On 22 July 2025, the Government announced several proposed amendments to the UK's investment screening regime established by the National Security and Investment Act 2021 ("NSIA"). Alongside these proposals, a consultation ("Consultation") was launched to review the National Security and Investment Act (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021 ("NARs") which provides the definitions of the 17 sensitive sectors of the economy where acquisitions may trigger a mandatory filing under the NSIA regime, if certain thresholds are met.1 The Consultation will close on 14 October 2025.2
The proposed amendments and the Consultation represent the most significant proposed changes to the NSIA regime to date and could have important implications for ongoing deals, and more widely, will impact the future of investment in the UK. The Government has presented these measures as part of their strategy to cut red tape and encourage investment, whilst also maintaining a strong framework to protect national security.
This article outlines key takeaways from the proposed amendments and the Consultation and reflects on their potential impact on investment in the UK.
At the same time as launching the Consultation, the Government also released its Fourth Annual Report ("Report") on the functioning of the NSIA regime - see our article on the Report here.
Removing internal reorganisation and certain insolvency scenarios from the scope of the NSIA
The first notable set of amendments that were announced on 22 July 2025, were that certain types of internal reorganisations and the appointment of liquidators, special administrators and official receivers would be removed from scope of the NSIA. The ISU explains that its experience in policing the NSIA regime has led it to determine that "these types of transactions rarely warrant investigation."
Whilst the exact wording of these amendments is unknown, it appears that the decision is final. The removal of internal reorganisations and certain insolvency scenarios from the scope of the NSIA do not form part of the Consultation which exclusively focuses on sectoral definitions under the NARs.
This will be welcome news to businesses and investors, many of whom will likely have seen the requirement to notify internal reorganisations as unnecessarily burdensome. It will also help to ensure that companies in dire economic conditions receive much needed assistance more swiftly, which could ultimately help save businesses and jobs.
The Consultation: amendments to existing key sectors under the NARS
The Consultation sets out several proposed amendments to the key sector definitions under the NARs, the most important of which are considered below. Whilst some of these amendments should likely ease bureaucracy under the NSIA (in line with the Government's goal of cutting red tape), it is not immediately clear that other amendments will likely have this effect.
Artificial Intelligence ("AI")
A crucial proposed amendment to the AI key sector definition is that transactions in which consumer AI is being used as a tool within internal processes (without any further material research and development of that technology being performed by the licensee) would no longer fall within scope of mandatory notifications.
This is a welcome proposed change that reflects the modern business reality of commonplace AI usage in many businesses. We expect that honing the key sector definition to ensure that it only captures 'true' AI developing entities – those that develop and use AI systems that are not for customer use - should ease the burden on some businesses.
Further reflecting the shift towards only 'true' AI-focussed entities, other amendments to this key sector concern activities such as entities testing the safety of AI systems, evaluating disinformation or misinformation risk or conducting research into the capabilities of AI systems that could create risks to health or security.
The Government expects that the proposed amendments will result in 1-50 fewer businesses being in scope, and 1-10 fewer mandatory notifications per year.
Data Infrastructure & Critical Suppliers to Government
Respondents to the Call for Evidence noted that the current Data Infrastructure definition is excessively broad and highlighted the overlap with the Critical Suppliers to Government definition.
It appears that the Consultation should at least deal with the latter of these issues as the Government proposes to remove the public sector authority ("PSA") data provision from the Data Infrastructure schedule and add it to the Critical Suppliers to Government schedule. Further, the current draft of the Critical Suppliers to Government schedule narrows the definition of PSAs to focus on a clear set of 24 ministerial departments, which also helpfully should mean that the definition of PSAs will no longer refer to ministries and agencies that have been renamed, no longer exist or have been merged with another part of the Government.
The Data Infrastructure schedule will also become more focussed on vital businesses that underpin the functioning of the modern UK economy. The draft definition adds third-party operated data centres, including data processing and data storage facilities, in addition to entities offering peering/interconnection or subsea cable connections.
The Government predicts however that the changes to the Data Infrastructure schedule will bring 1-50 more businesses into scope of the NARs and lead to 1-10 more notifications per year. Whilst the Consultation does not similarly predict how many new notifications and businesses will be caught by the new definitions under the Critical Suppliers to Government key schedule, it does broadly state that the proposed amendments should increase these numbers.
Communications
The main feedback from the Call for Evidence regarding this sector was for a clearer explanation of what comprised an 'associated facility' and also, regarding the turnover threshold for public electronic communication networks and services. The draft schedule deals with these points by amending the relevant provisions to only include providers of associated facilities which have a turnover of at least £5 million (in line with existing Ofcom3 rules). As the definition has now been disaggregated from a target's clients, acquirers will also not have to find out a third party's turnover data to determine if they are caught by the definition.
The draft amendments also remove turnover thresholds for cable landing stations, submarine cable systems and the repair and maintenance of these. This should not be an especially impactful amendment, as the Government explains that most businesses in this sector were already caught by the previous definition.
The Government expects that the proposed changes to the Communications Sector should remove 1-10 businesses from scope and lead to 1-5 fewer notifications per year.
Energy
Much of the draft Energy schedule has remained the same, leading the Government to conclude that the proposed updates are "estimated to leave the number of businesses in scope and notification volume unchanged". There are however some more minor amendments such as the addition of a provision on multi-purposes interconnectors and a large cumulative capacity threshold. Other amendments have been made to more closely mirror Ofgem's definition of an aggregator and bring further clarity to the definitions of ‘downstream gas activities’ and ‘enabling the operation’ of a petroleum facility.
