Corporate report

Report on the National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021 (HTML)

Published 19 December 2024

Foreword

Economic growth is the number one mission of this Government. Businesses are the lifeblood of our economy, and a strong economy is fundamental to both our prosperity and our overall resilience. The UK economy thrives as a result of inward investment, and the vast majority of investment into this country poses no threat to our national security. 

It is vital, therefore, that businesses are able to start up, scale up, buy, sell, trade and invest in the UK with minimal impediment. An operating environment based on open markets and free trade, and underpinned by the rule of law, is essential to their success.

The National Security and Investment Act has an important role to play in this. It must remain proportionate, carefully targeted, and easy to engage with. Where I intervene, I will only intervene to protect national security; and where I do not, I will ensure the Government gets out of the way and lets investment flow as fast as possible. 

The Act’s mandatory notification requirements are a key part of this, and I am therefore glad to present today a report into the performance of regulations that help set the scope of these requirements –  the National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021 (‘the NARs’). 

This report concludes that the NARs are largely succeeding in this mission and meeting their objectives - though some improvements are possible. The regulations largely cover high-risk activities, as they should. They are not placing disproportionate burdens on businesses, and stakeholders broadly understand their own responsibilities within the Act. 

We will reflect on the small number of potential improvements that have surfaced during this review, and we retain a longstanding commitment in the development of the legislation to make any changes that are necessary in a planned and orderly fashion, in consultation with stakeholders.

Executive summary

The National Security and Investment (NSI) Act gives the Government powers to intervene in investments and other acquisitions of control in the UK economy to protect national security. Acquirers must notify the Government of certain acquisitions of control over entities that carry out particularly sensitive activities in 17 areas of the economy in the form of a ‘mandatory notification’, and acquirers must receive approval before completing the acquisition. Part of the scope of these requirements is set out in the National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021 (‘the NARs’).

The Government has completed the first statutory review of the NARs. This is a requirement, set out in section 4 of the NARs, which also requires that the findings and conclusion of each review is set out in a report.

The objectives of the NARs are to:

• Protect national security, by ensuring the Government is aware of acquisitions that are most likely to be called in due to the national security risks they could pose, and prevent those acquisitions from being completed unless they have been adequately scrutinised and cleared.
• Minimise business burdens, by minimising the number of acquisitions subject to mandatory notification that are unlikely to be called in because they are unlikely to pose a national security risk.
• Protect national security and minimise business burdens, by ensuring that businesses, investors, and their legal advisors can determine with confidence whether an acquisition must be notified, driving compliance and business confidence.

The review draws heavily upon statistical data on the use and performance of the NSI regime^{[footnote 1]} over the past three financial years, and responses to a call for evidence launched by the previous government.

Overall, the review found that the NARs were generally achieving their objectives. Available evidence indicates that they largely identified high risk activities warranting mandatory notification requirements without placing disproportionate burdens on businesses, and did this in a clear way. The review did, however, identify a small number of potential improvements.

General information

Background

The National Security and Investment Act 2021 (‘NSI Act’) gives the Government^{[footnote 2]} powers to scrutinise and intervene in acquisitions of control of entities and assets in, or connected to, the UK economy. These powers can only be used to protect national security.

These powers cover all areas of the economy. Acquirers must, however, notify the Government of certain acquisitions of control (as set out in section 8(2), 8(5), and 8(6) of the NSI Act) over entities that carry out particularly sensitive activities in 17 areas of the economy (such as in defence, civil nuclear, and quantum technologies) in the form of a ‘mandatory notification’.

Acquirers must receive approval before completing these acquisitions. Such acquisitions are called ‘notifiable acquisitions’.

The National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021 (‘the NARs’) set out which activities in the 17 sensitive areas of the UK’s economy bring an entity into scope of mandatory notification.

If a notifiable acquisition is completed without approval, the acquisition is void in law, but parties may submit a ‘retrospective validation application’ to rectify this. Any other acquisitions in scope of the NSI Act which are not notifiable acquisitions can still be notified through a ‘voluntary notification’.

