Authors: Anna Mitchell, Mark Daniel, Erasmia Petousi, Stephanie Coleman
It’s that time of the year again: the fifth NSIA annual report is out
The fifth annual report under the National Security & Investment Act 2021 – covering the period between 1 April 2025 to 31 March 2026 – was published on 14 July 2026, providing valuable insight into the continued functioning of the regime (although for insights into the regime covering the last four months, from 1 April 2026, we will have to wait until next year’s report). The foreword to the report is largely formulaic, focusing on the need for inward investment to drive growth in the UK economy, whilst simultaneously safeguarding national security in a “predictable and proportionate way.” Does the report itself, which comes during a hiatus for the UK regime and its proposed sector revamp, provide any signs as to the direction of travel?
Some key points from the report are highlighted below:
- A continued increase in the number of notifications: the Government received 1,324 notifications, up from 1,143 in the previous reporting period (almost 16%). This continues to be a very significant number of notifications compared to international comparator regimes (almost four times the number of notifications received under the German FDI regime, for example). The uptick in notifications is acknowledged as the key reason for the increase in the time taken for the ISU to accept notifications as complete that practitioners have noticed in practice, though it is not clear what the measures to reduce these delays alluded to in the foreword will be. Defence (58%), Military and Dual-Use (23%), and Critical Suppliers to Government (20%) continued to lead the sector mix.
- Call-in notices remain the exception: consistent with previous years, only a small minority of notifications (54 or 4.4%, compared to 49 or 4.5% in the previous reporting period) resulted in a call-in notice, meaning that the overwhelming majority faced no further action after the initial review period (95.6%).
- Defence remains a sensitive area, but Advanced Materials raised the biggest concerns: the Government issued 44 final notifications and nine final orders (down from 17), with one outright prohibition. Of the 44 final notifications, Defence remained the most relevant sector (50%), followed by Critical Suppliers to Government (30%), Military and Dual-Use (27%), and Data Infrastructure (27%). A different picture was painted across the nine final orders, however, with Advanced Materials topping the list (related to five final orders), followed by Data Infrastructure (three final orders) and Military and Dual-Use (two final orders).
- (UK) buyer beware: as seen in last year’s report, UK investors once again led the pack in terms of call-ins (52%), final notifications (57%), and final orders (five final orders) – somewhat unsurprising given that 72% of accepted notifications related to transactions with UK acquirers. Chinese investors ranked second in terms of call-ins (30%, compared to 32% last year), final notifications (32%, up from 23% last year), and final orders (three final orders), despite only being associated with 2% of accepted notifications. In third rank, two final orders were each associated with Germany (associated with 4% of accepted notifications) and the United States (associated with 28% of accepted notifications). These numbers demonstrate that UK investors will still be scrutinised where target assets are sensitive. Unsurprisingly, Chinese investors remain in the spotlight despite a low number of notifications.
- Procedural aspects: as we observed above, the time for acceptance of notifications has increased significantly, which is consistent with our recent experience. It took an average of 11 working days for mandatory notifications (up from seven days), 13 days for voluntary notifications (up from eight days) and 10 days for retrospective applications (up from six days). Once a notification had been accepted, however, decisions to call-in or clear the acquisition were all taken within the statutory 30 working days.
- Gun-jumping: the Government identified 42 “potential offences” of completing a notifiable acquisition without approval (down from 60 last year). Instead of imposing penalties the parties were required to provide reassurance that “steps had been taken to prevent any recurrence”. As the NSIA regime matures, we query how long it will be before the Government decides to set an example by imposing penalties.
Reforms on the horizon?
In March 2026, the UK Government published its consultation response on the proposed reforms to the NSIA Notifiable Acquisition Regulations, aimed at keeping the regime fit for purpose while providing businesses with greater clarity and certainty. Many of these changes reflect definitional tweaks or slight amendments to scope. The Government has itself acknowledged that these proposed changes would, if implemented, have a minimal overall impact on mandatory notification volumes.
The key changes envisaged – which the Government had intended to bring before Parliament later this year – included:
- carving out Critical Minerals and Semiconductors from the Advance Materials category, with the latter being merged with Computing Hardware;
- introducing a new Water schedule, expected to cover larger New Appointments and Variations, as well as incumbent water and sewage companies;
- narrowing the AI schedule to focus on entities that create or modify AI systems, in most cases excluding end-users;
- expanding the Data Infrastructure schedule to include third-party operated datacentres and certain Cloud Service Providers and Managed Service Providers;
- updates to the Communications, Critical Suppliers to Government, Energy, Suppliers to the Emergency Services and Synthetic Biology schedules.
Significantly, “[f]orthcoming legislation” is mentioned in the latest annual report, which it notes will include exemptions for certain acquisitions from mandatory notification, updates to the scope of the notifiable sectors, and improvements to the notification forms. However, it is unclear to what extent the Government will be taking forward the specific changes it prefigured in July 2025 to “ease the burden on businesses” by removing some or all internal reorganisations and the appointment of liquidators, special administrators and official receivers from the scope of mandatory notification. This uncertainty is exacerbated in light of the upcoming change of Prime Minister. Given the increase in the volume of notifications and delays to the acceptance of filings, however, removing internal reorganisations from the scope of the NSIA in particular would allow the ISU to focus on transactions with the potential for national security risk, bringing benefits to the ISU and businesses alike.