Government announces reforms to NSIA 2021 regime and publishes annual report

On 22 July 2025, the Chancellor of the Duchy of Lancaster announced plans for a series of reforms to the National Security and Investment Act 2021 (NSIA 2021) investment screening regime to improve transparency and reduce the regulatory burden for businesses (Written Statement and Cabinet Office Press Release). The government has confirmed that it intends to legislate in due course to ensure certain types of internal reorganisation and the appointment of liquidators, special administrators and official receivers do not trigger mandatory notification obligations under the regime. No further details of the proposed exemptions have been given at this stage. Separately, the government is consulting on changes to the scope of the mandatory notification obligations set out in the NSIA 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021. These include updated definitions for several of the 17 sensitive areas of the economy subject to mandatory notification and a proposal to bring the water sector within scope of the requirement (Consultation: NSIA Notifiable Acquisition Regulations 2021).

The fourth annual statutory report on the NSIA regime has also been published (NSIA 2021: Annual Report 2024-25).

Background

The NSIA regime became effective in January 2022, introducing new powers enabling the government to scrutinise certain acquisitions and other transactions on national security grounds. It provides for qualifying acquisitions to be called in for national security assessment by the Cabinet Office's Investment Security Unit (ISU), either on the initiative of the Chancellor of the Duchy of Lancaster or following a notification under the regime. Acquisitions subject to the mandatory notification procedure are 'notifiable acquisitions': these are acquisitions of qualifying entities which operate in an area of the UK economy considered particularly sensitive for national security purposes. The descriptions of qualifying entities and the 17 types of business activity that are specified for these purposes are contained in the NSIA Notifiable Acquisition Regulations 2021 (see NSIA 2021: M&A overview, Q&A here

Consultation on the NSIA Notifiable Acquisition Regulations 2021

The government has decided to update and refine the scope of the Regulations to ensure the mandatory notification requirement remains targeted and proportionate. The proposals reflect feedback from the previous government's call for evidence on the NSIA regime (see FC Feature 19 April 2024) as well as findings from a statutory review of the Regulations published at the end of last year (see FC Feature 20 December 2024). The government considers that the changes do not represent a major policy shift and will not substantially alter the types of entities and activities subject to mandatory notification.

Key proposed changes to the Regulations include those set out below.

• Separate categories for semiconductors and critical minerals – to increase clarity, the government intends to create standalone definitions for critical minerals and semiconductors, which are currently both covered by the advanced materials area.
• Revised definitions for other sensitive areas – updates are proposed to several existing definitions, including amendments to the definition of AI to exclude cases where an 'off the shelf' AI system licensed from a third party is used as a tool for internal processes. The government estimates that this change would result in between 1 and 50 businesses falling out of scope of the Regulations, with up to 10 fewer mandatory notifications per year.
• New designation for the water sector – the government is proposing to add the water industry to the specified mandatory notification areas, reflecting its position as critical national infrastructure. It is anticipated that the creation of this area would bring a minimum of 17 water operating companies in scope of the regime and generate 1 to 5 notifications per year.

The consultation closes on 14 October 2025. In addition to bringing forward the necessary secondary legislation to amend the Regulations, the government intends to publish further guidance on the NSIA framework.

Annual report 2024-25

The latest annual report reviews the operation of the NSIA regime from 1 April 2024 to 31 March 2025. Key findings include those set out below.

• During the year, the ISU received 1,143 notifications. Of these, 954 were mandatory, 134 were voluntary and 55 were retrospective validation applications.

• Of the 1,079 notified acquisitions reviewed, 49 (4.5%) were issued with a call in notice, with no further action taken in 95.5% of cases. 7 non-notified acquisitions (identified through market monitoring) were called in.
• 17 final orders were issued during the year. 11 followed mandatory notification of a transaction, 5 followed voluntary notification and 1 was in relation to a non-notified acquisition. 5 called in acquisitions were withdrawn before a decision was made.
• All decisions on whether to call in or clear notified acquisitions were taken within the statutory review period of 30 working days.
  
  

First published on the Corporate News Service on 22 July 2025

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