The previous government consulted on which areas of the economy should be subject to mandatory notification as part of the ‘National Security and Infrastructure Investment Review’ Green Paper in October 2017. This was followed by the ‘National Security and Investment: A Consultation on Proposed Legislative Reforms’ White Paper, in July 2018 which set out the previous government’s response to the feedback on the Green Paper.

After confirming the 17 sensitive areas of the economy covered by mandatory notification, the previous government then launched a further consultation, ‘National Security and Investment: Sectors in Scope of the Mandatory Regime’, in November 2020 on sensitive activities in scope for each of these areas.

The activities that bring entities into scope of mandatory notification requirements within the 17 sensitive areas of the economy are defined in the NARs. Accompanying guidance is also published on gov.uk.

More recently, the previous government launched a call for evidence on the NSI Act, including on the performance of the NARs, in late 2023 and issued a response in April 2024.

The 17 sensitive areas of the economy are:

• Advanced Materials
• Advanced Robotics
• Artificial Intelligence
• Civil Nuclear
• Communications
• Computing Hardware
• Critical Suppliers to Government
• Cryptographic Authentication
• Data Infrastructure
• Defence
• Energy
• Military and Dual-Use
• Quantum Technologies
• Satellite and Space Technologies
• Suppliers to the Emergency Services
• Synthetic Biology
• Transport

Why we are we reviewing

Section 4 of the NARs requires that the NARs are reviewed and that the conclusions of the review are published in a report within three years of the NARs’ commencement.

The report must include:

• the objectives intended to be achieved by the regulations;
• an assessment of the extent to which those objectives are achieved;
• an assessment of whether those objectives remain appropriate; and
• a conclusion assessing the extent to which objectives, if appropriate, could be achieved in other ways which involve less onerous regulatory provision.

Scope of the Review

Objectives

Economic growth is the number one mission of this Government. The UK economy thrives as a result of inward investment, and the large majority of investment into the UK poses no risk to the UK’s national security. It is therefore important that the NSI regime both protects national security in the few cases it must, and contributes to a transparent and business-friendly environment for all other investments. The NARs contribute to this by seeking to:

1. Protect national security, by ensuring the Government is aware of acquisitions that are most likely to warrant call-in due to the national security risks they could pose, and prevent those acquisitions from being completed unless they have been adequately scrutinised and cleared.
2. Minimise business burdens, by minimising the number of acquisitions subject to mandatory notification that are unlikely to be called in because they are unlikely to pose a national security risk.
3. Protect national security and minimise business burdens, by ensuring that businesses, investors, and their legal advisors can determine with confidence whether an acquisition must be notified, driving compliance and business confidence.

The NARs that this review considers seek to meet these objectives by specifying the activities that an entity must be carrying out in order for it to be subject to mandatory notification requirements. Acquisitions of control (as set out in section 8(2), 8(5) and 8(6) of the NSI Act) over entities that carry out particularly sensitive activities must fulfil other conditions alongside the NARs to require mandatory notification. Acquisitions of assets or acquisitions of control involving material influence of an entity are not subject to the NARs.

This review assesses the NARs against the three objectives above, considering if they have been achieved, if they remain appropriate, and if they can be met in other ways.

Evidential Sources

This review drew on the following sources of evidence.

Annual Report data

Section 61 of the NSI Act requires the Government to publish an Annual Report containing detailed statistics about how the Act has functioned. Reports so far have included statistics on the number and types of notifications received, decisions made, and time taken for decisions to be made. These included breakdowns of key statistics by area of the economy, including the 17 sensitive areas of the economy set out in the NARs.

This report includes new statistics, which are the result of collating data points across all three Annual Report periods:

• Annual Report 2022, covering the period from commencement on 4 January 2022 to 31 March 2022;
• Annual Report 2022-2023, covering the period from 1 April 2022 to 31 March 2023; and
• Annual Report 2023-2024, covering the period from 1 April 2023 to 31 March 2024.

These collated statistics include additional statistics which did not appear in the first Annual Report. These were the number of notified acquisitions reviewed, call-in notices from retrospective validation applications and non-notified acquisitions, final notifications and final orders by notification type, and withdrawals.

Further additional statistics not present in any of the Annual Reports have also been included. These are call-ins of voluntary and non-notified acquisitions by area of the economy, and mandatory notifications and retrospective validation applications called in by area of the economy.

