National Security and Investment: Mandatory Notification Regime Consultation Response

Kwasi Kwarteng Excerpts

Tuesday 2nd March 2021 Written Statements

[The Secretary of State for Business, Energy and Industrial Strategy (Kwasi Kwarteng)]

Today, the Government published their response to the consultation on secondary legislation to define the sectors subject to mandatory notification under the National Security and Investment Bill.

This Government are a champion for free trade, recognising that inward investment is economically highly beneficial. Investment in UK plc boosts productivity by backing businesses to create good jobs and develop skills and will help support our economic recovery from covid-19. The UK is open for investment, but not for exploitation.

An open approach to international investment must also include appropriate safeguards to protect our national security and the safety of our citizens. The UK and our allies face continued and broad-ranging hostile activity from foreign intelligence agencies and others, who seek to compromise our national security. When it comes to investment, we are seeing novel means to undermine the UK’s national security that go beyond traditional mergers and acquisitions and also go beyond the reach of our current powers, such as structuring deals to obscure who is behind them. Such behaviour, left unchecked, can leave sensitive UK businesses vulnerable to disruption and espionage. It is crucial that the Government are able to fully combat these threats.

The National Security and Investment Bill creates a new screening mechanism enabling the Government to intervene in acquisitions resulting in control over entities and assets that may pose a risk to national security.

Proposed acquirers of certain shares or voting rights in specified qualifying entities in the most sensitive sectors of the economy will be required to notify the Secretary of State and receive clearance before completing their acquisition. This is to ensure that the Government are informed of potentially sensitive acquisitions before they take place and are thus able to take action ahead of time to address any risk to national security that would arise on completion. This “mandatory regime” is supported by a voluntary notification option for relevant acquisitions across the rest of the economy and a power for the Secretary of State to scrutinise qualifying acquisitions that have not been notified.

The overwhelming majority of transactions will, though, be unaffected by these new powers. We estimate that less than 1% of all mergers and acquisitions and asset transactions will result in a notification to Government.

The consultation invited views on the sectors in scope of mandatory notification, sought responses on whether the definitions provided sufficiently clear parameters to inform businesses and investors of the need to notify, and whether the definitions were proportionate. The consultation set out the draft definitions of 17 sectors in which national security risks are more likely to rise than in the wider economy.

These sectors are:

Advanced materials

Advanced robotics

Artificial intelligence

Civil nuclear

Communications

Computing hardware

Critical suppliers to Government

Critical suppliers to the Emergency Services

Cryptographic authentication

Data infrastructure

Defence

Energy

Military and dual-use

Quantum technologies

Satellite and space technologies

Synthetic biology

Transport

Responses to this consultation suggested that many of the sector definitions were broad in scope and would require further specificity to enable acquirers to identify whether they would be in scope of mandatory notification. After careful consideration of all the responses, the Government intend to refine the definitions and have produced the next iteration of the definitions in today’s publication.

The Government intend to carry out further, targeted engagement with certain sectors to finalise these definitions. The final definitions will be set out in regulations following Royal Assent to the Bill.

This approach will ensure that the regime is targeted and proportionate and keeps Britain firmly open for business. It will bring us into line with other countries, such as the USA, whose Committee on Foreign Investment also operates a mandatory notification model that investors will be familiar with, and build on the best practice established around the world by like-minded countries.

In summary, it will deliver a balanced regime that provides the Government with the flexible powers they need while keeping our country firmly open to investment.

I will place a copy of the consultation response in the Libraries of both Houses.

[HCWS815]