UK’s National Security & Investment Screening Regime: Important changes to reduce the burden on businesses

In a busy day for updates on the National Security & Investment Act 2021 (NSIA), on 22 July 2025 the UK Government announced important changes to the functioning of the regime to “ease the burden on businesses.” First, the Government has announced that certain types of low-risk transactions will be removed from the scope of the NSIA’s mandatory regime entirely to “reduce unnecessary red tape”. Secondly, the Government launched a consultation on updates to the sectors that are subject to mandatory notification. And finally, the Government simultaneously published its fourth annual report on the operation of the NSIA. 

These announcements were not unexpected, as the Government had signposted its intention to reform the NSIA regime in June 2025 through its modern industrial strategy policy paper (see our blog post here). The focus on promoting growth and alleviating burdens for businesses in the foreword of the new annual report and the Notifiable Acquisition Regulations (the NARs) consultation document is also consonant with the Government’s broader growth agenda and ambitions set out in its policy paper. These factors occur against the backdrop of a record-low number of new FDI projects in the UK in the last financial year.

Carve-outs from the mandatory notification regime for low-risk transaction types

The UK Government announced its intention to exempt some or all internal reorganisations and the appointment of liquidators, special administrators, and official receivers from mandatory notification requirements. It cites the fact that these have proven to be low risk transactions, and so removing these notification requirements will reduce the burdens on businesses while simultaneously freeing up resource to focus on higher-risk transactions. Similar proposals had been tabled as part of the previous administration’s Call for Evidence in November 2023, but these reforms were ultimately kicked into the long grass in the (previous) Government’s response to the Call for Evidence in April 2024.

This reform is likely to be welcomed by business stakeholders. The inclusion of internal reorganisations within the scope of the mandatory notification regime in particular, resulted in a significant number of notifications being made which raised little (or no) conceivable national security concern. The notification requirement could prove onerous for companies by adversely impacting investment or restructuring timelines, including for business-as-usual activities.

The Government has said that it will seek to bring secondary legislation to Parliament to implement this in due course, but the timing for this is currently unclear.

Sector changes in the NARs consultation

The Government has launched a 12-week consultation on proposed updates to the NARs. The consultation proposals draw on the statutory report on the functioning of the NARs published on 19 December 2024 (see our blog post here), and were also foreshadowed in the previous Government’s response in April 2024 to the 2023 NSIA Call for Evidence. The stated intention is to improve clarity and to bring the sectors up to date with the latest economic and technological developments. The deadline for responding to the NARs consultation is 14 October 2025.

Critical minerals and semiconductors: standalone sectors

In line with stakeholder feedback to the Call for Evidence, Critical minerals and Semiconductors – which are both sectors of heightened geopolitical focus internationally – are proposed to be carved out from the Advanced materials sector to increase clarity. The draft definition of critical minerals expands this area by (i) harmonising the critical minerals list with the Critical Mineral Intelligence Centre’s latest criticality assessment; and (ii) adding extraction, processing and recycling to its scope. The proposed scope of the semiconductors sector is not expected by the Government to result in an increase in notifications, although the proposed changes (i) add advanced packaging techniques and activities involving the wider design process of processing units and memory chips, such as R&D; (ii) expand the current Computing hardware devices scope; and (iii) cover semiconductor-related devices and advanced chip designs.

A new water sector signalling more emphasis on national infrastructure

Hot on the heels of the Cunliffe Commission’s final report on 21 July 2025 , the NSIA may now add an extra layer of scrutiny to the water sector by bringing it within the mandatory notification regime under the NARs. Amidst calls from the UK water sector about its need to attract capital to support around £100bn of investment between 2025 and 2030, and concerns raised in the Cunliffe report about the need for a robust regime to police changes of control over water companies, the Government is keen to ensure that it can intervene on national security grounds in transactions that could raise risks to this critical infrastructure.

The new sector is proposed to capture the regional water and/or sewage monopolies operating across England and Wales, and certain acquisitions involving water holding companies will also be in scope due to indirect control provisions within the NSIA. By contrast, pure retailers in the non-household retail market for water will be excluded from the scope of this sector.