This report draws particularly on data regarding:

• Voluntary notifications: parties can notify the Government of a qualifying acquisition even if notification is not mandatory.
• Call-ins / call-in rates: the Government can ‘call in’ qualifying acquisitions, whether the Government is notified or not, where it reasonably suspects the acquisition may give rise to a risk to national security.
• Retrospective validation applications: parties can submit applications for the Government to retrospectively validate notifiable acquisitions that were completed without approval and so were void.
• Notifications rejected: the Government can reject notifications for three reasons: i) the notification does not meet the requirements set out in the NSI Act; ii) the notification does not meet the requirements set out in relevant notification regulations; iii) the notification does not contain sufficient information.
• Offences under the NSI Act: the NSI Act includes a number of offences, including offences in respect of completing a notifiable acquisition without approval.

NSI Call for Evidence stakeholder feedback

In November 2023, the previous government published a call for evidence on the NSI Act, followed by a government response in April 2025. It sought views on how the NSI system, including the NARs, could be more business friendly while maintaining and refining essential national security protections. In particular, it sought feedback on:

1. The impact of the NSI system on businesses and investors, and their experience interacting with the process;
2. Whether the scope and requirements of the NSI system, in particular its mandatory notification requirements, were proportionate and effective; and
3. How well stakeholders understood the NSI system, how it was likely to be used, and what national security risks may be posed by investments.

The Call for Evidence also asked specific questions about the NARs:

a.    Do you understand what activities might bring an entity into scope of mandatory notification requirements, as set out in the Notifiable Acquisition Regulations?

b.    Are there activities specified in the Notifiable Acquisition Regulations that you do not think should be included? If so, what activities?

c.    Are there activities not included in the Notifiable Acquisition Regulations that you think should be included? If so, what activities?

d.    Are there areas of the Notifiable Acquisition Regulations that would benefit from additional guidance? If so, what areas and what guidance?

e.    Are there areas of the Notifiable Acquisition Regulations that would benefit from drafting changes to improve clarity on the activities covered, either by changing drafting within areas of the Regulations or by carving out new areas? If so, what areas?

With over 75% of respondents having been involved in acquisitions that had been through the NSI process, the responses provide a good indication of the views of stakeholders who have interacted with the NSI regime. Of the 110 full responses to the Call for Evidence, 41% were from legal firms, 15% from trade bodies and Business Representative Organisations, 15% from banks or investors, 11% from businesses operating in the 17 NSI mandatory areas and 7% from academic and research institutions. Other respondents included think-tanks, consultants, and respondents not replying on behalf of an organisation.

The Investment Security Unit (ISU) and sector experts within the Government then considered these responses alongside their regular, ongoing engagement with key stakeholders within affected sectors and policy development.

Findings of the Review

Are the objectives being achieved?

The section below considers each objective in turn, using the sources of evidence detailed above.

Objective 1: Protect national security, by ensuring the Government is aware of acquisitions that are most likely to be called in due to the national security risks they could pose, and prevent those acquisitions from being completed unless they have been adequately scrutinised and cleared.

Annual Report

The Annual Report provides data about acquisitions that interacted with the NSI system, for example through notifications or call-ins. This means, however, that it necessarily does not include any information about acquisitions about which the Government was unaware. This means this data cannot confirm whether there are gaps in the Government’s awareness due to sensitive activities not being covered by the NARs; nor can it confirm that all sensitive activities were covered.

This data could, however, indicate gaps in NARs coverage (if such gaps exist) through two indicators:

1. Voluntary notifications of entity acquisitions leading to call-ins
2. Non-notified acquisitions of entities identified by the Government leading to call-ins

Voluntary notifications leading to call-ins

If there was a clear trend of voluntary notifications in particular areas of the economy being routinely called in because they presented risk, but these acquisitions were not covered by the NARs, this could suggest the NARs were missing certain areas of the economy that routinely present risk.

This was, however, not the case. Between January 2022 and the end of March 2024, the government reviewed 1,740 notifications and called in 123, of which 37 were from voluntary notifications^{[footnote 3]}. Of those 37 call-ins from voluntary notifications, however, 24 were asset acquisitions^{[footnote 4]}, and so were out of scope of mandatory notification regardless of the scope of the NARs. For example, many of the call-ins related to the Energy area of the economy were asset acquisitions.

