On 22 July 2025, as part of a longstanding commitment to refine the UK’s investment screening regime to reduce burden on business, the UK government announced plans to introduce limited exemptions to the mandatory filing obligation under the National Security and Investment Act 2021 (NSIA), while also launching a consultation on amendments to the sectors requiring mandatory notification under the regime, as well as the introduction of new mandatory sectors, which could broaden the scope of filings.
Background and context
The 22 July announcement follows a review and call for evidence regarding the operation of the NSIA regime that was launched by the previous UK government in November 2023 (see our earlier alert: Government Consults on Potential Changes to the UK’s Investment Screening Regime). This process identified several areas for potential improvement, particularly around the scope of the regime and its capture of benign transactions (such as internal reorganisations) as well as the need for clarification and streamlining of the mandatory sectors, but the change of government in July 2024 meant reforms were stalled. Since coming to power, the current government has consistently communicated a strong commitment to reforming the regime in order to reduce burden on businesses while maintaining robust national security protections. This announcement represents the first concrete steps in that direction.[1] It also coincides with the issuance of the fourth NSIA annual report, outlining key statistics on the number of filings and interventions under the regime in its most recent year of operation.
Key takeaways
1. Potential reform to the mandatory sectors
The consultation sets out a series of proposed amendments to the National Security and Investment Act 2021 (Notifiable Acquisitions) (Specification of Qualifying Entities) Regulations 2021 (the NARs). The NARs detail the 17 sensitive sectors where mandatory notifications are required under the NSIA, if certain control thresholds are met in relation to a business carrying on activities in the UK. Changes to the scope of these sectors – some of which are potentially significant – will impact when mandatory filings are required.
The proposed changes include the following:
- Semiconductors: Creation of a new schedule to consolidate various elements of the Advanced Materials and Computing Hardware schedules. The new schedule clarifies the inclusion of a broad range of activities related to processors and memory chips (including CPUs, GPUs and specialised AI processors, as well as quantum processors) and includes the addition of advanced packaging activities and the supply of EDA tools, as well as activities related to advanced materials and manufacturing processes for semiconductors. Many of these activities are caught under the current regulations, but this is often unclear due to the opaque nature of the regulations.
- Critical Minerals: Introducing a standalone schedule for Critical Minerals, aligning definitions with the latest UK Critical Minerals list and expanding the scope of the regime to cover activities related to exploration and recycling, as well as extraction and processing. Critical minerals have always been caught by the regime, as part of the advanced materials schedule, but will now have their own dedicated schedule, with a broader scope.
- Artificial Intelligence: The current regime only captures certain AI development activities where the AI is used for specific purposes (identification or tracking of objects, people and events, advanced robotics and cybersecurity). This often leads to arbitrary (and benign) activities being caught. The government now proposes to remove this limitation and refocus the schedule entirely by bringing into scope only those activities which relate to developing products that use AI systems that are not for consumer use or where the activities involve enhancing or modifying AI systems or relate to testing or evaluating AI systems for safety or security. This approach remains extremely broad, and it is not clear whether it will achieve the desired effect of removing from scope activities which raise no national security risk – a key point which will likely feature in feedback to the consultation.
- Critical Suppliers to Government: In another streamlining exercise, the government proposes to create a clear list of the ministerial departments and services/security clearance levels, which will trigger mandatory filing obligations for government contractors.
- Other Sectors: The proposals include a raft of other amendments to the remaining schedules, including clarifying a number of definitions (e.g., related to data infrastructure, communications, energy and synthetic biology), addressing certain gaps in coverage (e.g., bringing sub-contractors within scope for the emergency services sector) and introducing a new mandatory sector for water operators.
The impact of these changes could be significant for certain sectors and notwithstanding the rhetoric around reducing burden, the new regulations will feature 19 mandatory sectors, and there is clear potential for a wider range of transactions to be caught by the regime when these changes come into effect.
2. Potential exemptions for low-risk transactions
While not revealing any details, the government has however committed in its announcement and to Parliament that it will remove the requirement for mandatory notifications in certain circumstances, in particular for “certain” internal reorganisations and the appointment of liquidators. It remains unclear whether all kinds of reorganisation will be exempted, or whether notification requirements will remain in certain circumstances, and if so, what these will be. The previous government suggested it may be prudent to remain aware of “particular reorganisations that warrant scrutiny” (see our previous alert for consideration of these issues: Government Consults on Potential Changes to the UK’s Investment Screening Regime). The timeline for the introduction and implementation of these changes remains unclear; the Secretary of State has indicated that the exemptions will be introduced to Parliament as secondary legislation “in due course”.[2]
NSIA Annual Report
In parallel with the consultation, the government released its latest annual report, covering the period from 1 April 2024 to 31 March 2025.[3] Key takeaways include an increase in notifications to 1,143 (up from 906), with the number of call-ins also increasing to 56 (against the previous 41). Last year also saw a notable increase in remedies, with 17 final orders issued (up from five from the previous year). This brings the total number of cases involving remedies since the regime came into effect to 37, of which six have been blocked or subject to an order to unwind. As time goes on, it is clear that prohibitions remain relatively rare, while behavioural mitigations (e.g., around board composition, information barriers, and maintenance of strategic capabilities in the UK) are the more common (and proportionate) solution to addressing national security risk.
Of particular note, the government has highlighted an increase over the last year in the number of failure to file cases - with 60 cases being picked up, compared to 34 in the previous year. So far, it seems that the Government has refrained from using its power to impose penalties, instead giving the parties the opportunity to rectify their failure to file and ensure compliance in the future. This reporting suggests compliance is being actively monitored and while the government is yet to exercise its discretion to impose penalties, it may feel compelled to send some warning signals if non-compliance continues to trend upwards or there are repeat offenders in the future.
Looking ahead
The consultation will run to 14 October 2025, after which the government will review stakeholder feedback and may further refine the proposals. Any resulting amendments will be introduced via secondary legislation and can be expected to be accompanied by guidance that should provide further clarity on the revised scope of the sectors. In the meantime, the regime continues to have full effect in its current form.
Sara Mallawaarachchi, London Trainee Solicitor, contributed to the drafting of this alert.
[1] National security powers to be updated to reduce the burden on businesses - GOV.UK
[2] National Security and Investment Act: Reforms - Hansard - UK Parliament.
[3] National Security and Investment Act - Annual Report 2023-24..
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