4th NSIA annual report published and Cabinet Office consults on amendments to mandatory notification regime

22 July 2025 marked the UK government’s release of the fourth annual report on the workings of the National Security and Investment Act 2021 (the “NSI Act”), covering the year from 1 April 2024 to 31 March 2025 (the “Reporting Period”).  Preparation of this annual report remains a statutory requirement in line with s61 of the NSI Act.

In the foreword, Rt Hon Pat McFadden stresses that the UK is currently operating in a period of heavy geopolitical instability, coupled with rapid technological advancements, particularly in the artificial intelligence (AI) space.  In this context, the government’s top priority is, and remains, economic growth and creating a business environment which encourages this growth.  He says “economic security is national security”.

On the same day, the Cabinet Office published a consultation calling for views on proposed changes to the NSI Act. The consultation closes on 14 October 2025.

Annual report findings

1,143 notifications were received during the Reporting Period, being broken into 954 mandatory notifications, 134 voluntary notifications and 55 retrospective validation applications. This marked a significant rise in notifications by over 25% as compared to the previous reporting period (1 April 2023 to 31 March 2024).

Of the 1,143 notifications received in the Reporting Period, 1,110 were accepted and 1,079 were reviewed by the government. As to the results, 35 final notifications were issued and 17 final orders were issued. This, once again, marked an increase from the amount of final notifications and orders issued in the previous reporting period.

As regards the distribution of these notifications across the 17 sensitive areas of the economy, 56% of the notifications related to the ‘defence’ area, an increased by 8% as compared to the last reporting period. The ‘critical suppliers to the government’ and ‘military and dual-use’ areas followed taking second and third place in relation to the notifications received.

As to the accepted notifications in the Reporting Period, the government reported that 65% of the notifications related to transactions with UK acquirers, a similar statistic to that of the previous reporting period. Notifications were also accepted from US, French and other European acquirers.

The government further reported that it took seven working days, on average, to accept a mandatory notification and eight working days in relation to voluntary notifications. These numbers were higher in relation to the time taken to provide written reasons following a rejection of a notification – 20 working days for a mandatory notification and 16 for a voluntary notification – but nonetheless, parties to such acquisitions do not seem to be waiting for months on end for a decision following notification.

In relation to the final outcomes, no financial assistance was provided, no penalties were issued and no criminal prosecutions were concluded in the Reporting Period. The government did ask for reassurance of steps being taken to prevent similar situations in a small number of cases, but this appears to have been the ‘gravest’ level of consequence imposed in the Reporting Period.

Cabinet Office consultation

Following publication of the recent annual report, the government is looking to refine the scope of the NSI Act, particularly as regards the mandatory notification regime. Responses are being welcomed from those who have experience with the NSI Act or those who are involved in selling or buying entities (including advisors to those parties) and can be submitted online HERE.

Full details on what the mandatory notification regime is, how it works and when it takes effect can be found in HLaw’s prior summary of the NSI Act HERE.

The consultation has three specific focuses:

1. Creating new standalone mandatory notification areas – ‘critical minerals’ and ‘semiconductors’ (these currently fall under the ambit of other, already existing, areas).
2. Updates to a number of existing areas to stay ‘in date’.
3. Introduction of ‘water’ as a new mandatory notification area.

New standalone areas

The government is proposing to create two new standalone mandatory notification areas – ‘critical minerals’ and ‘semiconductors’ – and to remove them both from the ‘advanced materials’ area where they currently reside. Calls have been made to the government for greater clarity within the ‘critical minerals’ area and to generally simplify the ‘advanced materials’ definition.

Per the consultation that was presented to Parliament, the introduction of these new areas is predicted to lead to up to 10 more notifications per year and capture 50 new businesses under the scope of the NSI Act.

Updates to existing areas

Refinements are being proposed to the definitions and scope of the following areas:

• ‘advanced materials’;
• ‘AI’;
• ‘communications’;
• ‘critical suppliers to government’;
• ‘data infrastructure’;
• ‘energy’;
• ‘suppliers to the emergency services’; and
• ‘synthetic biology’.

Full details, including the draft new wording proposed, for the above sectors can be found in the consultation.

The proposed changes vary per area with the changes to certain areas leading to predictions of more businesses falling within the scope of the NSI Act, but fewer businesses in other areas such as ‘AI’ and ‘communications’.

Introduction of ‘water’

Finally, feedback is being sought as to whether the ‘water’ sector should be included as an entirely new notifiable area.

The consultation goes on to say that the UK’s national water infrastructure could be threatened by investment and accordingly, proposals are being made to keep this area in check to avoid national security risks.

Final thoughts

This year’s annual report and the Cabinet Office’s consultation make one thing abundantly clear: the NSI Act is not static and the government remains agile in refining and honing the national security legislation and regime.

As new mandatory notification areas such as critical minerals, semiconductors and water are considered, a willingness is being signalled by the government to adapt the national security regime to meet the realities of modern geopolitical and technological risks. Crucially, these changes are being proposed alongside a reaffirmation that the UK remains open for investment, reinforcing the view that economic growth and national security are now inextricably linked.

For investors, businesses and advisors, the consultation presents an opportunity to continue to help shape the next iteration of the NSI Act before the 14 October 2025 deadline.

This piece was written by Sanya Bhambhani with input from Henry Humphreys.  Do please reach out to a member of the team if you would like to discuss matters relating to the NSI Act or anything relating to corporate finance and M&A generally.

All the thoughts and commentary that HLaw publishes on this website, including those set out above, are subject to the terms and conditions of use of this website.  None of the above constitutes legal advice and is not to be relied upon.  Much of the above will no doubt fall out of date and conflict with future law and practice one day.  None of the above should be relied upon.  Always seek your own independent professional advice.

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