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What the National Securities & Investments Act means for banking deals

Extensive new powers to investigate & intervene in deals that could have national security concerns, applying to share- & to some asset-acquisitions, with some aspects applying retrospectively: lenders & borrowers need to understand the implications now.

The National Securities and Investments Act (“the Act”) received royal assent on 29 April 2021 and came into effect on 4 January 2022. It will create a new national security screening regime for corporate acquisitions in the UK. Certain aspects of the Act will apply retrospectively from 12 November 2020.

It is one of the biggest changes to corporate legislation in the UK for decades giving the UK government extensive powers to investigate and intervene in transactions that could give rise to national security concerns. The Act will not only apply to share acquisitions of companies but also to certain asset transactions too – including acquisitions of land and intellectual property, covering a wide range of transactions with a potential national security element.

The Act will create a new government authority known as the Investment Security Unit (ISU) and it will be the ISU that will be responsible for monitoring transactions and handing out approvals under this new regime. The Act does not define what national security means, so it is left to the ISU to interpret it.

The Act introduces a mandatory and voluntary notification system, which we will explore in more detail below.

The regime

Mandatory Notifications

A key part of the Act is a mandatory notification system for certain transactions.  A mandatory notification will be triggered on an acquisition of shares/voting rights of over 25% or more in companies for transactions within one of the 17 defined industry sectors (“Notifiable Acquisition”) which are set out as follows:

Civil Nuclear


Data Infrastructure




Artificial Intelligence

Autonomous Robotics

Computing Hardware

Quantum Technologies

Advanced Materials

Engineering Biology

Critical Suppliers to Government

Cryptographic Authentication

Critical Suppliers to the Emergency Services

Military or Dual-use Technologies

Satellite and Space Technologies

It will be unlawful to complete a Notifiable Acquisition without prior approval from the ISU, and any transactions

completed without approval will be void. It will also be a criminal offence to have completed such transactions without approval, which will be punishable by imprisonment for up to 5 years plus potential fines up to 5% of total worldwide turnover or £10 million (whichever is higher).

This means that transactions which may fall within the mandatory regime will have to be structured so that completion cannot take place until the ISU approval has been obtained.

To give you an idea of timings, the ISU will be working to a (1) 30 working day review period to assess the notification and (2) a 30 working day period, which can be extended to 45 working days (with scope for further extensions), to undertake the national security assessment

Voluntary Notifications

Beyond the mandatory notification regime, the regime also allows parties to notify a transaction to the ISU on a voluntary basis.

A party may seek to make a voluntary notification as a result of the additional powers that the ISU will have under the Act to ‘call in’ a transaction for further review in other sectors outside of the 17 sectors listed above if they are considered to cause national security concerns. This call-in power can be exercised up to six months after the ISU becomes aware of the transaction provided it is within the period of five years from completion of the transaction.

As a result of this ‘call-in’ power of review, parties to transactions which are not Notifiable Transactions will need to consider the risks of not making a voluntary notification i.e. if the transaction is ‘called-in’ and national security issues are found then the deal could be unwound. So whilst there is no obligation to make a voluntary notification a party may want the certainty that the transaction will not be “called-in” at a later date.  It will still be feasible to complete ahead of clearance when a voluntary notification has been submitted unless the government imposes an interim order for the transaction not to complete and the parties might want to make a deal ‘subject to ISU approval’.

Retrospective Powers

Once the legislation is in force, the ISU can call-in for review any transactions, on national security grounds, that have taken place since 12 November 2020. This jurisdiction lasts for five years.

The ISU can be contacted for informal advice about whether a transaction would have the potential of being ’called-in’ and the government are encouraging use of this informal advice route.

Relevance to banking transactions

Lending and taking security per se are not within the mandatory notification regime, but the nature of the underlying transaction which is being financed needs to be considered when assessing whether a mandatory or voluntary notification should be made. Given the wide range of transactions that could be caught by the regime, the focus will be primarily on the nature of the underlying business or asset in which the interest is being acquired (and whether it falls into one of the 17 sectors).   When managing the transaction, account needs to be taken of possible time delays whilst waiting for the relevant ISU approvals. As inconvenient as the delays may be, the severity of the consequences of failure to obtain approval far outweigh this.

In Asset Finance and Asset Backed Lending deals, we do not currently believe that the transfer of title to the lender or finance company will trigger a mandatory notification, but it could still be subject to ‘call-in’ by the ISU and therefore it would be prudent to consider a voluntary notification and indicative ISU approval on these transactions.

Enforcement of security, such as charges over shares, could be also be a trigger event requiring ISU approval. This will affect the timing of the enforcement of the security as a lender may need to seek approval from the ISU in order to transfer the shares as part of the perfection of its security. There may be some potential to seek prior approval from the ISU, during the initial loan transaction, for the sale of the shares in an enforcement scenario. However, we think these prior approvals may be difficult to obtain as the lender will be unaware of the potential buyers of the shares at the point the security is granted, so a delay on enforcement may be inevitable.

Practical points and what to do now

The Act may impact both existing and upcoming transactions, and the following actions would be prudent:

  • reviewing the nature of the transaction to consider whether or not it may trigger a mandatory notification;
  • taking informal advice from ISU if you are unsure whether the transaction has potential to be called-in and as such whether a voluntary notification should be made;
  • including specific covenants/undertakings into finance documents around obtaining ISU approvals and continuing compliance with obligations under the Act;
  • including ‘national security’ checks in due diligence on parties and transactions; and
  • allocating time for clearance on transactions or businesses that are high-risk or that may be regarded as of ‘national security interest’. There is no mechanism for expediting clearance applications and as such applications should be made ahead of time, and all parties should be aware of the potential impact on the deal timeframe.

It is important to be aware of what the implementation of the Act will mean for existing and new transactions so that borrowers and lenders can be as prepared as possible for the its potential reach.