We are pleased to share with you our briefing on the second annual report ("Report") published by the UK's Cabinet Office on the National Security and Investment Act 2021 ("NSIA"). The Report, which was published on 11 July 2023, is the first to cover a full 12-month period (namely, 1 April 2022 to 31 March 2023) and provides revealing insights as to how the NSIA regime has operated in practice. The Report has been eagerly anticipated by practitioners and deal makers alike, given that it sheds a rare light on a regime that otherwise operates with significant opacity.

The key takeaways from the Report are:

• The CO has cleared 92.8% of all transactions it has reviewed within the initial 30 working day period.
   
• The CO received 866 NSIA filings in total (including all those submitted under the mandatory and voluntary regimes, as well as filings submitted retrospectively). This number is significantly less than the 1,000 – 1,830 annual NSIA filings that the UK Government predicted back in 2020 would be generated by the NSIA regime.
   
• Compared to the period between 4 January 2022 and 31 March 2022 (which was covered by the first NSIA annual report), the CO has taken twice as long to notify parties that it has rejected filings submitted under the NSIA's mandatory regime. To avoid undue disruption to deal timetables and a more extended NSIA review process, it will be important for parties to ensure that submitted NSIA filings contain all necessary information and are drafted using the correct notification forms.
   
• The vast majority of filings under the NSIA's mandatory regime have concerned the 'Defence' key sector under the NSIA.
   
• Though only 7.2% of transactions reviewed by the CO have been called-in for an in-depth assessment, 20.8% of call-ins have resulted in final orders being imposed (i.e., deals cleared subject to acceptable remedies or prohibited outright).
   
• Though filings made by Chinese acquirers only accounted for less than 5% of the total received by the CO, they also generated a disproportionate figure of 42% of all call-in notices and 53% of the final orders imposed.

Though the Report will be welcomed by stakeholders, it stops short of outlining the CO's views of the most relevant national security risks affecting the UK and, in turn, the types of deals it is most concerned with. It is clear therefore that the CO's approach to conducting its reviews in "black box" fashion will continue. As such, whilst the Report contains some encouraging statistics for investors, it will nonetheless still be important to carefully consider the NSIA regime in respect of all manner of deal types in future, particularly those which trigger a mandatory filing and/or potentially raise national security concerns that the CO may wish to review.

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