It’s great to see the UK government came good on the promise in its recent response to the “call for evidence” on the NSI regime that it would publish new market guidance in May, as well as an updated version of the statement on how the Secretary of State exercises the call-in power – both of which were published on Tuesday 21 May 2024.

The Secretary of State’s statement on use of the call-in power is an important document, being the only real guidance on when a transaction might raise substantive concerns and therefore be called-in for a full assessment (instead of cleared at the first review stage, or not reviewed at all if a mandatory notification isn’t needed), possibly then leading to remedies or even prohibition. The new version includes some useful additional detail and examples, such as regarding overarching concerns, potentially problematic acquirer characteristics and the importance of sensitive supply chains to name a few. But there’s no material change in overall approach – this still primarily focuses on the assessment of control risk, acquirer risk and target risk, although the new version helpfully adds that wider government policy on national security in certain sectors, including published sector strategies, are another relevant consideration.  

More apparent from the new content is that target risk is particularly important – so a target may be so sensitive that a transaction needs to be called-in for a full assessment even if acquirer risk is low, which might apply, for example, if the target is strategically important or owns critical national infrastructure (such as a UK public communications network or energy infrastructure provider) or if there are risks around a target’s company structures or security processes. This is consistent with the government’s insistence that even UK-owned acquirers must be subject to the NSI regime.      

Another change to the statement on the call-in power is a bit more emphasis that the NSI regime is used solely to safeguard national security and “not to promote any other objectives”. But national security deliberately isn’t defined to ensure the regime can be applied flexibly, so the lines between nationality security and other objectives are blurred.  

Further guidance is always welcome, although there isn’t really much new that applies to transactions in general in the latest market guidance. The guidance for higher education and research-intensive sectors seems to have seen the most changes, whereas changes to the more general guidance are fairly limited and often on discrete points – for example, a bit more clarification on the approach to expedited reviews where parties are in material financial distress, how timelines are calculated, and expanded “top tips” for completing the notification forms.
  
There is also new guidance on how the regime applies to outward direct investment (ODI), but that doesn’t really add much that wasn’t already known – the gist being that acquisitions of non-UK entities or assets can trigger an NSI review if the usual criteria are met, including that the foreign entity or asset has a sufficient nexus to the UK, meaning carries on activities in the UK or supplies goods or services to the UK. But there’s no change in this regard.

Other next steps identified in the government’s response to its call for evidence included a consultation over the summer regarding possible changes to the sectors that are subject to mandatory notification and how those sectors are defined, and possible legislation in the autumn that might exempt certain transactions (e.g. internal reorganisations) from the mandatory notification requirements (subject to further work to assess the risks). Both these developments are eagerly awaited given difficulties applying many of the current sector definitions and concerns about the breadth of the regime.

However, the general election on 4 July will have a big say in whether/when we might see these.