National Security and Investment Regime (NSI) Reforms: Government Consultation Response

We made various submissions as part of the consultation process with the aim of narrowing the scope of transactions caught so that they better reflect genuine UK national security risks. Through our submissions, we sought to improve the regime’s ability to catch transactions that are relevant to UK national security, while refining the assessment process so that transactions with no obvious national security implications could be cleared more quickly. This would help to reduce the risk of unnecessary transaction delays.

The government’s response indicates that, in some areas (particularly where the original proposals were clearly unworkable), it has taken on board points raised during the consultation.  For example, the original drafting of the AI sector was so wide that it would have caught almost any business making use of AI in some form.  The revised approach now proposes to exclude consumer AI and ordinary business use of AI from scope, as well as distinguishing between mere users of AI and those involved in its development.  These are all welcome changes of direction.

However, the response does not address the government’s earlier proposals to remove certain types of group reorganisations or insolvency appointments from the scope of trigger events requiring NSI notification where the relevant entities to which they relate engage in NSI sector activity. 

There are also areas where government has not taken on board comments made or has indicated that it intends to update guidance without changing the underlying legal wording in the National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021 (the “Regulations”). This is particularly disappointing given that the NSI guidance is non-binding and therefore of limited value where it conflicts with the Regulations or creates uncertainty because the Regulations must always take precedence even if the guidance is clear.  

The guidance is also largely focused on explaining what is caught by the NSI regime, rather than providing clarity on what is not intended to be caught. Changes to the guidance alone are of limited practical benefit if the scope of the Regulations themselves remains unchanged. The response also makes no reference to introducing a faster assessment process for transactions where it is obvious there is no UK national security risk.

While the response does contain some wins for business, our overall assessment is that in practice, the changes are likely to increase the proportion of transactions caught by the mandatory NSI regime, resulting in more red tape rather than less. In simple terms, the government does not appear to see sufficient downside in requiring NSI notifications even where there is clearly no UK national security risk.

The government intends to lay secondary legislation to update the Regulations later in 2026. We await the publication of the legislation and the updated guidance with interest.