UK government hones national security screening regime

Against the backdrop of escalating global conflicts and rising international tensions, the government has announced it is sharpening the scope of its national security and investments screening regime. The proposed changes are designed to reduce the volume of unnecessary mandatory notifications in respect of transactions which are inherently unlikely to lead to national security concerns, whilst expanding the net to capture those transactions which may give rise to substantive concerns by increasing the overall scope of the sensitive areas of the UK economy and increasing the number of sensitive sectors from 17 to 19. But, overall, the changes represent a fine-tuning of the rules, rather than substantial change: the NSIA net will remain wide, with no deminimis exemptions. The vast majority of transactions subject to a mandatory requirement to notify under the present regime will continue to be caught once the proposed changes are introduced with the same severe consequences of failing to notify, including fines of up to 5% global turnover (or £10 million, whichever is higher), custodial sentences of up to five years and void transactions with potential divestment orders in respect of completed acquisitions.

For certain types of transactions, the changes are set to bring a welcome exemption:  removing the existing requirement to notify for “certain internal reorganisations” and in respect of the appointment of liquidators, administrators and receivers. Of the 1,143 National Security and Investment Act (NSIA) notifications the Cabinet Office received last year, only 4.5% were called-in for further assessment, meaning that 95.5% of notified transactions were cleared without any national security concerns being raised within the initial 30 working day period. The government is keen to cut unnecessary red tape for businesses where possible and the proposed exemption is targeted at removing the need to notify in respect of transactions which are less likely to give rise to national security concerns as a result of there being no change to the ultimate beneficial owner.

Alongside announcing this intended change, the government has issued a public consultation on proposed changes to the 17 sensitive sectors of the economy subject to a mandatory filing requirement, as particularised in the Notifiable Acquisition Regulations (the NARs). In summary the proposed changes outlined in the consultation have, on the whole, been described by the government as not amounting to a “major change in policy” and not substantially changing the “types of entities and activities in scope of the Regulations”. There are three categories of changes proposed:

1. Creating as new standalone mandatory areas certain aspects of existing sectors already covered in the regulations i.e. Critical Minerals (currently falling within “Advanced Materials”), and Semiconductors (also currently falling with “Advanced Materials”, but the new stand-alone Semiconductors sector will also be merged with the existing “Computing Hardware” sector)
2. Making updates to some areas that would otherwise go out of date — Advanced Materials, Artificial Intelligence, Communications, Critical Suppliers to Government, Data Infrastructure, Energy, Suppliers to the Emergency Services, and Synthetic Biology; and
3. Introducing a new area to be covered by mandatory notification — Water.

The most notable of the proposed changes is the addition of Water as a new sensitive sector of the UK economy. In relation to this change, the government notes that the “UK’s critical national water infrastructure is facing increasing risks to its resilience in a growing threat landscape” and that “investment is one route through which malicious actors could threaten critical infrastructure by providing access to sensitive information and assets”.

The new water sector will capture relevant investments in 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 (a ‘water and/or sewerage undertaker’). The water and/or sewerage undertaker holds the de facto monopoly to provide water or sewerage services to premises in its area of appointment”. Companies operating solely as a retailer in the non-household retail market for water fall outside of the proposed definition. It is expected that a minimum of 17 companies will be brought within the scope of the new NARs under this proposed addition, with an expected average increase of 1-5 notifications per year.

Overall the impact on the volume of transactions subject to a notification requirement is expected to be minimal: Of the 12 proposed changes announced in the consultation, 4 are expected to result in a decrease in notifications, 5 are expected to result in an increase in notifications and 3 of the changes are expected to have a neutral impact on numbers of notifications. The proposed changes will result in the number of sensitive areas of the economy increasing from 17 to 19. Coupled with the proposed exemption for intra-group reorganisations, the changes reflect the tension between the government’s commitment to reducing unnecessary red tape for businesses seeking to invest in the UK economy and the need to ensure a robust, responsive and up-to-date national security screening regime.

The deadline for responding to the consultation is 14 October 2025.

The consequences of completing a transaction without making a notification and securing clearance where required, include penalties being imposed, and in the worst-case scenario an order to divest the business acquired.