My Lords, in moving that the draft National Security and Investment Act 2021 (Monetary Penalties) (Turnover of a Business) Regulations 2021 be approved, I will speak also to the draft National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021, which were laid before the House on 6 September this year. The commencement date for both SIs is 4 January, which is the same date as the full commencement of the National Security and Investment Act 2021.
Before I turn to the detail of the SIs, I will say a few words to remind the Committee of the purpose of the National Security and Investment Act and why it is vital for the UK’s security. The UK economy thrives as a result of foreign direct investment. Over the past 10 years, more than 665,000 new jobs have been created as a result of more than 18,000 foreign direct investment projects. However, as I am sure your Lordships will agree—and indeed as the House demonstrated through its agreement to the Act—an open approach to investment must include appropriate safeguards to protect our national security and the safety of our citizens.
The NSI Act therefore provides the Government with updated powers to scrutinise and intervene in acquisitions to protect national security, as well as to provide businesses and investors with the certainty and transparency they need to do business in the United Kingdom. The Act establishes a call-in power for the Secretary of State to scrutinise qualifying acquisitions, a voluntary notification option for firms which wish to gain clarity on whether the Secretary of
State will call in their acquisition, and—the subject of these regulations—creates mandatory notification requirements in 17 sensitive sectors of the economy where it is considered that national security risks are more likely to arise.
Starting with the draft maximum monetary penalties regulations, this SI sets out how the Secretary of State will calculate a business’s turnover when calculating monetary penalties resulting from non-compliance. We generally expect compliance with the Act to be high and the need for the Secretary of State to issue penalties to therefore be rare, but it is important that the Act comes with sufficient deterrents to non-compliance.
This SI is laid under the delegated powers pursuant to Section 41 of the Act. Sections 32 and 33 create offences of completing a notifiable acquisition without approval and failing to comply with an interim or final order. Both these offences can result in the imposition of a monetary penalty.
The maximum fixed penalty that can be imposed on a business for an offence under Section 32 or 33 is the higher of 5% of the total value of the turnover of the business and £10 million. The maximum amount per day for a daily rate penalty that can be imposed on a business for an offence under Section 33 is the higher of 0.1% of the total turnover of the business and £200,000.
With these regulations, we have ensured that global turnover is taken into account when calculating the total turnover, so that no efforts to get round the penalties—for example, through changing accounting approaches—will be successful. These are important and well-balanced regulations, necessary for the effective functioning of the NSI Act.
Turning to the notifiable acquisition SI, which was of some interest to your Lordships during the passage of the Act, the SI has also been noted by the Secondary Legislation Scrutiny Committee as an “instrument of interest”. These regulations specify descriptions and activities of qualifying entities, the acquisition of which must be notified to the Secretary of State—a notifiable acquisition. Acquisitions in scope of mandatory notification that complete without the approval of the Secretary of State will be void and therefore have no effect in law. These are important changes to the UK’s investment screening system and sectoral expertise has been vital to ensure that mandatory notification is proportionate and targeted. The Government have therefore taken great care and time to get these regulations right.
Alongside the introduction of the NSI Bill in November 2020, the Government ran an eight-week public consultation on the proposed descriptions of the 17 areas of the economy referred to in the draft regulations, after which the Government published revised definitions in March. The Government then undertook further targeted engagement with stakeholders in these key sectors—such as communications, data infrastructure and synthetic biology—to refine and narrow the proposed descriptions to provide businesses and investors with further clarity.
As the Minister for Small Business, Consumers and Labour Markets did in the other place, I place on record the Government’s appreciation of the extensive
input we have had from across sector organisations in helping to develop these regulations. They strike a careful and appropriate balance between ensuring that our national security is safeguarded and keeping the number of businesses caught by the mandatory notification requirements to a necessary and proportionate level. In addition, these regulations allow parties themselves to identify objectively whether they are in scope of mandatory notification or not.
In addition, to monitor the impacts on businesses and investors, particularly small and medium-sized enterprises, the Government have chosen to include a shorter three-year post-implementation review within the SI, instead of the more standard five-year period. The Government engage on a daily basis with a wide range of businesses to help them understand the requirements of the Act, and we will of course continue to do so. Furthermore, extensive guidance across all 17 areas of the economy specified in these regulations will shortly be published to further assist parties in understanding the effect of the requirements on their planned activities.
In conclusion, these are detailed and technical statutory instruments which give effect to the purposes of the NSI Act. They have been carefully developed and tested to ensure that they give maximum clarity to businesses, while allowing us to protect the UK’s national security. I commend the draft regulations to the House.