In brief
- Five months after the close of its 12-week consultation on proposed updates to the Notifiable Acquisition Regulations (the NARs) under the National Security and Investment Act (NSI Act), the Government published its formal response on 12 March 2026.
- The Government has confirmed it will update the NARs to refine sector definitions, introduce a new mandatory notification sector for Water and narrow the definition of Artificial Intelligence (AI) activities in scope.
- In a welcome development, the changes aim to reduce over-notification while maintaining protections for genuine national security risks. Secondary legislation is expected later in 2026.
Background
On 22 July 2025 the Government launched a consultation on its proposed updates to the legislation, seeking input on definitions covering the 17 sensitive areas of the economy which trigger mandatory notification. As part of that consultation, the Government put forward proposed changes to existing definitions, new standalone area definitions and the introduction of a new notifiable sector not previously covered by the NARs. Areas covered included: Advanced Materials, AI, Communications, Critical Suppliers to Government, Data Infrastructure, Energy, Suppliers to the Emergency Services, Synthetic Biology, along with new standalone schedules for Critical Minerals, Semiconductors and Water. (See our previous update: Government consultation aims to modernise and clarify National Security and Investment Act regime)
In its formal response, the Government confirmed it will: make further changes to certain schedules, including AI, to "reduce capturing low-risk notifications"; make clarifying amendments to scope and definitions of the Critical Suppliers to Government, Data Infrastructure, Energy and Suppliers to the Emergency Services schedules; create a new schedule to cover acquisitions in the Water sector; and provide more detailed guidance across the NARs.
Key responses
Some of the Government's responses to the feedback address the following key areas we previously covered:
AI
- The Government will revise the definition to focus on firms that develop or modify AI, rather than those that simply use it. In most cases, entities involved only in the end-use of AI systems will be excluded from mandatory notification.
- These proposed amendments respond to feedback that the draft schedule was too broad and risked over-notification and capturing low-risk business activities.
- Further exclusions to be introduced include: use of non-consumer AI systems for routine business activities; use of licensed third-party AI systems; and certain modifications to, and testing of AI systems as part of routine business deployment activities and IT policies.
Critical Minerals and Semiconductors
- In light of broad support for the proposal of carving out Semiconductors and Critical Minerals from the Advanced Materials schedule, the Government confirmed it will make no further changes to the Advanced Materials schedule. Responding to the feedback, the Government will update the carved out Critical Minerals and Semiconductors schedules and will work to align the three schedules and avoid overlap.
Critical Minerals
The new standalone schedule will ensure that low-risk activities are not caught and will continue to cover all 34 minerals identified as critical by the UK Critical Minerals Intelligence Centre.
Semiconductors
The standalone Semiconductors schedule will be refined with a clarified definition of 'packaging' so that that the provision of all designs, materials, parts or products that are qualified or certified are covered. The broad scope of the schedule, as set out in the consultation, will remain given the dual-use, and foundational nature of semiconductors.
Data Infrastructure
- The schedule will be updated to include all third-party operated data centres and certain cloud and managed service providers. The Government considered introducing a materiality threshold to avoid capturing data centres that might not critically affect UK national security but ultimately decided against it — concerned that such thresholds might inadvertently exclude small, mission-critical data centres.
- The Government confirmed it will provide updated guidance to help stakeholders assess whether they fall within scope of the updated regulations.
Critical Suppliers to Government
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- The original proposals would have potentially expanded the scope of the mandatory notification requirements by including the delivery of a notifiable service to a relevant ministerial department, where doing so will or could result in the qualifying entity generating or obtaining access to OFFICIAL-SENSITIVE classified material. The Government will make a minor amendment so that the definition relating to the generation of OFFICIAL-SENSITIVE data reads "will or is likely to result in."
Water
- The Government has confirmed that Water will be introduced as a new notifiable sector, reflecting the growing importance of the water sector and its status as critical national infrastructure.
Key takeaways: upcoming changes to the NARs and what they mean for your business
The Government's consultation response confirms significant reforms to the UK's foreign investment screening regime. Several structural and sector-specific updates to the schedules are set to be implemented, to ensure the NARs remain relevant in a dynamic and fast-changing world, whilst ensuring businesses have the clarity they need to invest. The most important points for businesses to note are:
- A new Water sector schedule will capture acquisitions of major water utilities, reflecting water's status as critical national infrastructure.
- The AI schedule will be narrowed so that end-users of AI systems are generally excluded from mandatory notification.
- New standalone schedules for Critical Minerals and Semiconductors will replace their current grouping within Advanced Materials.
- Businesses in sectors such as Data Infrastructure, Communications, Critical Suppliers to Government and Suppliers to the Emergency Services will face clarified - but in some cases expanded - notification obligations.
- Implementing these reforms will require secondary legislation, which the Government will bring before Parliament later this year, along with updated guidance. An updated impact assessment will also be published alongside the final legislation.
How Mishcon de Reya can help
Companies involved in transactions in any of the 17 sensitive sectors should assess their mandatory notification obligations carefully. Our team advises regularly on NSI Act compliance and transaction clearance and would be pleased to assist.