National Security and Investment Act 2021

Commentary on provisions of Act

Background: Overview of the National Security and Investment Regime

National Security and Investment framework

29. The National Security and Investment regime replaces the Secretary of State’s ability to scrutinise mergers which give rise to a national security consideration under the Enterprise Act 2002.
30. The Act provides powers for the Secretary of State to scrutinise and, where necessary, impose proportionate remedies on specific acquisitions of control of qualifying entities and assets. It also sets out a statutory process for the exercise of these powers.
31. The Secretary of State may scrutinise specific acquisitions of control of qualifying entities and assets by issuing "call-in notices". The acquisitions which are within scope of this function are collectively known as "trigger events". The Secretary of State may issue a call-in notice up to 5 years after a trigger event has taken place, so long as that 5 years does not reach back before 12 November 2020 (the first day after the Bill was introduced in Parliament).
32. The Act provides for the Secretary of State to publish a statement setting out how he or she expects to exercise the call-in power. The Secretary of State will not be able to call in any trigger events until such a statement has been published. Nothing in the statement will limit the Secretary of State’s exercise of the call-in power.

Mandatory notification

33. The Act provides for a mandatory notification requirement for acquisitions of certain shares or voting rights in the qualifying entities to be specified in regulations made by the Secretary of State, which are termed "notifiable acquisitions". Proposed acquirers must notify the Secretary of State of notifiable acquisitions before they take place in order to obtain clearance to go ahead.
34. A notifiable acquisition that is completed before being approved by the Secretary of State is void and of no legal effect. Additionally, the acquirer may be subject to criminal or civil penalties for completing the acquisition without clearance. The Secretary of State may retrospectively validate a notifiable acquisition. Regulations will specify how to notify the Secretary of State of notifiable acquisitions.
35. The Act provides a power for the Secretary of State to amend the acquisitions which are notifiable through regulations. The Secretary of State may also make regulations exempting acquisitions from the mandatory notification regime on the basis of the characteristics of the acquirer. These powers collectively allow the regime to reflect changing national security risks.

Voluntary notification regime

36. Businesses and other entities who do not meet the criteria for mandatory notification may submit a notification to the Secretary of State if they consider that their trigger event could raise national security concerns. To help inform their assessment as to whether a voluntary notification should be issued, they make reference to the statutory statement about the exercise of the call-in power.

National security assessment

37. The Secretary of State may give a call-in notice in respect of a trigger event that has taken place or is in progress or contemplation. The notice may be given up to 5 years after the trigger event took place, subject to this being done within 6 months of the Secretary of State becoming aware of the trigger event. While a trigger event is being assessed, the Secretary of State will be able to impose interim remedies in order to ensure that the effectiveness of the national security assessment or subsequent remedies is not prejudiced by action taken by the parties. For example, the Secretary of State might prohibit activities which would result in the integration of two businesses, or act to safeguard assets, until the national security assessment is complete.
38. To facilitate assessments, the Secretary of State will have powers for gathering information. There will be safeguards on the use and disclosure of such information.
39. If, following an assessment, the Secretary of State determines that a risk to national security has arisen or would arise from the trigger event, the Secretary of State has the power to impose proportionate remedies in a final order to prevent, remedy or mitigate that risk. Breach of any requirement in a final order may lead to a civil or criminal sanction.
40. Civil and criminal sanctions will also be available in the event of non-compliance with interim orders and information requests.
41. Decisions under the Act will be subject to judicial review or appeal. The Government will be able to apply for a closed material procedure to protect sensitive matters in these proceedings.

Comparison between current framework and the National Security and Investment regime

42. The National Security and Investment regime will be separate from the processes and practice of the CMA’s mergers framework under the Enterprise Act 2002 . The mergers framework will continue to exist once the new regime has been implemented, but it will only apply to competition, media plurality, financial stability and public health emergency considerations; national security implications will be addressed entirely through the new legal framework.
43. The table below summarises and compares the Enterprise Act 2002 framework for national security public interest interventions and the new National Security and Investment regime. Further detail on the current framework for national security interventions under the Enterprise Act can be found on the legislation.gov.uk site and in CMA guidance (CMA2, Mergers: Guidance on the CMA’s jurisdiction and procedure ). Detail on the National Security and Investment Regime is contained in the "Commentary on Provisions" section.

