Speaking at a National Security and Investment Act (NSIA) launch event at Chartered Accountants Hall in London on 1 December, Lord Callanan said intensifying international competition, an increasingly complex global economy, sweeping technological change and the increasing ability of non-state actors meant the government’s power to scrutinise acquisitions on national security grounds was required more than ever. He said a considered and evidence-based approach had been taken to making the reforms.
The NSIA will give the government new powers to scrutinize business transactions and intervene in takeovers and investments by foreign companies where it believes there could be a risk to national security. “We absolutely want to encourage free trade and investment. These reforms are about modernising existing power that derives from the Enterprise Act 2002. We continue to see ever more ingenious threats to our way of life and the NSIA is designed to protect our modern, outward-facing economy,” Lord Callanan said. “The vast majority of acquisitions will be unaffected by these powers.”
The Act, which can be applied retrospectively to deals from 12 November 2020, stipulates that prospective overseas buyers of UK companies, shareholdings or intellectual property across 17 sensitive industries including civil nuclear, communications, data infrastructure, artificial intelligence and computing hardware will have to alert a new government unit – the Investment Security Unit – about their proposed transactions.
“The sector descriptions aim to strike a balance between ensuring our national security is safeguarded whilst keeping the number of businesses caught by the mandatory notification requirement to an appropriate and proportionate level,” Callanan said. According to government estimates, between 1,000 and 1,800 deals a year could be affected by the rules. Directors of overseas companies that fail to do so could face personal fines of up to £10m, or their businesses could pay penalties worth up to 5% of annual turnover.
ICAEW CEO Michael Izza said the UK had struck a difficult balancing act in bringing forward legislation that seeks to subject foreign investment to greater scrutiny and challenge, while ensuring the UK remains one of the best places in the world to do business. “This marks a step-change in the regulation and conduct of many M&A, private equity, infrastructure investment, venture capital and capital market transactions that involve UK businesses across 17 specified sectors.
“Maintaining this attractiveness to investment is essential as we continue to build our economic recovery following the coronavirus pandemic. It will also be vital for securing the overseas investment necessary to fund the UK’s transition to a net zero economy as set out in the UK government’s net-zero strategy,” Izza added.
Izza said the importance of both overseas and domestic investor confidence in the UK economy cannot be understated. “The NSIA seeks to provide businesses and investors with the certainty and transparency they need to do business in the UK. It will inform the work of Chartered Accountants operating in economies both here and across the globe who use their professional judgement when advising businesses on how to grow and succeed.”
ICAEW’s Head of Corporate Finance, David Petrie, was singled out by the Minister for the critical role he has played in the drafting of the legislation since 2017, including contributions to both green and white papers on the issue. Petrie continues to sit on an Expert Advisory Group which has been instrumental in developing much of the guidance relating to the Act.
The launch event focused on the implications of the new legislation for businesses, investors and advisers. It was organised by ICAEW’s Corporate Finance Faculty and formally supported by the Department for Business, Energy & Industrial Strategy, the Law Society, the City of London Law Society, the Institute of Directors and the Chartered Institute for Securities & Investment.
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