As shown in Table 1, the area of the economy that saw the highest number of voluntary notifications leading to call-ins was acquisitions involving academic research and development in higher education, with 18 voluntary notifications called in (14.6% of total call-ins or 48.6% of call-ins arising from voluntary notifications).

An acquisition being classified as relating to the academic research and development in higher education area is, however, not akin to it relating to other areas of the economy like Energy or Artificial Intelligence; rather, it is a characteristic of acquisitions taking place across a range of areas of the economy. All acquisitions relating to academic research that were called in involved asset acquisitions, which were therefore not notifiable regardless of the area of the economy.

Further to this, individual acquisitions can relate to multiple areas of the economy. For example, both of the voluntarily-notified advanced robotics acquisitions called in were also related to academic research and development in higher education.

No other area of the economy saw a substantial number of call-ins arising from voluntary notifications. The call-ins that did arise from voluntary notifications were relatively evenly dispersed across the economy and so did not suggest any trend.

Table 1: call-ins of voluntary notifications by area of the economy^{[footnote 5]}

Area of the economy	Voluntary notifications called in	Voluntary notifications called in in each area of the economy, as a proportion of all call-ins in this area of the economy[footnote 6]	Voluntary notifications called in in each area of the economy, as a proportion of all voluntary notifications called in[footnote 7]
Academic research and development in higher education	18	14.6%	48.6%
Accommodation and food service activities	0	0.0%	0.0%
Administrative and support service activities	0	0.0%	0.0%
Advanced Materials	7	5.7%	18.9%
Advanced Robotics	2	1.6%	5.4%
Agriculture, forestry and fishing	0	0.0%	0.0%
Artificial Intelligence	4	3.3%	10.8%
Arts, entertainment and recreation	0	0.0%	0.0%
Civil Nuclear	0	0.0%	0.0%
Communications	7	5.7%	18.9%
Computing Hardware	4	3.3%	10.8%
Construction	0	0.0%	0.0%
Critical suppliers to Government	0	0.0%	0.0%
Cryptographic Authentication	0	0.0%	0.0%
Data Infrastructure	3	2.4%	8.1%
Defence	4	3.3%	10.8%
Energy	7	5.7%	18.9%
Financial and Insurance activities	0	0.0%	0.0%
Human health and social work activities	0	0.0%	0.0%
Information and communication	8	6.5%	21.6%
Manufacturing	1	0.8%	2.7%
Military and dual-use	7	5.7%	18.9%
Mining and Quarrying	0	0.0%	0.0%
N/A	0	0.0%	0.0%
Other Service Activities	0	0.0%	0.0%
Professional, scientific and technical activities	7	5.7%	18.9%
Public administration and defence; compulsory social security	0	0.0%	0.0%
Quantum technologies	2	1.6%	5.4%
Real estate activities	2	1.6%	5.4%
Satellite and space technology	5	4.1%	13.5%
Suppliers to the emergency services	1	0.8%	2.7%
Synthetic Biology	3	2.4%	8.1%
Transport	0	0.0%	0.0%
Transportation and storage	0	0.0%	0.0%
Water supply; sewerage, waste management and remediation activities	0	0.0%	0.0%
Wholesale and retail trade; repair of motor vehicles and motorcycles	0	0.0%	0.0%
Total*	37	30.0%

*Total notifications are less than the sum of notifications in all areas of the economy as some notifications relate to more than one area of the economy.

Non-notified acquisitions leading to call-ins

Second, if the Government were detecting large numbers of non-notifiable acquisitions that were not notified through a voluntary notification and then called in, this could also indicate that the NARs were missing certain sectors or areas of the economy. However, as shown in Table 2, this also is not the case – out of a total of 123 call-ins, only 14 involved non-notified acquisitions identified through the Government’s market monitoring^{[footnote 8]}. Of these, 9 were asset acquisitions and so were out of scope of mandatory notification, regardless of the scope of the NARs^{[footnote 9]}. Evidence in the Annual Reports therefore does not suggest that high risk acquisitions are routinely not being captured by the NARs. This data cannot capture acquisitions of which the Government was not aware.

