Updated guidance on UK national security regime provides greater clarity for businesses

The updated guidance on the NSI Act comes after calls to 'fine tune' the NSI regime following a consultation. It aims to provide more clarity to businesses, institutions, and their advisors while protecting national security. The updates include a new ‘section 3 statement’ that better explains how the UK government plans to exercise powers under the NSI Act to call-in certain acquisitions for scrutiny and updated ‘Market Guidance’.

“The updated section 3 guidance gives helpful further detail on the factors that the government will consider in its national security assessments. While the updated guidance does not show a significant change of approach, it will assist parties in assessing how a particular transaction will be reviewed by the government," said Paul Williams, NSI Act advisor at Pinsent Masons.

Further hypothetical examples are given in the section 3 guidance on the types of transactions which do and do not raise concerns. This includes that an acquisition will be assessed in the context of the capability or capacity of Government supply chains, and that inbound investments will be assessed for national security risk if an acquirer is based in an area where domestic laws can compel cooperation with intelligence agencies.

The updated market guidance published at the same time gives further clarification on  ‘trigger events’ and the type of transactions that will be called in for assessment, including when outward direct investment could raise concerns, as well as procedural guidance.

For instance, the updated guidance states that outbound transactions will fall within the scope of the NSI Act if the target company or individual carries out activities or supplies goods within the UK. Joint ventures and outward investments resulting in the transfer of technology, intellectual property and expertise may also fall under the NSI Act where there is a link to the UK economy, the guidance says.

Additional guidance is also provided for the higher education sector, which in particular gives examples of when a research collaboration could raise national security concerns.

“A consultation is now expected later in the year to update the current 17 mandatory notification sectors, with expected amendments to current sectors and the addition of new sectors,” Williams said.