The second annual report of the National Security and Investment Act (NSIA) 2021 has been published by the Government, covering the year from 1st April 2022 to 31st March 2023 – the first report covering a full calendar year. With the inaugural report only covering a 3-month period, this second instalment has provided a more informed view of the effectiveness of the legislation, and the volume of investments that are raising national security concerns.

To recap, the NSIA introduced a new system for screening investments for national security concerns. This provided the Government with new powers to intervene in qualifying acquisitions that could harm the UK’s national security and required businesses and investors to notify the Government about certain acquisitions in sensitive sectors – ADS’ membership sat squarely at the heart of this, especially in defence, space, and security.

The second report has echoed the positive outcomes of the initial report. The Secretary of State received 866 notifications for this reporting period and all notifications were either called in or cleared within the statutory time limit of 30 working days after being accepted. The 866 notifications correlate almost perfectly with the 222 received in the 3 months prior to this report’s period and alleviates any concerns that the ‘low’ number of notifications was related to the decline of merger and acquisition activity during COVID. Instead, the report demonstrates a consistent and manageable flow of reported investments, and a timely response from the Government.

Of the 866 notifications, only 65 acquisitions were called in (7.5% – almost exactly the previous report’s figure) and of these, the Secretary of State made just 15 final orders (1.7%). On average it took 81 working days to issue a final order, and no penalties were issued, nor any criminal prosecutions concluded. It is interesting to note that of the 65 acquisitions called in, the report states that 37% were associated with the Military and Dual Use area of the economy, and 29% with Defence; meanwhile 42% of call-ins were of acquisitions involving acquirers associated with China.

Based on this second report of the NSIA, the Act is operating smoothly following its initial report in 2022, though ADS will continue to monitor its implementation to ensure that it is providing companies and investors the certainty they need to do business while crucially protecting the UK’s national security in an increasingly complex geopolitical landscape.