The National Security and Investment Act: What datacentre operators and investors need to know

The data infrastructure sector, which includes datacentres, is one of 17 sectors covered by the act, but there are other tech-related ones as well. They include artificial intelligence, communications, computing hardware, cryptographic authentication and quantum technologies.

Some of these technology sectors, namely AI and quantum, have been flagged in the past by the government as being critically important to the UK’s future prosperity from an innovation perspective.

Other sectors, such as communications, computing hardware and data infrastructure, have a more fundamental role to play in keeping the wheels of our increasingly digital economy turning.

Crypto authentication technologies, meanwhile, are an essential for ensuring sensitive data remains off limits to unauthorised parties and cannot be tampered with.

In all cases, it is not difficult to see why the government is introducing an act that seeks to ensure the business assets and intellectual property of the companies in these sectors do not fall into the wrong hands.  

The act aims to achieve this by making it mandatory for domestic and overseas investors to notify the government of any M&A they are planning that involve companies from any of these 17 sectors.

Specifically, investors will need to notify the Investment Security Unit within the Department for Business, Energy and Industrial Strategy (BEIS) before the transaction takes place, and failing to do could result in that deal being ruled null and void.

And that is not all – failing to comply with the terms of the act could result in the individuals involved facing up to five years in prison, and the possibility of sizeable financial penalties.

On this point, the entity responsible for breaching the act could face a fine of up to £10m or 5% of their worldwide turnover, depending on which sum is higher.

In light of these penalties, TechUK’s Fryer says there is a concern that deal completion deadlines could be pushed back because of the sheer volume of notifications BEIS ends up having to wade through.

“There is a concern that there could be a lot of precautionary reporting when it is not really necessary from over-cautious investors not wanting to fall foul of the law, although we need to absolutely make sure those who need to notify do so,” she says.

And while the government has shared details of how the act will work in practice, until it comes into force there is no real way of knowing how disruptive its implementation will prove to be. 

“The point we’ve made to government is that you don’t want the UK to get a reputation for having a difficult system that people and investors find unwieldy to use and that puts people off [investing in datacentres], but we won’t know about any of that until we really know how [the act] will be operated in practice,” Fryer’s colleague Neil Ross, head of policy at TechUK, tells Computer Weekly.

For this reason, Fryer says it would be useful for the government to share some example deals that are liable to raise red flags once this new investment screening regime comes into play.

“If you’re divesting seven large sites in Docklands, then I suspect that’s obvious that is going to need reporting, but if you’re divesting a legacy site in Wolverhampton that stores people’s shoe sizes from 1972, maybe you’ll be in the clear,” she says.

“And those are the things that [investors] need to be able to see: where do I fit into this landscape, because having examples that people can point to and say, ‘Oh he’s like me, therefore…’ is always much more helpful in this type of scenario.” 

The government already has the power to scrutinise M&A deals on national security grounds through the Enterprise Act 2002, but changes to the technological, economic and geopolitical landscape in recent years mean they are long overdue a revamp, in the government’s view.

So much so, the act is billed by the government as the biggest shake-up of the UK’s investment screening regime in two decades.

“This landmark law not only significantly upgrades our decades-old investment screening powers, but gives investors additional certainty and clarity as we enshrine our status as a global champion of free trade and investment,” says Kwasi Kwarteng, secretary of state at BEIS.

“The UK faces continued and broad-ranging hostile activity from those who seek to compromise our national security and that of our allies. Such behaviour left unchecked can leave Britain vulnerable to disruption, unfair leverage and espionage. It is crucial that the government has the tools at our disposal to combat these threats coming from ever more determined overseas actors.

“We’re sending a crystal clear message to overseas investors: the UK is open for business, but if you seek to threaten the safety of the British people we will move to protect our interests.”