Don’t miss the memo: accountability to Parliament of NSIA decision-maker agreed

On 14 March 2021, Government and the BEIS Select Committee agreed a long-awaited memorandum of understanding (MOU) on the mechanism for Parliamentary oversight to scrutinise and hold the Investment Security Unit (ISU) – the body responsible for conducting reviews under the National Security and Investment Act 2021 (NSIA) – to account. The outcome of extended negotiations prolonged by ministerial changes is an MOU setting out high-level principles on the operation of the ISU, its reporting to the BEIS Select Committee’s National Security and Investment Sub-Committee and the handling of information. 

It’s clear that the MOU preserves the ISU’s flexibility and need for a degree of circumspection when dealing with sensitive issues and information relating to national security, curtailing the Committee’s ability to interfere with the ISU’s processes too much. At the same time, it sets out minimum standards that must be met so there is some degree of Parliamentary oversight of the ISU.

IOU an MOU

Decisions by the Secretary of State under the NSIA can have far-reaching implications for businesses, particularly due to the NSIA’s broad jurisdictional scope (including an expansive five-year call-in power). For this reason, it was always intended during the NSIA’s passage that an MOU with BEIS would be agreed to ensure appropriate Parliamentary oversight of the NSIA process and the work of the ISU.

Businesses need clarity and predictability in relation to how the NSIA is applied – the Government recognises the centrality of this to investor confidence. On the other hand, the investment screening process must inevitably be opaque to a degree – due to the sensitivity of national security considerations. The aim was that a degree of external scrutiny would give businesses confidence that there was independent oversight of the ISU process. This is particularly important given that the key concept of a “national security” risk is not defined in the NSIA. 

There’s a clear precedent for legislative oversight of executive exercise of investment screening powers in the United States, where Congress formally scrutinises the investment-screening regime led by the Committee on Foreign Investment in the United States (CFIUS). The BEIS Sub-Committee clearly drew inspiration from the ally across the pond, with its Chair travelling to Washington DC in September 2022 to gain insights in how congressional CFIUS oversight operates. 

We understand that ministerial changes at BEIS as much as lengthy negotiations on the substance held up adoption of the MOU, which was finally signed nearly two years after the NSIA gained royal assent, and about 15 months after it came into force. 

The MOU’s high-level principles

The final-form MOU sets out high-level principles for how the Sub-Committee will scrutinise the ISU and how effective the ISU is at achieving the aims of the NSIA. The MOU explains how information will be shared between the Government and the Sub-Committee, including in respect of individual cases and including in certain circumstances where information may be quite sensitive. For example, where documents are very sensitive, provisions may be made such that they are accessed only in particular ways in secure government buildings. Again, this reflects a fundamental paradigm of the NSIA’s passage in Parliament considering it important for BEIS to be able to access the materials it needs. 

Like the ISU more generally, the Sub-Committee will largely also work in private to allow for the discussion of confidential information. This doesn’t just account for classified information but also commercially sensitive information relating to businesses or deals that haven’t been announced, a welcome recognition by Government of the concerns of transacting parties. 

Yes, Prime Minister

Much of the MOU reaffirms the requirements or processes that are in any case required under the NSIA (such as the need for an annual report) or that have become common practice (informing the Sub-Committee of final orders after they’ve been made). It also sets out some key principles for the BEIS Sub-Committee to bear in mind – including that its oversight should not jeopardise the system, impede the ISU’s effectiveness, or compromise sensitive information. Notably, the BEIS Sub-Committee’s oversight of acquisitions will generally remain retrospective.

In sum, the MOU appears not to seek to significantly reshape the ISU’s customary way of working developed over the past 15 months, but it does give businesses some welcome comfort that there is some legislative oversight of the ISU’s review – which the ISU itself acknowledges is somewhat of a ‘black box’.