Table 2: call-ins of non-notified acquisitions by area of the economy^{[footnote 10]}

Area of the economy	Non-notified acquisitions called in in each area of the economy	Non-notified acquisitions called in in each area of the economy as a proportion of all call-ins	Non-notified acquisitions called in in each area of the economy as a proportion of all non-notified acquisitions called in
Academic research and development in higher education	0	0.0%	0.0%
Accommodation and food service activities	0	0.0%	0.0%
Administrative and support service activities	0	0.0%	0.0%
Advanced Materials	7	5.7%	50.0%
Advanced Robotics	0	0.0%	0.0%
Agriculture, forestry and fishing	0	0.0%	0.0%
Artificial Intelligence	0	0.0%	0.0%
Arts, entertainment and recreation	0	0.0%	0.0%
Civil Nuclear	0	0.0%	0.0%
Communications	3	2.4%	21.4%
Computing Hardware	3	2.4%	21.4%
Construction	0	0.0%	0.0%
Critical suppliers to Government	0	0.0%	0.0%
Cryptographic Authentication	1	0.8%	7.1%
Data Infrastructure	1	0.8%	7.1%
Defence	1	0.8%	7.1%
Energy	2	1.6%	14.3%
Financial and Insurance activities	0	0.0%	0.0%
Human health and social work activities	0	0.0%	0.0%
Information and communication	0	0.0%	0.0%
Manufacturing	1	0.8%	7.1%
Military and dual-use	0	0.0%	0.0%
Mining and Quarrying	0	0.0%	0.0%
N/A	0	0.0%	0.0%
Other Service Activities	0	0.0%	0.0%
Professional, scientific and technical activities	0	0.0%	0.0%
Public administration and defence; compulsory social security	0	0.0%	0.0%
Quantum technologies	0	0.0%	0.0%
Real estate activities	0	0.0%	0.0%
Satellite and space technology	1	0.8%	7.1%
Suppliers to the emergency services	1	0.8%	7.1%
Synthetic Biology	0	0.0%	0.0%
Transport	0	0.0%	0.0%
Transportation and storage	0	0.0%	0.0%
Water supply; sewerage, waste management and remediation activities	0	0.0%	0.0%
Wholesale and retail trade; repair of motor vehicles and motorcycles	0	0.0%	0.0%
Total	14	11.4%

*Total notifications are less than the sum of notifications in all areas of the economy as some notifications relate to more than one area of the economy.

NSI Call for Evidence feedback

Stakeholders were asked for feedback on which activities should or should not be included in the NARs. Respondents generally answered that it was up to the Government to decide what activities were included in the mandatory areas and there were minimal suggestions for expansion.

Some respondents did, however, highlight specific areas not currently covered by the NARs that they believed should be, such as Generative AI in the Artificial Intelligence area and Life Sciences Research and Development and Pharmaceuticals in the Synthetic Biology area. A large number of other respondents were, however, content that the current activities covered were sufficient, but welcomed ongoing review of the NARs to ensure they captured new technologies and capabilities that posed a risk to national security^{[footnote 11]}.

Conclusion

Overall, data from Annual Reports did not suggest that there were significant gaps in the activities covered by the NARs. Feedback on the Call for Evidence also indicated that most stakeholders did not identify areas of the economy with substantial numbers of high risk acquisitions not currently captured by the NARs. However, there were suggestions of some areas that could be considered for addition.

Following further consideration of the Call for Evidence feedback and as part of ongoing sectoral policy development, Government sector experts concluded that the NARs were broadly covering high risk acquisitions as intended. They also noted, however, that further consideration should be given to a few areas that were not currently covered by the NARs but may present risk, for example in Artificial Intelligence and Data Infrastructure.

In conclusion, available evidence suggests that the NARs broadly achieve this objective, with some improvements possible.

Objective 2: Minimise business burdens, by minimising the number of acquisitions subject to mandatory notification that are unlikely to be called in because they are unlikely to pose a national security risk.

Annual Report

Data on mandatory notifications received and whether they were called in or cleared can give an indication as to whether the NARs cover activities that were less likely to present risk.

