The UK government has published its latest annual report on the functioning of the UK's investment screening regime under the National Security and Investment Act 2021 (NSIA) as well as announcing its intention to reduce unnecessary regulatory burden on businesses and a new consultation regarding the sensitive sector definitions for notifiable acquisitions.
In this alert we provide a snapshot of what the data tells us about the current functioning of the regime as well as the government's proposals to reduce "red tape" while simultaneously expanding the list of sectors in which investment can trigger the need for mandatory government approval to 19.
Reducing red tape?
On July 22, 2025, the UK government published a series of proposed reforms and updates to the NSIA alongside publication of the fourth annual report on the functioning of the regime.
The foreword to the report by the chancellor of the Duchy of Lancaster, Pat McFadden, the MP responsible for among other things, the administration of the NSIA, notes that "we are living through a period of immense change" and that a robust regime that protects national security also means protecting the UK's economic security. This is a small but important development, as it is recognising that a screening regime that also protects certain competition advantages can be considered as a relevant aspect of national security.
However, the foreword is also clear that "the UK is open for business" and welcomes investment even in sensitive sectors of the UK economy. It is this balance which is driving the UK government to announce on the one hand, a welcome reduction in "red tape" by removing certain types of transactions from the scope of the NSIA, while on the other hand also opening a consultation on expanding the list of sectors (from 17 to 19) that are caught by the mandatory regime.
Therefore, the government has announced its intention to reduce unnecessary regulatory burdens on businesses by introducing certain exemptions to mandatory notification requirements, including removing the requirement for businesses to notify certain internal reorganisations and the appointment of liquidators, special administrators and official receivers. The change is expected to simplify compliance for businesses and allow closer regulatory scrutiny of transactions which present genuine national security risks. Further details regarding the implementation of these changes will be made available as the government finalises its proposals.
At the same time however, the list of sectors and industries in which mandatory filings will be made looks set to expand.
New sensitive sector definitions targeting emerging risk
The government launched a new consultation on July 22, 2025 to amend the sensitive areas of the economy that are subject to mandatory notification under the NSIA. The consultation reflects on feedback from the NSIA Act Call for Evidence launched under the previous government in November 2023 and would see the current list of 17 so called "sensitive sectors" expand from 17 to 19, with an entirely new industry added to the list. Proposals include the following:
- Add investments in the Water industry to the list of mandatory notification sectors, to reflect the growing concerns over sector resilience and mitigate risk in the sector.
- Revise the current Data Infrastructure sector definition to capture third-party operated data centres (including data processing and data storage facilities) in addition to those offering peering/interconnection or subsea cable connections, which is expected to bring more businesses into scope. The draft Data Infrastructure schedule also removes the requirement for entities to notify solely based on holding contracts with a Public Sector Authority. Under the proposed changes, businesses will instead be required to notify under the "Critical Suppliers to Government" schedule if they have contracts with or provide specific services to one of the relevant ministerial departments.
- Carve out standalone sectors for Semiconductors (currently part of "Advanced Materials") and merging with Computing Hardware to provide clearer guidance on which semiconductor activities are subject to mandatory notification. The draft schedule also expands the scope to include advanced packaging techniques and activities related to the wider design process of processing units and memory chips, such R&D activities, to reflect the evolving risk landscape.
- Narrow the scope of Artificial Intelligence to exclude the rapidly expanding number of businesses using consumer artificial intelligence for low-risk activities.
The government is seeking views on these proposals through the consultation process, due to conclude on October 14, 2025, which will inform the final changes to the regulations. In the meantime, existing requirements remain in force, and further details will be provided as the government finalises its proposals.
The additional clarity and guidance regarding the scope of the sensitive sectors and the government's intended removal of transactions that are least likely to raise issues from the mandatory notification obligation are welcome developments. However, it remains to be seen if these changes will in practice result in a reduction of the number of notifications made given the expansion of the mandatory sectors in other areas.
We will be responding to the consultation and would welcome any thoughts or discussion with interested parties.
Fourth annual report
The government has also published its latest annual report on the functioning of the UK's investment screening regime introduced by the NSIA. We have set out the key points and figures below:
Key figures
- 95.5% of transactions reviewed by the UK government were cleared without conditions in the initial 30-working-day review period, with only 1.6% being either blocked or subject to conditions—this is broadly similar to last year and the government sees this as a sign that the regime continues to function well and is pro-investment.
- The Investment Screening Unit (ISU) received 1,143 notifications (up from 906) during the reporting period of April 1, 2024 to March 31, 2025, of which the vast majority (83%) were mandatory filings.
- The number of voluntary filings rose compared to the previous period (from 120 to 134) and the number of retrospective validation applications (i.e., cases that have been completed without prior approval) rose to 55 (from 33 in 2023–24).
- 56 deals were called in for an in-depth review (up from 41)—including seven that were not notified.
- 17 of those 56 ended in government intervention (up from five), of which one related to a deal not notified. One was prohibited (compared to none in 2023–24).
- On average it took 29 working days for the ISU to call in a transaction, the same as 2023–24. In-depth assessments resulting in clearance took an additional 40 working days on average, or 100 working days where conditions were imposed.
- Increased from 2023–2024, more than half of mandatory notifications related to the defence sector but the government intervened in deals across a range of sectors, including energy, military and dual use, as well as information and communication, and manufacturing.
- 60 offences of completing a notifiable acquisition without approval were identified by the ISU (up from 34) but again no enforcement action (penalties or criminal prosecution) has been taken so far.