    Table 1: Comparison between national security interventions under the Enterprise Act 2002 and the National Security and Investment Regime
    	Current system under the Enterprise Act 2002	National Security and Investment regime
    Acquisitions within scope	The Secretary of State may intervene in qualifying mergers between enterprises which raise specified public interest concerns, including on national security grounds. Further detail on this is available in the" Legal Background section".	The Secretary of State may intervene where they reasonably suspect that a "trigger event" has taken place or is in progress or contemplation, and this has given rise to, or may give rise to, a national security risk. Trigger events include acquisitions of certain shares or voting rights in a qualifying entity; acquisition of material influence over such an entity; the acquisition of a right or an interest in a qualifying asset enabling the acquirer to use the asset or to control or direct how it is used.
    Notification to Government	Parties may submit a merger notice to the CMA to notify them about a relevant merger situation. Under the Public Interest Regime, the Secretary of State may intervene in a merger whether or not there has been a notification. Following receipt and acceptance of a complete merger notice, the CMA must decide whether the duty to refer the merger for a Phase 2 investigation applies within 40 working days.	Pre-notification to the Secretary of State required for certain acquisitions, via a mandatory notice. Where this does not apply, parties to trigger events may submit a voluntary notice to the Secretary of State. The Secretary of State may intervene in a completed or anticipated trigger event whether or not there has been a notification. Following receipt and acceptance of a complete mandatory or voluntary notice, the Secretary of State must decide whether to issue a call-in notice within 30 working days.
    Government assessment	If a merger situation meets the criteria for intervention on the grounds of national security, the Secretary of State may issue a" Public Interest Intervention Notice" (PIIN) to the CMA to initiate a Phase 1 investigation. Following receipt of the CMA’s report on the merger, the Secretary of State has the option to clear the merger, clear the merger subject to undertakings offered by the parties to address the national security risks (see cell below on interventions and remedies), or refer the merger for a Phase 2 investigation. A Phase 2 investigation is undertaken by an Inquiry Group formed by the CMA. Following the completion of the investigation they would provide their recommendations to the Secretary of State. The Secretary of State would then have the option to clear the merger, clear the merger subject to undertakings offered by the parties to address the national security risks or an order imposing remedies, or to block/unwind the merger. The Secretary of State must make the decision to refer a merger for a Phase 2 investigation or to accept undertakings instead of making the reference within four months of the merger completing or, if it is completed without being made public, within four months of the merger being made public.	The Secretary of State will call in trigger events to undertake a national security assessment. The Secretary of State will use this process to determine whether to clear the trigger event either outright or subject to remedies, or (where this is necessary and proportionate) block or unwind it. The Secretary of State has an initial 30 working days to conduct a national security assessment. This may be extended by the Secretary of State by 45 working days if certain conditions are met. If further assessment is required, the Secretary of State may agree an additional voluntary period with the acquirer if certain conditions are met.
    Intervention and remedies	After intervening in a national security case, the Secretary of State may issue an interim order (by means of a statutory instrument subject to the negative resolution procedure) to prevent or reverse "pre-emptive action" by the parties which might prejudice the intervention. Such an order can come into force with immediate effect, where justified for the protection of national security. The CMA also has power to make a pre-emptive action order. The Secretary of State or the CMA (as the case may be) may subsequently grant derogations from a pre-emptive action order on application by the parties. As part of a Phase 1 investigation, if the national security concerns arising from a relevant merger situation are such that the Secretary of State would otherwise refer the merger for a Phase 2 investigation, the Secretary of State may accept undertakings as a remedy for the national security issues in lieu of making the reference. Following a Phase 2 investigation, the Secretary of State may accept undertakings or impose remedies by order, including blocking/unwinding the merger, to address a national security risk.	A notifiable acquisition must be approved by the Secretary of State before completing. A notifiable acquisition that is completed without prior approval is void and of no legal effect. The Secretary of State may during a national security assessment issue an interim order for the purpose of preventing or reversing action that might prejudice the exercise of his or her functions under the Act. Interim orders will not necessarily be made public. The Secretary of State must before the end of the assessment period either notify the parties that no further action will be taken, or, where a national security risk has been identified, make a final order for the purpose of preventing, remedying, or mitigating that risk. The Secretary of State must keep all orders under review and may vary or revoke them. Parties subject to an order may request that it be reviewed by the Secretary of State. When the Secretary of State makes, varies, or revokes a final order, the Secretary of State must publish certain information about the trigger event and the order.
    Judicial review	Litigants may apply to the Competition Appeal Tribunal (CAT) if aggrieved by a decision of the Secretary of State as part of the merger review process. The CAT will review the decision by applying the same principles as the High Court on an application for judicial review. Cases must be brought within four weeks of the date on which the applicant was notified of the disputed decision, or the date of publication if earlier.	Litigants may apply to the High Court for judicial review, with a closed material procedure available to ensure sensitive information is protected. Claims will need to be brought not more than 28 days after the grounds to make the claim first arose unless the court gives permission for the claim to be brought after the expiry of this time limit.