As set out in Table 3, the large majority of mandatory notifications and retrospective validation applications reviewed were not called in^{[footnote 12]}. Out of a total of 1,471 mandatory notifications and retrospective validation applications reviewed between commencement and the end of March 2024, only 72 were called in (a call-in rate of 4.9%), which suggests that the large proportion did not warrant being called in^{[footnote 13]}.

However, this did not necessarily mean that the burden on businesses was disproportionate. The overall call-in rate was broadly consistent with the estimates in the original Impact Assessment for the NSI Act of between 1,000 and 1,830 notifications per year (including both mandatory and voluntary notifications, as the Impact Assessment did not differentiate between them) and between 70 and 95 call-ins per year (including call-ins of non-notified acquisitions)^{[footnote 14]}. Scaling this up to the period of time covered by the three Annual Reports would approximately equate to between 2,250 and 4,120 notifications and between 155 and 215 call-ins. In those three reporting periods the Government actually received 1,994 notifications and issued 123 call-ins, below the estimates in the Impact Assessment^{[footnote 15]}.

All notifications that were not called in were cleared to proceed within the statutory time limit of 30 working days, generally placing relatively small burdens on businesses and investors.

Some variation across areas of the economy should be expected, as call-ins depend on the individual facts of each case. For some areas of the economy, the number of notifications was relatively low, meaning a small number of call-ins or clearances could have a large effect on the overall call-in rate. Lower call-in rates or larger numbers of mandatory notifications in specific areas of the economy, such as Defence, not being called in does not in itself suggest that the burdens were disproportionate, as acquisitions in those areas of the economy did still present risks.

Table 3 breaks down the number of mandatory notifications reviewed and called in, by the area of the economy^{[footnote 16]}.

Area of the economy	Mandatory notifications and retrospective validation applications reviewed in each area of the economy	Mandatory notifications and retrospective validation applications called in in each area of the economy	Mandatory notification and retrospective validation application call-in rates in each area of the economy
Advanced Materials	180	18	10.0%
Advanced Robotics	46	7	15.2%
Artificial Intelligence	214	11	5.1%
Civil Nuclear	42	4	9.5%
Communications	105	7	6.7%
Computing Hardware	74	8	10.8%
Critical suppliers to Government	297	15	5.1%
Cryptographic Authentication	44	3	6.8%
Data Infrastructure	257	12	4.7%
Defence	696	33	4.7%
Energy	129	5	3.9%
Military and Dual-Use	248	35	14.1%
Quantum technologies	26	3	11.5%
Satellite and space technology	72	9	12.5%
Suppliers to the emergency services	137	4	2.9%
Synthetic Biology	42	1	2.4%
Transport	20	1	5.0%
TOTAL*	1,471	72	4.9%

*The total is less than the sum of the individual areas of the economy figures, because some notifications relate to multiple areas of the economy. In these cases, the reason for call-in may also only relate to one area of the economy, so the total number of call-ins associated with each area of the economy in the table may be more than the call-ins that area of the economy caused.

NSI Call for Evidence feedback

Stakeholders were also asked if there were activities currently covered by the NARs that they considered unlikely to pose national security risks. Respondents generally answered that it was up to the Government to decide what activities were included in the NARs as only the Government fully understood the risks it sought to mitigate.

The majority of the feedback provided by stakeholders noted that the activities specified in the NARs were appropriate, and that no particular sector needed to be removed. Some respondents did, however, suggest that certain activities within particular sectors covered by the NARs were unlikely to present risk and so could be removed or clarified. Specifically, stakeholders noted the breadth of activities covered under Advanced Materials, Artificial Intelligence, Communications, and Defence – although this breadth did not itself mean the requirement to notify was disproportionate, given the high level of risk the sector overall could present.

This was reflected in ongoing sectoral engagement and policy development by Government sector experts, which did not suggest that notification requirements were disproportionate to the risks posed by the activities covered in the NARs.

Objective 2 conclusion

Overall, data from Annual Reports shows that, while there was a degree of variation in call-in rates across the areas of the economy, and the large majority of mandatory notifications in all areas of the economy were not called in, the NARs were not disproportionately covering activities that were routinely unlikely to present risk. Feedback on the Call for Evidence also did not indicate that stakeholders were identifying many activities covered by the NARs that were unlikely to pose risks, although stakeholders did make a number of targeted suggestions of areas that could be narrowed, such as the use of Artificial Intelligence in agricultural production and medical diagnostics.

