The UK government has this week (13 November 2023) suggested that it could narrow the application of the National Security and Investment Act (NSI), including on transactions that require a mandatory filing to be made to the UK’s Investment Security Unit.

This should be welcome news for businesses which have had to, or may have to, grapple with the application of the NSI to corporate acquisitions.

The purpose of the NSI is to ensure that the government has the ability to review, and where necessary block or place conditions on, transactions with significant national security implications. Prior to its introduction in January 2022 the government’s powers in this area were limited.

Whilst this purpose is understandable, the legislation currently casts its net very wide in terms of which transactions require a mandatory filing: a large number of transactions without any national security implications have ended up as bycatch. In addition, the phrasing of the schedules to the NSI – which determine which activities of the target are caught – is complex. The current guidance on the interpretation of the schedules can in our experience create additional uncertainty. As a result, the NSI may create unnecessary delays and complications in deals without national security implications. Refining the legislation to reduce the scope of transactions that require a mandatory filing, and offering greater clarity on when a deal will require a mandatory filing would be welcome.

Whether this will be achieved remains to be seen. The government has made a Call for Evidence before proposing any concrete changes. The Call for Evidence suggests that the government may exempt certain special situations where there is a transfer of corporate control from the mandatory filing requirement, for example in cases of internal reorganisations and where insolvency practitioners have been appointed.

However, it is less certain how far the government intends to go on reducing the scope of the schedules setting out the activities that give rise to a mandatory filing requirement in transactions more generally. Other than in relation to certain AI and data infrastructure activities, there do not appear to be significant indications that the scope of the schedules will be reduced, although they may be clarified, and there are indications that new activities will be added. It therefore remains to be seen whether the government will achieve its stated intention of a “small garden, high fence” approach to the NSI. At the very least, some weeding of the legislation would be welcome.