Clifford Chance

On 16 June 2022, Business Secretary Kwasi Kwarteng published the government's first annual report on the UK's national security and investment regime.

The UK's new national security and investment regime gives the Secretary of State (SoS) broad powers to review and intervene in a wide range of investments that could harm the UK's national security. It also requires businesses and investors to notify the government of qualifying transactions in 17 sensitive areas of the economy – see our January 2022 briefing for further details.

The government recently published its first annual report on the new regime, which covers the period from 4 January 2022 (when the regime came into effect) to 31 March 2022. Despite only covering a short period, the report contains a number of helpful insights on how the regime is operating in practice.

222 notifications were submitted in the first 3 months of the regime

• The total number of notifications (222) is lower than government predictions (1,000-1,830 per year / 250-458 per quarter). The government also reported that, in rare cases, it has accepted a single notification covering multiple qualifying acquisitions that contribute to a single effect (e.g., internal reorganisations).
• The total number of accepted voluntary notifications (22) is significantly lower than government predictions for voluntary notifications arising from asset sales (290-860 per year / 72-215 per quarter). This would suggest that parties are not routinely submitting precautionary filings despite the government's ability to call in certain transactions for a full national security review.
• Several mandatory notifications were rejected because they should have been submitted as voluntary notifications. In borderline cases, the fact that a mandatory notification has been accepted could therefore be taken as an endorsement that a mandatory notification was required.
• Other notifications were rejected because insufficient information was provided about the acquisition or the parties, or because they covered several qualifying transactions that should have been notified separately.
• One mandatory notification was rejected because the deal had completed and should have been submitted as a retrospective validation application (though no penalties have been announced for implementing without approval).

The Secretary of State has called in 17 transactions for a more detailed assessment

• While the total number of call-in notices (17) is at the lower end of government predictions (70-95 per year / 17-24 per quarter), the proportion of called-in transaction (7.7%) is broadly in line with those predictions.
• Several call-in notices have been issued in circumstances where the target was active in two or more mandatory notification sectors.
• By 31 March 2021, the government had only cleared three called-in deals (though no deals had been blocked or cleared subject to conditions).

Most affected sectors include Artificial Intelligence and Data Infrastructure

• The five most common mandatory notifications sectors (Defence, Military and Dual Use, Critical Suppliers to government, Artificial Intelligence, and Data Infrastructure) also received the largest number of call-in notices.
• The SoS has not (yet) called in any investments in five mandatory notification sectors (Advanced Robotics, Communications, Quantum Technologies, Synthetic Biology, and Transport), however only a small number of notifications related to those activities.

Review timelines in line with statutory requirements

• All initial assessments have been completed within 30 working days. On average, the SoS has taken 22-24 working days to issue a call-in notice.
• Where the SoS has called in a deal, on average the final outcome has been decided within 24 working days and all have been decided within 30-working days.

Next steps

• The government has committed to publish market guidance notes, which will be published in due course – though no specific date has been set.
• The next annual report (covering 1 April 2022 to 31 March 2023) is expected to be published in Summer 2023.