The breadth of activities covered was, however, not in itself an indicator that coverage was ‘too’ broad. For example, while coverage of the Defence or Artificial Intelligence sectors was substantial, this reflected the high level of risk attached to a wide range of Defence and Artificial Intelligence capabilities.

Following further consideration of the Call for Evidence feedback, Government sector experts noted that in some areas, such as Defence, the scope was deliberately broad to ensure that the Government had sight of all acquisitions that could pose national security risks.

In conclusion, available evidence suggests that the NARs broadly achieve this objective, with potential for some improvements.

Objective 3: Protect national security and minimise business burdens, by ensuring that businesses, investors, and their legal advisors can determine with confidence whether an acquisition must be notified, driving compliance and business confidence.

Annual Report

Data on notifications rejected, retrospective validation applications, and offences relating to non-notification of notifiable acquisitions can give an indication of how well stakeholders understand the NARs. If the NARs were unclear then this could lead to:

1. Large numbers of rejected forms due to stakeholders submitting the wrong forms. This could suggest that stakeholders were unsure about whether their acquisition fell within the NARs, and were therefore not submitting the correct forms.
2. Large numbers of offences for not notifying notifiable acquisitions. Again, this could suggest that stakeholders were not understanding whether they should be notifying.

Since commencement, there have been 18 voluntary notifications rejected because they should have been mandatory notifications, out of a total of 74 rejected forms^{[footnote 17]}. Over the same period there were 39 recorded offences of completing a notifiable acquisition without approval^{[footnote 18]}.

In comparison, the Government received 1,994 notifications in total over the three reporting periods, and so the numbers above represent only a small proportion of all notifications^{[footnote 19]}. This gives an indication that businesses have largely been able to interpret the NARs correctly.

Furthermore, it is important to note that there were also other reasons that parties may have not submitted mandatory notification forms when they should have that are unrelated to the clarity of the NARs, such as mistakes about the nature of the trigger event. Conversely, these statistics cannot capture notifiable acquisitions completed without approval that the Government was not made aware of. This data therefore provides useful contextual information but is unlikely to show the full picture.

NSI Call for Evidence stakeholder feedback

Stakeholders were asked if they understood what activities might bring an entity into scope of mandatory notification requirements. Responses indicated that stakeholders had a good understanding of how the NSI Act worked, and 55% of the respondents expressed that they understood what activities might bring an entity into scope in the NARs. 25% said they did not, although this may have referred to other parts of the NSI regime that they found unclear, such as guidance on the nature of the trigger events, rather than the NARs. This suggests that the majority of stakeholders that engaged with the Call for Evidence were confident with the scope of the NARs^{[footnote 20]}.

However, some respondents indicated a number of areas in the NARs that they believed would benefit from clarification and more guidance. This included in particular Advanced Materials, Artificial Intelligence, Defence, and Synthetic Biology, due to the breadth and highly technical nature of these areas. As part of this, there was widespread support for carving out Semiconductors and Critical Minerals from the Advanced Materials section into standalone sections.

This suggests that there were some small changes that stakeholders believed the Government could make to clarify the scope of notifiable acquisitions, either through changes to the NARs or through guidance.

Ongoing policy development and engagement with stakeholders by sector experts within the Government echoed this conclusion. In particular, as noted in the previous government’s response to the Call for Evidence, the NARs could more clearly set out the activities covered within the Semiconductor and Critical Minerals areas by carving these out from the Advanced Materials section, where they are currently covered, into standalone sections. Further small clarifications could also be made to the published guidance.

Objective 3 conclusion

Overall, statistics in the Annual Report did not suggest that there were widespread misunderstandings about how to interpret the NARs. There were not large numbers of incorrect forms being submitted or offences of completing a notifiable acquisition without approval. This was also reflected in responses to the Call for Evidence and other ongoing sectoral engagement, although stakeholders suggested a number of areas that could be further clarified, either through changes to the NARs or through further guidance.