And some “fine tuning” of mandatory sectors

The NARs consultation document proposes targeted changes to a number of sectors , aimed at “loosening the scope” for certain transactions as well as updating the regulations to “reflect areas where there are new risks” and to introduce more clarity. These include:

• narrowing the scope of the AI sector by removing low-risk “off the shelf” AI and focusing on the safety of AI systems, evaluating the risk of disinformation or misinformation, or research into the capabilities of AI systems that could potentially create a risk to the health, safety or security of persons;

• within Communications, narrowing down “associated facilities” to providers with a relevant turnover of at least £5m while removing the thresholds for cable landing stations, submarine cable systems and repair and maintenance services;

• refining the Critical suppliers to Government and Data infrastructure sectors, involving in particular (i) public sector authorities being moved to the former and limited to the list of 24 ministerial departments; as well as the addition of (ii) a definition of “notifiable services” below SECRET level for government suppliers; and (iii) all third-party operated data centres, including data processing and data storage facilities to data infrastructure;

• targeted changes are also being consulted on in relation to Energy, Suppliers to the Emergency Services (which involve some increase in scope), Advanced materials and Synthetic biology.

The fourth NSIA annual report: where are we now?

The fourth annual report, covering the period between 1 April 2024 to 31 March 2025 was also published on 22 July 2025, providing valuable insight into the functioning of the regime. The Government was keen to reaffirm that, consistent with past years, the vast majority of businesses were notified within the initial 30 working days that no further action would be taken.

Some key points are highlighted below:

• An increase in the number of notifications: the Government received 1,143 notifications, up from 906 in the previous reporting period. Defence (56%), Critical suppliers to Government (21%) and Military and dual-use (19%) continued to dominate the sector mix.

• Call-in notices remain the exception: consistent with the previous annual report, only a small minority of notifications (4.5%) resulted in a call-in notice, meaning that the overwhelming majority faced no further action (95.5%) after the initial review period.

• Final notifications and orders: the Government issued 35 final notifications and 17 final orders (up from five), with one ordering a transaction to unwind. Across both, Defence remained the most relevant sector, representing 37% of final notifications and nine final orders. Other key areas were Military and dual-use (34% / 6), Advanced materials (29% / 2), Artificial intelligence (29% / 3), and Energy (23% / 5).

• (UK) buyer beware: UK investors led the pack in terms of call-ins (48%), final notifications (34%), and final orders (64%), somewhat unsurprising given that over 60% of notifications related to transactions with UK acquirers. By contrast, for Chinese acquirers, both the proportion of call-ins (32% from 41%) and final notifications (23% from 48%) saw a steep decrease, although they still represented seven of the 11 final orders, despite only representing <5% of total notifications. UAE investors accounted for 14% of final orders (an increase from 2%).

• Procedural aspects: the time for acceptance of notifications remained broadly consistent (6-8 working days). Equally, decisions to call-in or clear notified acquisitions were taken within the statutory 30 working days (average 29). A more notable change to the timing for final orders should be taken with a pinch of salt given the small number of final orders in the previous reporting period. As in previous years, no penalties were imposed, despite 60 identified cases of “gun-jumping”.

A more business friendly regime?

The UK Government’s announcements represent a clear statement of intent to streamline and clarify the UK’s investment screening regime to reduce the burdens on businesses in accordance with the Government’s “growth” mission. The removal of certain low-risk transaction types from the scope of the mandatory notification regime is certainly likely to be welcomed by many business stakeholders.

While the proposed changes to the mandatory sectors also make some business-friendly adjustments, such as narrowing certain definitions which have been shown to have broad application (e.g. AI) and improving clarity on certain sector definitions (e.g. the newly carved out Critical minerals and Semiconductors sectors), the Government itself considers that the changes will have a limited overall impact on the number of notifications – estimating “between 10 fewer and 35 more” mandatory notifications per year. It may therefore be questioned whether these changes alone will meaningfully contribute to the Government’s stated ambition “to cut red tape for businesses.”