Initial processing periods continue to increase
Of the notifications reviewed, the government dealt with 95.5% of cases in the initial 30-working-day review period. However, the period for the ISU to accept a notification increased again for mandatory notifications (averaging seven working days, up from six last year, and four the year before that) and remained the same for voluntary notifications (averaging eight working days), adding to the timeline for cases that ultimately raise no concerns. The time taken to reject notifications also increased in the reporting period.
The reason behind the increases to these initial periods is unclear. It could be the result of a higher number of more complex cases being notified in the reporting period, which seems the most likely explanation given that, as discussed further below, there was also a significant increase in the number of call-ins and final orders in this review period.
Parties will need to continue building in extra time for NSIA reviews, which, with the increased period for acceptance, are taking closer to two months rather than six weeks.
The average time to call in a transaction for in-depth review was the same as last year (29 working days for both mandatory and voluntary notifications), albeit within the statutory deadline of 30 working days.
The number of rejected notifications increases
Following the submission of a notification to the ISU, the ISU
will take a decision to "accept" or "reject"
that notification, with feedback provided where a notification is
rejected. Rejected notifications may be resubmitted after any
feedback is addressed.
Rejections in the reporting period were significantly higher
compared to the previous period (37, up from 24). The reasoning for
this is unclear but again could reflect a higher number of more
complex cases being notified in the reporting period or it could
suggest a lack of understanding of the information required in the
notification. It is interesting to note that the largest proportion
of rejected notifications were voluntary notifications with 19
(51%),
Duration of in-depth reviews requiring intervention significantly increases
Whilse the additional duration of in-depth reviews resulting in clearance appeared to fall (from 48 calendar days to 40 calendar days), in-depth reviews resulting in intervention were substantially longer, increasing from 53 calendar days to 100 calendar days.
During an in-depth review, the ISU has 30 working days to assess national security risks and to determine whether remedies are required. The ISU can unilaterally extend this period by up to 45 working days and further extensions can be agreed between the ISU and the acquirer.
There has been a marked increase in the use of extensions in this reporting period. The ISU unilaterally extended the review period on 21 occasions in the reporting period, up from 12 times in the previous period. Similarly, voluntary extensions were used on only four occasions—unchanged from the previous period.
This may indicate that the ISU's capability to complete in-depth reviews in the 30-working-day period is strained, as extensions continue to be required in a significant number of cases. This could reflect complexities in the cases under review and the significant increase in the number of cases called in for in-depth review presenting challenges for the ISU in managing the NSIA workload, particularly in more complex matters or where remedies are required.
In the report, the government warns against drawing conclusions about timing trends given the small number of cases with interventions in the previous reporting period, however in our view this increase is certainly notable.
High proportion of voluntary notifications continue to be called in
Voluntary notifications represented a high proportion of the transactions called in for in-depth review (36%, marginally down from 37% in the previous period). Of the 134 voluntary notifications reviewed during the reporting period, 20 (15%) were called in for an in-depth review.
Based on our experience, this likely represents notifications of assets related to one of the 17 mandatory sectors. These are not subject to a mandatory notification requirement, but (according to government guidance) are more likely to face call-in. Notably the sectors of the economy not subject to mandatory notification but that were called in for in-depth review included manufacturing, and academic research and development in higher education.
Intervention cases materially increase
Intervention figures for this reporting period (17 final orders, one prohibition) show that interventions are significantly up compared to the last reporting period where only five final orders were issued with no prohibitions.
This could be partially explained by the fact that there were fewer withdrawals in this reporting period (five withdrawals compared with ten in the previous period), in combination with the fact that there were more transactions notified and called in for in-depth review in the first place. However, this year's figures are broadly similar to the year before that (2022–23 reporting period), which had 15 final orders and five prohibitions, suggesting that 2023–24 is potentially an outlier year.
It remains to be seen whether this is a trend that will continue given the government's recent emphasis on growth and attracting investment in the UK.
UK investment overtakes Chinese investment for most scrutiny
Investments originating from acquirers associated with the United Kingdom were subject to the highest degree of scrutiny, account for 48% of all in-depth view relating to British investors. Similarly, most withdrawals after call-in, and the largest number of final orders (11) involved UK acquirers. As with the previous period, we expect the government's main concern here is the sensitivity of the target assets. We would also note that the data methodology is also relevant here as acquirers can be associated with more than one origin of investment, and there can be more than one acquirer per acquisition, so one acquisition may be associated with multiple origins of investment.
Transactions involving Chinese and US-affiliated entities also continued to face scrutiny, with 32% and 20% of deals related to Chinese and American investors, respectively, called in for in-depth review.
No penalties issued despite material increase in offences
Like the previous reporting period, no penalties were issued, and no criminal prosecutions were concluded. This is despite the ISU identifying 60 offences of completing a notifiable acquisition without approval (a significant increase above 34 in the previous reporting period) and the ISU receiving 55 retrospective validation applications (of which all were accepted). The ISU instead requested that parties provide reassurance to guard against repeat offences. This shows a continued tolerance of such breaches despite the regime having been in force for over three years.
Concluding remarks
It is a welcome development that the government is seeking to remove from the scope of mandatory NSIA notifications the transactions that are least likely to raise issues, but it remains to be seen whether this will have a noticeable impact on the overall number of filings given the expansion of the mandatory sectors in other areas. The expansion of semiconductors and merging with computing hardware is not expected in our view to materially increase the number of notifications. However, the addition of the water industry and third-party data centres could bring a number of transactions into scope going forward.
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