National Security and Investment Act: Too Soon?

By Joshua Ng


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The UK’s National Security and Investment Act 2021 came into force on January 4, 2022. In the interests of national security [1], the Act mandates for companies in specific areas of the economy to seek approval before proceeding with acquisitions. [2] In addition, the government may intervene in these mergers if necessary. [3] Finally, noncompliance with these regulations constitutes a criminal offence. [4] This article will briefly compare the economic areas regulated under this Act to similar merger control legislation in Singapore.


Economic areas regulated


The UK Act covers the following 17 industries: advanced materials, advanced robotics, artificial intelligence, civil nuclear, communications, computing hardware, critical suppliers to government, cryptographic authentication, data infrastructure, defence, energy, military and dual-use, quantum technologies, satellite and space technologies, suppliers to the emergency services, synthetic biology, and transport. [5]


In Singapore, more stringent merger controls (because it is in the national interest to do so) exist for the areas of licensed and regulatory postcard services, potable piped water, wastewater management systems, licensed and regulated bus services, licensed and regulated rail services and licensed and regulated cargo terminal operations. [6] We can therefore see that the UK Act primarily concerns rapidly-developing areas of the economy, whereas the Singapore regulations concern more traditional, infrastructure-related areas of the economy.


Evaluation


One might argue that the UK’s approach is riskier. Targeting developing areas of the economy to pre-empt a problematic acquisition (notwithstanding the stringency of the regulations) might unduly stifle necessary growth in these areas. Conversely, the Singapore approach targets well-established sectors and is unlikely to have such a severe chilling effect. That said, the frequency with which government intervention occurs is what will ultimately guide the subsequent shift in risk calculus for affected companies, and the associated effect on sector growth. Until more information is available on how this legislation is applied in practice, the UK Act will likely result in (a) more contractual provisions such as representations and warranties being used to protect against regulatory breaches (for example, if a target company potentially has assets or operations in these economic areas) and (b) more compliance work for lawyers in affected areas.






References:

[1]: Department for Business, Energy & Industrial Strategy, ‘National Security and Investment Act: guidance on notifiable acquisitions’, https://www.gov.uk/government/publications/national-security-and-investment-act-guidance-on-notifiable-acquisitions/national-security-and-investment-act-guidance-on-notifiable-acquisitions, accessed 17 Jan 2022 [2]: National Security and Investment Act 2021, s.13(1)

[3]: Ibid, s.1(1)

[4]: Ibid, s.32 - 36

[5]: Department for Business, Energy & Industrial Strategy, ‘National Security and Investment Act: guidance on notifiable acquisitions’

[6]: Lim Chong Kim, Corrine Chew, ‘Singapore: Merger Control Laws and Regulations’, ICLG, https://iclg.com/practice-areas/merger-control-laws-and-regulations/singapore, accessed 17 Jan 2022