Proposed updates to the UK National Security and Investment Act Regulations
24 July 2025
What you need to know
On 22 July 2025, the UK Government announced plans to update the UK investment security rules under the National Security and Investment Act 2021 (NSI Act). In particular, the Government:
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plans to ensure that mandatory notifications are no longer required for certain internal reorganisations and the appointment of liquidators; and
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has launched a consultation on proposed amendments to the National Security and Investment Act (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021 (the NARs). The consultation seeks stakeholder feedback on a range of targeted changes designed to ensure the NSI regime remains proportionate, effective, and responsive to evolving national security risks, while supporting the UK’s position as an attractive destination for investment. The consultation closes on 14 October 2025.
The proposals set out by the Government are subject to change over the course of the consultation and have not yet been enacted in law.
The Government has emphasised that the vast majority of investments pose no threat to national security, and the updated regime is intended to ensure that only those transactions which present genuine risks are subject to notification and review.
The Government also published its latest NSI Act Annual Report, which covers the period from 1 April 2024 – 31 March 2025. The report confirms that there was an increase in the number of NSI Act notifications from the previous year (from 906 to 1,143). Of the 1,079 ultimately reviewed, the report states that only 4.5% (49 filings) were issued with a call-in notice and 95.5% (1,030 filings) were notified that no further action would be taken. This ultimately resulted in the issuing of 35 final notifications and 17 final orders.
Key Proposals
The proposed amendments are informed by stakeholder engagement and the findings of the 2024 NSIA Report, which concluded that the current regime is broadly effective but would benefit from greater clarity and precision. The Government also responded to calls from industry to reduce the compliance burden and make it easier for businesses to understand when notification is required.
Plans to exempt mandatory NSI notifications for certain internal reorganisations and the appointment of liquidators
As set out above, the Chancellor of the Duchy of Lancaster and Minister for Intergovernmental Relations, Pat McFadden, who oversees the Investment Security Unit (which reviews NSI Act notifications) announced that the Government intends to remove the requirement for businesses to make mandatory notifications upon (i) certain internal reorganisations, and (ii) the appointment of liquidators, special administrators, and official receivers.
The Government's press release notes that internal reorganisations have generally proven to pose very low risk, and that removing the requirement to notify certain of these types of transactions should leave the ISU with greater capacity to review higher-risk transactions. No specific proposals are set out on the types of internal reorganisation that will be exempted from the requirement to notify the ISU. Mr McFadden notes that he will seek to bring secondary legislation to Parliament to effect these changes in due course.
Creation of Standalone Mandatory Sectors for Critical Minerals and Semiconductors
The consultation proposes:
- Critical Minerals: A new standalone mandatory sector for critical minerals is proposed (removing critical minerals from the scope of Advanced Materials). The definition will cover minerals of strategic importance to defence or science. The scope will explicitly include extraction, processing, and recycling activities.
- Semiconductors: A separate mandatory sector will be created for semiconductors, (removing semiconductors from the scope of Advanced Materials), and merging it with the existing Computing Hardware category. This will expand coverage to include advanced packaging, design, and a broader range of semiconductor-related devices.
Updates to Existing Definitions
The consultation proposes:
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Advanced Materials: As above, the definition will be narrowed by removing semiconductors and critical minerals, with some additional changes (such as the inclusion of Rare Earth Elements).
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Artificial Intelligence (AI): Importantly, the scope will be reduced by excluding entities using “off the shelf” consumer AI for internal processes. The Consultation proposes that the ISU focuses instead on entities developing, improving, or materially changing AI capabilities and those carrying on the testing and evaluation of AI systems in relation to (i) safety or security of AI systems, (ii) disinformation or misinformation, or (iii) the capability of AI systems that could potentially create a risk to the health and safety or security of people.
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Communications: The definition of “Associated Facilities” will be limited to providers with a turnover of at least £5m (except for cable landing stations, which remain fully in scope). Turnover thresholds for submarine cable systems and related services will be removed.
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Critical Suppliers to the Government: The definition is proposed to be updated to focus on 24 ministerial departments and specific notifiable services. The proposals also potentially expand the scope of the mandatory sector by including the delivery of a notifiable service to a relevant ministerial department where the delivery of that notifiable service will or could result in the qualifying entity generating or obtaining access to material to which a security classification of OFFICIAL together with a marking of SENSITIVE.
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Data Infrastructure: The mandatory sector will be updated to include all third-party operated data centres and certain cloud and managed service providers, while removing public sector authorities from scope (now covered under Critical Suppliers to Government).
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Energy: The definition of “aggregator” will be aligned with Ofgem’s, and a cumulative capacity threshold of 500MW (and increments thereof) will be introduced. Multi-purpose interconnectors will be brought into scope.
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Suppliers to the Emergency Services: Immediate subcontractors requiring Non-Police Personnel Vetting (NPPV) Level 2 or above will be brought into scope.
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Synthetic Biology: The schedule will be clarified, particularly regarding exemptions for gene and cell therapies.
Proposed Introduction of a New Mandatory Sector: Water
The Government proposes to add water and/or sewerage undertakers (regional monopolies) to the list of mandatory areas, reflecting the sector’s critical infrastructure status and increasing investment. Retailers in the non-household market are excluded.
Estimated Impact
Although the Government anticipates that the reforms will stimulate a reduction in red tape, the changes are not expected to result in a material reduction in notifications. The Government estimates that the impact of the changes in the number of mandatory notifications per year will be in the range of an increase of 35 to a decrease of 10, with a midpoint of around 10 additional notifications.
Consultation Process
As noted above, the proposed amendments under consultation are subject to change following input during the 12-week process. During the consultation, the Government invites responses from businesses, investors, advisers, and other stakeholders operating in or advising on the affected sectors. The consultation includes detailed questions on the clarity, technical accuracy, and proportionality of the proposed changes, as well as the estimated impact on businesses and notification volumes.
Following the consultation, the Government will consider stakeholder feedback before finalising the amendments to the NARs. An updated impact assessment will be published alongside the final legislation.
