Finance: Policing outbound investment | Law Gazette

The government recently published updates to guidance on the scope, application and use of its powers to intervene in corporate and commercial transactions under the National Security and Investment Act (NSIA). It also submitted to parliament a revised statutory statement on the expected use of its expansive call-in power to review acquisitions.


The most eye-catching details concerned additions to the guidance describing how the NSIA can apply to outward investments in non-UK companies. There are also revisions to the ‘section 3 statement’ – the statement that the government is effectively required by the NSIA to prepare and publish setting out how it expects to exercise the power to initiate in-depth reviews of transactions under the act. These more clearly outline and identify scenarios where action may be needed to protect against potential risks and harms to national security.

Issuing a revised section 3 statement and providing updated and extended guidance on the NSIA completes two of the commitments made by the government in its recent response to the call for evidence announced last November. Other material changes include significantly revised guidance for universities and academia, alongside updates concerning timelines, treatment of voting rights, and practical tips on submitting a notification.

National security focus

A prominent question in recent dialogue has been whether and when foreign investment screening and control should apply to outward investments in overseas companies.

Before the call for evidence, the UK committed in the June 2023 US-UK Atlantic Declaration to engage with a range of stakeholders to gather information and build a better understanding of how to identify and address any national security risks posed by certain kinds of outward investment. Informed by such discussions, the government has been evaluating whether there is a need to follow the US in developing a new regime to scrutinise outward transactions, or to bring forward legislation to amend or extend its existing investment-screening regime or other parts of its trade and investment control toolkit.

Interventions in outbound investment would step beyond the traditional domain of policing inbound ownership and control of businesses involved in national defence, intelligence and security supply chains and critical national infrastructure. But it would still be consistent with more recent (and now well-established) assessment of a transaction’s potential to enable a future uplift in the military or technological capabilities of potentially hostile actors – a perceived risk that is clearly identified in the new section 3 statement.

Despite uncertainty among many businesses on whether to expect new legislative proposals or a shift in UK policy, the legal position and intervention power for outward investments under the NSIA has remained consistent since the regime came into effect. Certain outbound investments can fall within the NSIA’s jurisdiction, scope of scrutiny, and (occasionally) mandatory notification requirements.

That position is now more clearly expressed in the updated NSIA guidance. This confirms that:

  • The jurisdictional scope of the NSIA extends to: acquisitions of ‘qualifying entities’, including non-UK entities that carry on activities in the UK or supply goods or services to people in the UK; ‘qualifying assets’, including land and tangible moveable property outside the UK; and intellectual property, where the asset is used in connection with activities carried on in the UK or used in connection with the supply of goods or services into the UK.
  • Where a transaction meets certain thresholds for control over such entities or assets, the government could call-in a transaction for review if it has a reasonable suspicion of a national security risk.
  • The acquisition of a non-UK entity may be subject to the mandatory notification requirement (and clearance would be required prior to closing) if the tests in the NSIA are met. Namely, if the shares or voting rights held crossed the relevant thresholds under the act and the entity concerned carries out activities within the UK that fall within one of the sensitive sectors of the economy specified in secondary legislation. In practice, this means that for acquisitions of non-UK entities the application of the mandatory notification requirement is significantly narrower than the jurisdictional reach of the act where the call-in power can be used.

Importantly, since the NSIA does not differentiate between UK and non-UK targets, the government will apply the same substantive tests to determine whether to use its review power. It will also seek to protect against the same potential risks arising in connection with a transaction.

Revised section 3 statement

The government has also published a section 3 statement setting out how it expects to exercise the power to give a call-in notice. While the NSIA empowers the government to issue a call-in notice for transactions where it reasonably suspects that the transaction has or may give rise to a national security risk, the act requires them to have regard to this statement when making such a decision. This is the first time the section 3 statement has been revised since the act came into effect in 2022. The amendments are intended to better explain how risk is identified and assessed. While advisers working in this area, and those closely following the UK’s security and international policy, will find that the statement reflects comments the government made elsewhere, the new statement provides a more granular, clearer and helpful picture of the key considerations underlying the decision.

A reworked and extended section on ‘what the government is seeking to protect’ more clearly delineates perceived risks and harms that the government is seeking to mitigate and prevent. These include, inter alia, erosion or degradation to critical national infrastructure, risks to supply chains, creation of dependencies, disruption or erosion of UK strategic capabilities, and enabling potentially hostile actors or adversaries to build capabilities which may present a threat. The update also names a variety of assets as having potential to lead to an adversary uplift risk, including sensitive information, data, knowhow, expertise and intellectual property.

The new statement also explicitly cross-references alignment with policy on national security in specific sectors, including critical minerals, semiconductors, innovation and emerging technologies, and research and academia.

Guidance for universities and academia

The update also revises specific guidance for higher-education institutions, universities and academics. Qualifying entities under the jurisdiction of the act could include universities, trusts, subsidiaries’ spin-outs, research organisations and contracted private company partners. It provides examples of research and IP licensing and transfer arrangements that would fall within scope, offering more detail to help institutions, academics and partners decide whether to notify transactions. The government called in transactions in the academic research and higher education sector five times between 4 January 2022 and 31 March 2023. It has issued final orders in two cases in connection with licensing agreements.

Looking ahead and abroad

The updates to the market guidance and the section 3 statement complete the first two steps set out in the response to the recent call for evidence. The response also committed to consulting on updates to the mandatory notification sectors set in secondary legislation by this summer, and to consider technical exemptions to the mandatory notification requirement to be laid before parliament this autumn – although whether these changes will proceed as envisaged may be in doubt with the announcement of the 4 July general election. While the updated guidance suggests the government considers that it has the tools to address concerns relating to outward investment for the time being, further review remains on the cards. The deputy prime minister stated on 18 April that over the next year the UK will engage with G7 allies and businesses to better understand the risks and evaluate if further action is warranted, as well as promising consultation on the UK’s recently expanded export controls on emerging technologies.

Outside the UK, other countries may press ahead and introduce outward investment controls in new law. The US is expected to move forwards with rulemaking to operationalise the outbound investment regime contemplated by last year’s executive order (with potential for this to be further extended through legislation). Meanwhile, the EU has recently closed a consultation preceding a proposed 12-month monitoring and assessment of outbound investments by member states, to inform a risk assessment and potentially lead to a foreign direct investment screening policy proposal.


Ross Evans is special counsel at Covington, London

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