This suggests that the Government is using its powers under the Act modestly, seeking to minimise the impact of the Act on corporate transactions.

The Government has shown some willingness to call-in non-notified transactions for national security review. It called-in an additional 10 non-notified transactions using its market intelligence function. In addition, 17 of the total 65 call-ins (26%) resulted from voluntary notifications.

For 45% of the transactions called-in, the Government used the additional 45 working day period to review (on top of the standard 30 working day assessment period). Therefore, there is a not insignificant probability of this additional 45 working day period applying and this should therefore be factored into transaction timetables where a call-in is likely.

The Government cleared most transactions following call-in, with final orders imposed in 15 (20%) cases – with 5 of these resulting in prohibition or unwinding. One of these final orders was later revoked resulting in a final figure of 14 for the Reporting Period. This is slightly higher that the Government’s 2020 estimate in its Impact Assessment of around 10 remedies imposed per year.

Interestingly, we also saw 15 final orders published by the Government during the Reporting Period, which demonstrates the Government’s commitment to its transparency pledge.

Sensitive Sectors

A substantial proportion (47%) of mandatory notifications related to Defence. Other key sectors included Critical Suppliers to Government, Data Infrastructure, Military and Dual Use, Artificial Intelligence and Advanced Materials.

These sectors reflect our own submission experiences as a firm. We consider that Data Infrastructure notifications may be particularly high due to the wide use of language in the relevant Schedule of the Sensitive Sector Regulations.

In terms of voluntary notifications, the relevant sectors were much broader, however the highest number of voluntary notifications related to Advanced Materials. This could indicate these notifications were submitted as a precautionary measure where a target’s activities didn’t quite fit the Sensitive Sector Regulations, given the particular complexity of the Advanced Materials specifications.

Of all acquisitions called-in for further assessment (across all notifications) 37% related to Military and Dual Use, 29% to Defence and 29% to Advanced Materials.

"Country Agnostic"

In the Report’s Foreword, it was reiterated that the Act remains “country agnostic”, and this was certainly displayed in the statistics. For the first time,  the country of origin of investments called-in was revealed. The three key jurisdictions were China (42%), UK (32%) and USA (20%). With the UK accounting for such a high proportion of call-ins, it’s clear that the ISU is concerned about more than just the “acquirer risk” posed by foreign acquirers. Nevertheless, 8 of the 15 final orders imposed notably involved acquirers associated with China.

Final Thoughts

With a full year’s worth of data on the operation of the Act comes more insight into what types of transactions are being scrutinised most closely, and how this scrutiny is playing out in terms of call-ins and remedies.

Investments originating from China appear most likely to be subject to remedies. However, in appropriate circumstances, remedies are also being imposed on acquirers from other countries, including countries not considered to be hostile to the UK.

Notifications are being handled within statutory timeframes, meaning that the impact on completion timetables should be predictable and manageable provided that the application of the Act is considered early.

Sectors of most interest broadly include Defence, Military and Dual Use and Advanced Materials, meaning parties to transactions involving qualifying entities operating in these areas must remain particularly alert when looking at transactions.

A copy of the full Annual Report can be reviewed here.

Co-authors: Adam Kuan, Charlotte Mapston and Meghan Sugrue

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at August 2023. Specific advice should be sought for specific cases. For more information see our terms & conditions.

Date published

14 August 2023

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