In conclusion, available evidence suggests that the NARs broadly achieve this objective, although there are some improvements to be made both to the NARs themselves and to their accompanying guidance.

Do these objectives remain appropriate?

The Government has made clear its commitment to kickstarting economic growth across the whole country and ensuring that growth is secure. The NSI Act and the NARs have an important role to play in this, as their operation must remain proportionate, carefully targeted, and easy to engage with.

The Government considers it important to hone the scope of the system to ensure it remains up-to-date, while reducing burdens on businesses wherever possible and ensuring that national security is protected. Following the consideration, the Government’s view is that the objectives for the NARs set out on page 8 remain appropriate.

Could these objectives be met in other ways?

As evidenced by the review detailed above, the NARs are fit for purpose in ensuring that their objectives are being achieved and remain appropriate.

The NARs provide the Government with a system that enables it to become aware of potentially high-risk acquisitions, and to scrutinise these and, where necessary, impose conditions or prevent them from going ahead.

The NARs are the most effective way to ensure that businesses are aware of when they must notify the Government of an acquisition, maximising business certainty.

The objectives therefore cannot be met effectively through other means or other regulations.

Conclusion

Overall, available evidence indicates that the NARs are working well and are generally meeting their objectives.

The NARs appear to be largely covering the high-risk activities they should. There are, however, a relatively small number of additional activities, as flagged through the Call for Evidence feedback and further consultation with Government experts, that may warrant inclusion.

The NARs largely do not appear to be disproportionately covering activities that are unlikely to be called in, with some limited exceptions. Generally, when certain types of notification were called in less frequently but were still subject to mandatory notification requirements, this reflected the Government’s understanding of where potential risk may arise.

Finally, the NARs are ensuring that stakeholders broadly understand when they must notify. A small number of improvements to the NARs’ drafting and guidance are, however, possible.

The NARs are therefore largely achieving their objectives, but in order to keep in line with emerging threats, changing market practices, and general best practice, the Government will continue to keep the NARs under review.

1. ‘NSI regime’ encompasses reference to the NSI Act, the NARs, guidance and operational processes. ↩

2. In this report, the term ‘the Government’ is used to refer to the decision maker, who is the Chancellor of the Duchy of Lancaster. The term ‘the Government’ is also used, in a few instances, to refer to the Investment Security Unit (ISU), which administers the operation of the NSI Act and in some circumstances can exercise the powers on behalf of the decision maker under the NSI Act . ‘Government’ (capitalised) is used to refer to the current Government whereas ‘government’ is used to refer to previous governments. ↩

3. Source: Annual Reports. The number of notifications reviewed in 21/22 was not in the 21/22 Annual Report, but is drawn from internal management information. ↩

4. Source: Internal management information. ↩

5. Source: Internal management information ↩

6. There were 123 total call-ins. ↩

7. There were 37 call-ins from voluntary notifications. ↩

8. Source: Annual Reports. The number of call-ins from non-notified acquisitions in 2021-2022 was not in the 2021-2022 Annual Report, but is drawn from internal management information. ↩

9. Source: Internal management information ↩

10. Source: Internal management information ↩

11. Respondents actively argued against one particular proposal set out in the Call for Evidence. The NARs cover acquisitions of entities operating Public Electronic Communications Networks/Services (PECN/S) and submarine cable systems with a turnover of more than £50 million. The previous government sought views on whether acquisitions of smaller operators could pose risk and so whether the turnover threshold should be lowered, but respondents were against this proposal and flagged that this threshold was appropriate. ↩

12. Retrospective validation applications are included in this total because they came under mandatory notification requirements. ↩

13. Source: Annual Reports. The number of notifications reviewed in 2021-2022 was not in the 2021-2022 Annual Report, but is drawn from internal management information. ↩

14. Source: NSI Act Impact Assessment (2020) ↩

15. Source: Annual Reports. ↩

16. Source: Internal management information ↩

17. Source: Annual Reports. The breakdown of reasons for rejected notifications in 21/22 was not in the 21/22 Annual Report, but is drawn from internal management information. ↩

18. Source: Annual Reports. ↩

19. Source: Annual Reports. ↩

20. Source: NSI Act Call for Evidence Response (2024) ↩