Reforming the National Security and Investment Act: A lighter touch for UK M&A?
The UK government has announced its intention to reform the National Security and Investment Act 2021 (NSIA), aiming to ease regulatory burdens on businesses while maintaining robust protection for sensitive sectors of the UK economy.
The announcement coincides with the publication of the NSIA Annual Report for 2024-25, which records a year-on-year increase in notifications, yet shows that only 4.5% of notified acquisitions were called in for further review.
Under the proposed changes, businesses will no longer be required to submit mandatory notifications for certain internal reorganisations or the appointment of liquidators, special administrators and official receivers. According to government analysis, these transactions rarely require additional scrutiny and exempting them from the regime will simplify regulatory obligations on impacted businesses.
A new consultation has also been launched to gather feedback on proposed updates to the list of sensitive sectors that are currently subject to mandatory notification under the NSIA. Notably, Semiconductors and Critical Minerals are set to be designated as standalone sectors and a new category covering acquisitions in the water sector has been proposed. The consultation also seeks views on revisions to the definitions of the other existing sectors to ensure that they remain accurate and relevant.
Andrew Evans, Partner in our Commercial team, comments:
"The news that the government may clarify some of the scope of what is caught and potentially reduce red tape so that less corporate transactions are caught by the NSIA regime is a good thing. Based on the annual report only about 4.5% of transactions have any relevance to UK national security, the other 95.5% do not.
"The key question is can you remove from scope some of the 95.5% without missing the 4.5%?
"The answer to that is yes. There are a number of ways that this could be done. First, the step the government has announced that it will exclude certain reorganisations and liquidator appointments from scope. However given the government’s comments about the minimal impact on the volume of notifications it remains to be seen whether the majority of reorganisations are out of scope or only a limited few. Second, acquirers ought to be able to get themselves pre-cleared, so as long as their circumstances do not change, they can buy or invest in any NSIA covered businesses without having to apply for clearance. This may only apply to UK-based blue-chip companies which are already deeply involved in sensitive matters relevant to UK national security but would be an easy and safe step.
"Third, government needs to sort out the scope of the regulations describing the NSI sectors which dictate whether activities are sensitive to UK national security. These are far too wide and poorly drafted. Either they need some revisions or government needs to be able to issue legally binding guidance as to what is not caught, as currently the guidance is non-binding and only generally covers what is caught.
"If the NSIA regime can (and it did) catch a business making and selling domestic water pumps available in any hardware store in the UK or a business carrying out hearing tests on school children, which are obviously not relevant to UK national security, then it is clear the net is being cast too widely.
“The government’s announcement that they will look at various of the NSI Sectors is good news, but the fact that they think it will only have a minor reduction on the number of notifications required sounds like a missed opportunity.”
How can we help?
For advice on the NSIA regime or how it impacts your business, please contact Andrew Evans in our Commercial team.