Suppliers to Emergency Services
The proposed amendments to the Suppliers to Emergency Services schedule are minimal, other than adding immediate subcontractors with staff who are required to hold Non-Police Personnel Vetting (NPPV) Level 2 or above to the scope of the schedule. Nonetheless, despite this seemingly minor change, the ISU expects that this will bring into scope 1-50 more businesses, and lead to 1-10 more notifications per year.
Synthetic Biology
Similarly, the proposed amendments to the Synthetic Biology schedule are minimal and only include making minor changes to the drafting of the exemptions involving gene therapies and cell therapies to simplify the definition. The Government intends to simplify exemptions in the definition by restructuring the definition rather than changing the scope of the schedule which should avoid over-reporting. The Government expects that this will maintain the same number of businesses in scope and decrease the volume of notifications under this key sector.
Advanced Materials
The feedback regarding the Advanced Materials section of the NARs was that the existing definition is too long, complex and broad. To simplify this key sector, the new draft schedule removes semiconductors and critical minerals from the broader Advanced Materials category in order to establish standalone schedules/sectors. Given that certain aspects of this key sector are simply being transposed elsewhere, the Government expects that the net impact on notifications, at least with regards to introducing the Semiconductors schedule, will be unchanged.
The Consultation: introduction of new key sectors
Semiconductors and Critical Minerals
As mentioned above, the Consultation proposes that Semiconductors and Critical Minerals will each become their own standalone schedules. This should result in a greater focus on two sectors of the economy that are growing rapidly and are crucial for technological developments.
The new Semiconductor schedule will incorporate the currently separate “Computer Hardware” sector. Other expected changes include adding advanced packaging techniques and activities involving the wider design process of processing units and memory chips, such as research and development, to the schedule. As noted previously, the net impact of these amendments on notification numbers is expected to be unchanged. However, the Government anticipates there could be a small number of voluntary notifications from the purchase of intellectual property following a review of advanced packaging research.
Regarding Critical Minerals, proposed amendments include harmonising the critical minerals list with the Critical Mineral Intelligence Centre’s ("CMIC") latest criticality assessment, whilst also retaining certain strategically important minerals not on the CMIC's list.4 The proposed amendments also add the extraction, processing and recycling of Critical Minerals to the scope of the new definition. These amendments are expected to bring 1-50 more businesses into scope of the NARs, and lead to 1-10 more notifications per year.
Water
Perhaps most intriguing of the newly proposed key sectors is a new standalone schedule that will be added to NARs concerning Water. The inclusion of Water within the Consultation further demonstrates that the ISU's interpretation of what sectors could give rise to a 'national security risk' is much broader than the traditional military or defence sectors, and can include vital infrastructure. No doubt the inclusion of water is driven by its critical role in public health and water supply resilience and climate change more generally.
The proposed schedule concerning Water focuses on companies that have statutory powers and duties to supply water and/or sewerage services to premises within a specified geographical area by virtue of an appointment under section 6 of the Water Industry Act 1991. This would potentially bring all 17 appointed regional water and sewerage companies as well as water-only companies within the scope of the mandatory filing regime. It would exclude notifications for changes in ownership with companies operating solely as a retailer in the non-household retail market for water.
The Consultation predicts that the creation of this new Water sector will lead to an average of 1-5 notifications per year. The Government will consider the Independent Water Commission's findings when coming to a final view on the addition of Water as a mandatory sector.
Concluding thoughts
As set out at the start of this article, and succinctly summarised by Pat McFadden, Chancellor of the Dutchy of Lancaster, and head of the Cabinet Office and ultimately the ISU, the goal of the amendments are to: "cut red tape for businesses, while taking firm action to protect national security as we [the Government] deliver the Plan for Change."
However, it remains to be seen the extent to which the amendments are adopted and will 'cut red tape'. The Consultation itself predicts in several places that the proposed amendments will increase the number of companies within the NSIA's scope, and the number of notifications it receives. Further, purely on a numerical basis, if the amendments are put into statute, the number of notifiable sectors will rise from 17 to 19. As such, it seems reasonable to question the extent to which the amendments will reduce burdens on businesses. As with the introduction of the NSIA, the balance that the Government strikes between its two core objectives of growing the economy and strengthening national security is delicate and will become clearer with time. At the very least, the removal of internal reorganisations and certain insolvency scenarios from the scope of the NSIA will be welcome news to businesses.
The Consultation is also notable for what it does not mention. As our article on the Report discusses5, it appears that every year, Defence accounts for a very large proportion of notifications. Some commentators were hopeful that the proposed amendments may provide greater clarity on what is the meaning of "defence" or "national security purposes" within this key sector. Understandably however, these terms have remained vague, and it is not proposed that the broad Defence sector definition will be amended any time soon. Similarly, other commentators hoped for a broad de minimis threshold to be introduced, but this too has not transpired. This is perhaps unsurprising given that even smaller companies can have activities, contracts, assets or know-how that have national security importance.
Finally, stakeholders are invited to submit responses online through a special created portal by 14 October 2025. The Government is particularly interested in views on the proportionality of the proposed changes and their impact on investment and compliance burdens. The proposed changes could potentially come into force as early as 2026, subject to the outcome of the Consultation and the duration of the legislative process. Either way, it would be prudent for investors and businesses to get ready for the potential changes that are on their way. Those operating in any of the existing 17 sectors and in or adjacent to the water sector in the UK, should consult with their internal legal teams to assess whether their current or pipeline transactions could fall within the revised NARs.
If you would like to discuss the potential implications for your business, please contact a member of our team.
2 The Consultation follows a call for evidence in relation to the functioning of the NSIA that ran from 13 November 2023 to 15 January 2024, with the results being published in April 2024 (“Call for Evidence”).
3 Office of Communications.
4 This would include 19 more critical minerals and rare earth minerals.
