Six months on from its first statutory review of the National Security and Investment Act's (NSI Act) mandatory notification requirements (see our separate briefing: NSI Act: first statutory review), on 22 July 2025 the Government launched a 12-week public consultation to review and update the Notifiable Acquisition Regulations (the NARs). The NARs set out the 17 sensitive areas of the economy that bring a transaction into the scope of requiring mandatory notification to the Government.
In brief:
- The UK Government is proposing updates to the sectors covered by the NSI Act, including adding the water sector and refining definitions in critical areas like AI, data infrastructure and critical minerals.
- The consultation responds to industry feedback and aims to reduce unnecessary filings and increase transparency, aligning with the Government’s push for a more growth-friendly regulatory environment that facilitates investment.
- Some of the proposed changes would bring welcome clarity for parties to transactions – for example, the newly proposed AI sector definition makes clear that use by businesses of consumer AI (where the business is not undertaking further material research and development of the relevant technology) would not be captured.
Background
The NSI Act allows the Government to intervene in investments and acquisitions of control in the UK economy to protect national security. The NSI Act obliges an acquirer to notify the Government of certain acquisitions of control over entities that carry out particularly sensitive activities in 17 areas of the economy. Approval must be provided before an acquirer can complete the acquisition.
The launch of this consultation is an effort by the Government to address the five key areas of focus it identified for itself following its publication of the outcome of its call for evidence on the NSI Act in April 2024. The consultation was signposted in the Government's Modern Industrial Strategy document, which confirmed that the Government proposed updating the definitions covering the 17 sensitive areas and also stated that the Government would update its guidance on how the NSI Act works and introduce new exemptions from the mandatory regime. More recently, the Government has said that its plans include exempting internal reorganisations and liquidator appointments from the mandatory notification requirements.
Key proposed changes
As part of the consultation, the Government is considering (by category) new standalone area definitions, changes to existing definitions, and new area definitions which are not already covered by the NARs. Some of the key proposals include changes relating to the following areas:
AI
- Updating the AI definition to remove cases where "off the shelf" AI is being used as a tool within internal processes, with a view to "excluding the rapidly expanding number of businesses using AI for low-risk activities".
- Adding to the definition the development of AI systems where this results in either the technology not being available for consumers, creates or improves the capabilities of AI, or increases the speed of computation. These proposed changes are in response to stakeholders noting that AI is a rapidly evolving and dynamic sector of the economy.
Critical Minerals and Semiconductors
Creating a standalone Critical Minerals sector (carved out from Advanced Materials and expanding scope) and a standalone Semiconductors sector. Critical Minerals are those natural resources which are essential for the economy and national security, often used in high-tech applications and renewable energy technologies. Advanced Materials, on the other hand, are new or significantly improved materials, used in various high-tech industries, that provide superior performance compared to conventional materials. The change would bring the treatment of Critical Minerals in line with the UK's latest 'criticality' assessment (a method which evaluates which materials are crucial for the UK economy and which face the highest potential risk of supply disruptions), "while also retaining strategically important minerals necessary for defence or scientific purposes beyond the criticality list".
Data infrastructure
- Adding all third party operated data centres alongside certain Cloud Service Providers and Managed Service Providers and removing public sector authorities from scope.
Critical suppliers to Government
- Adding an updated definition for public sector authorities (currently captured in the Data Infrastructure area), and limiting scope to the list of 24 ministerial departments, focused on the delivery of certain notifiable services to a relevant government authority below SECRET level. This change would lead to an increase in the number of businesses that fall within scope.
Water
- Creating a new NARs schedule covering acquisitions involving water operating companies (certain acquisitions concerning water holding companies will also be in scope due to the indirect control provisions in the NSI Act). In a bid to acknowledge the rising strategic importance of the water sector, all major water and sewage companies could be added to the mandatory filing regime.
Key takeaways and next steps
The consultation signals a step towards modernising the UK's investment screening regime with a view to making it more proportionate and better targeted to genuine national security concerns, but also a step towards addressing concerns around the lack of clarity, excessive breadth and duplication of some of the definitions. The proposed changes may therefore bring clarity, particularly those relating to AI given there has been uncertainty on transactions as to the extent to which AI is caught by the NARs.
The consultation, which is set to close on 14 October 2025, will allow investors and businesses operating in those sensitive industries an opportunity to influence how the NSI Act applies to their activities, offering both regulatory clarity and competitive advantage.
The Government has also confirmed that other changes to the NSI Act regime are being developed with a view to reducing red tape, including, for example, carving out internal reorganisations and liquidator appointments from mandatory notifications.
You can keep up to date on the latest developments in the NSI Act regime on Mishcon de Reya's NSI Act Hub.