Checking whether the NSIA regime applies has become a "routine" step in transactions with a UK nexus. While the vast majority of notifications get cleared within 30 working days of acceptance, without detailed assessment (almost 96% in the latest review period), the risk and potential impact of Government intervention must not be overlooked. In particular:

• a failure to notify a mandatory transaction is a criminal offence and makes any completed deal void, with important ramifications for parties' (including any lenders') ability to enforce related agreements;
• where the Government calls in a transaction, a detailed/ Phase II review may cause significant delays; and
• a Phase II review may lead to the imposition of burdensome remedies, the deal being blocked altogether, or the parties deciding to abandon the transaction.

Based on our analysis of the UK Government's NSIA Annual Report covering the period from 1 April 2023 to 31 March 2024, and of final order notices issued to date (as at 25 September 2024), most of the trends which we identified in our previous update (which you can access here) have broadly continued along the same lines:

1)    the NSIA review process remains less burdensome than initially expected and is showing signs of getting smoother – though when looking at the low number of final orders in the reporting period (5 versus 15 in the previous period), the number of notification withdrawals should also be borne in mind (10) as it reflects circumstances where parties decided to abandon a transaction rather than face drastic remedies or a prohibition on the deal going ahead;

2)    areas of particular sectoral focus continue to be Defence, Critical Suppliers to Government, Military and Dual-use and Data Infrastructure, while investment originating from China, as well as the UK and "friendly states" such as the USA and Canada continue to attract the most scrutiny; and

3)    the remedies imposed tend to be behavioural yet extensive in nature (ranging from security requirements to governance safeguards and reporting obligations), with Energy and Utilities being the most targeted industry sectors – particularly where the assets involved in the transaction are part of the UK's Critical National Infrastructure.  In one case, this has even resulted in the Government being given step-in rights.

The following developments are also worth noting:

• Government authorities actively monitor the market for notifiable transactions – over the reporting period, 34 completions of notifiable transactions were identified and 4 unnotified transactions were called in. While the Government is yet to impose any fines or prosecute any offences, we can expect a less lenient approach going forward;
• while overall average review timings have broadly remained consistent, the Investment Security Unit seems to be taking more time to assess initial submissions and confirm its acceptance or rejection of a notification;
• the non-sensitive sector of academic research and development in higher education is increasingly coming under the authorities' lens, with 24% of call-ins involving this sector, versus 11% in 2022-23; and
• since the change in Government in July 2024, anticipated reforms to the NSIA regime appear to have stalled – it remains to be seen whether these are picked up over the coming months.

You can view our key takeaways packaged into a user-friendly deck of visuals by clicking on the link below.