Response to the Consultation on the National Security and Investment (NSI) Regime
In July 2025, the UK government announced its intention to reform the NSI regime, launching a consultation to gather feedback on proposed changes to the list of sensitive sectors that are subject to mandatory notification (read more here). We welcome the review, which aims to strike the right balance between safeguarding national security and promoting business efficiency. However, our analysis suggests that the proposed reforms fall short of achieving this objective. Below, we provide a summary of our response to the consultation.
Consultation Objectives vs Practical Outcomes
The government’s aim is to ensure that the mandatory notification requirement remains targeted and proportionate, protects national security and provides investors with certainty. To achieve this balance, the regime should target those transactions that present a genuine risk to national security. However, the current proposals still encompass a broader range of activities than necessary, potentially capturing deals that do not threaten national interests. For any prudent investor, the breadth of some sector definitions and the lack of any binding guidance will result in unnecessary filings and administrative burden.
The proposed removal of low-level software code, certain group reorganisations, insolvency-related appointments, and a company’s own internal IT systems being caught by the Data Infrastructure sector are all welcome. These changes will reduce notifications—perhaps more than the consultation figures suggest. However, other proposals risk expanding the regime unnecessarily.
Semiconductors and Critical Materials
The inclusion of “enablers” and common materials such as iron, aluminium, zinc and tin in these definitions will capture countless non-sensitive businesses. This could lead to a surge in notifications with little relevance to national security.
Artificial Intelligence (AI)
In our view, the proposed AI sector wording is unworkable. Based on our interpretation, virtually any business activity involving AI (including basic configuration or routine testing) could trigger mandatory notification. As AI adoption accelerates, this approach risks requiring notifications for almost every transaction involving a trigger event. This outcome would be neither proportionate nor practical.
Knowledge Gaps and Readily Available Items
In certain sectors, such as Defence, Advanced Materials, Semiconductors and Critical Materials, it is possible that upstream suppliers will fall within scope of the regime without any knowledge of this. As a result, transactions that require mandatory notification could be rendered void simply because the parties involved were unaware and could not have been aware of the need to notify under the regime.
The breadth of some sector definitions means that commonplace items that are readily available to consumers and businesses are caught by the mandatory regime even though they are unlikely to pose any risk to national security. An alternative approach, looking at whether items are export controlled for example, would be more targeted and proportionate, ensuring that only materials or products with genuine national security implications were captured.
Recommendations for a Re-defined Regime
The NSI regime plays a vital role in protecting UK national security. While we welcome the current review, several of the proposed changes risk creating an overly burdensome system, compounding the current issues and continuing to capture transactions with no security relevance. As part of our response to the consultation, we suggested various ways in which the system could be improved.
In addition to refining the sector definitions so that the regime focuses solely on genuinely sensitive activities and materials, we also recommend introducing a fast-track clearance process for transactions that clearly pose no security risks. This would streamline the procedure and reduce unnecessary delays for transactions that present no concerns, ensuring the regime remains both efficient and proportionate. There is also the opportunity to introduce an investor passport scheme, enabling the pre-clearance of trusted UK-based entities. Such a system would further reduce the volume of redundant notifications, focusing regulatory resources on matters of real security significance and providing greater certainty for reputable investors.
Taken together, these recommendations would ensure the NSI regime remains robust in protecting national interests, without stifling legitimate investment or imposing disproportionate burdens on businesses. We await the outcome of the consultation with interest.
