Reform of the UK NSI Act: tightening security on key sectors and ensuring predictability

The UK Government has now confirmed that it will lay secondary legislation before Parliament later this year to implement the anticipated reforms to the UK's National Security and Investment Act 2021 ("NSI Act") regime.

After a period of over four years of practical experience of the Government considering and deciding on transactions under the scope of the NSI Act regime, the reforms aim to reduce regulatory burden on businesses by creating a more efficient and predictable system that encourages investment in critical sectors without compromising the Government's ability to intervene where there is potential risk to the UK's national security.

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Changes to the 17 sensitive sectors: new sectors added and clarification of others

In July 2025, the UK Government launched a 12-week consultation on the National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021 (the "NARs"), which set out the areas of the economy subject to mandatory notification under the NSI Act.

Following this consultation process, the Government has now published its response to the consultation (the "Consultation Response") in which it has committed to implement changes to the regime, most notably to the following mandatory sector definitions:

Water: in arguably the most significant update in the Consultation Response, and prompted at least in part by concerns over the resilience of some water industry participants, the Government has confirmed it will introduce a standalone category to cover acquisitions of businesses active in the water sector.
Artificial Intelligence (AI): the sector scope will be narrowed to exclude "off-the-shelf" AI for internal business processes, whilst adding specific, higher-risk AI development and evaluation activities. In particular, the Government has confirmed that only companies which themselves create or modify the underlying AI systems will be caught. This will result in entities that are only involved in the end-use of AI systems being excluded from scope – a change which will be welcomed by many.
Critical Minerals: a standalone mandatory sector will be created for Critical Minerals, by hiving it off from the broader Advanced Materials sector. The schedule will cover all 34 minerals identified as critical by the UK Critical Minerals Intelligence Centre ("CMIC") (as well as other important minerals necessary for defence or scientific purposes not included in the CMIC's list).
Semiconductors: the proposed new Semiconductors and current Computing Hardware mandatory sectors will be merged to create a standalone Semiconductors mandatory sector. This aims to increase clarity as regards the scope of which semiconductor activities are subject to mandatory notification.
Data Infrastructure: the definition of Data Infrastructure will be amended to explicitly capture all third-party operated data centres (including data processing and data storage facilities). This will therefore bring certain Cloud Service Providers and Managed Service Providers within scope.
Emergency Services: the scope of this mandatory sector will be expanded to now include sub-contractors to the Emergency Services.

Whilst the detailed guidance which the Government has said it will publish in due course will be important for understanding the practical reach of the amendments, it is nonetheless clear at this stage that, when taken in the round, the confirmed updates to the mandatory sectors are largely in line with those proposed in the original consultation. They represent a gradual evolution, rather than a radical change to the scope of the mandatory regime under the NSI Act.

Further updates afoot

The proposed changes to the NARs are unlikely to be the end of the reform story.

Whilst not the subject of recent updates, the Government has also previously announced the following proposed changes to exempt:

all insolvency practitioners from the NSI Act, so that their appointment will no longer risk triggering a requirement to notify and obtain approval for the transaction – previously this exemption was limited to administrators;
certain internal reorganisations from the notification and approval requirement.

To date, these transactions have been considered to be low risk, therefore removing these notification requirements will reduce administrative burdens on businesses and their lenders, and enable the Government to focus on higher-risk cases. While this is a welcome development, the practical impact of these exemptions will depend on the exact wording, which has not yet been announced.

Looking further forward, a House of Commons Business and Trade Committee report, published in November 2025, touches on further proposed reforms the NSI Act, again with economic security at their heart.[1] In short, the Committee recommends that the Government:

Explores ways of amending the NSI Act to enable information relating to investment screening decisions to be shared with UK Parliament; and
Develops an accreditation scheme for providers of trusted capital (similar to models currently used in the United States). The report recommends that accredited investors should benefit from faster turnaround times within the UK’s investment screening process, as well as continuous access to dedicated case management at all stages. The purpose of this scheme would be to create a marketplace of accredited investors to facilitate investment into strategic sectors.

Whilst it remains to be seen whether the Government will act on these proposed future reforms, it is evident that, notwithstanding the current geopolitical climate, there remains an appetite to further tailor the NSI regime in line with the Government's pro-business and pro-growth agenda, and to reduce the burden on certain types of low risk investors.

[1] Toward A New Doctrine For Economic Security. See pages 47, 48, 72 and 73.