UK National Security and Investment Regime: Government Publishes Latest Annual Report

The UK government has released its latest annual report on the National Security and Investment (NSI) Act, covering the period from 1 April 2023 to 31 March 2024. The report outlines key trends, statistics, and developments within the NSI regime, which empowers the government to scrutinize and intervene in acquisitions that may pose national security risks. Given the often opaque nature of the NSI process, the report provides valuable insights into how the regime is functioning. Overall, the takeaway is of a “business as usual” approach under the previous UK government, with no major surprises—suggesting growing stability in this relatively new framework. It will be important to monitor how the regime’s application, including intervention rates, might shift under the new Labour government and following the transfer of the Investment Security Unit (which administers the operation of the NSI regime) from the former Department for Business, Energy, & Industrial Strategy to the Cabinet Office.

Key Insights

• Increase in notifications: During this latest reporting period, the UK government received 906 notifications, marking an increase from the 865 notifications in the previous year. Of these, 753 were mandatory notifications and 120 were voluntary, and 33 were retrospective validation applications.
• Timing: The data show that the government’s initial review of applications (i.e., to accept or reject a notification) is taking longer, perhaps due to the slightly larger volume of notifications received. It took an average of six calendar working days to accept a mandatory notification and eight days for a voluntary notification, compared to four calendar working days for both in the previous period. 
• ‘Call-In’ notices: Of the 847 notifications reviewed, 41 acquisitions were called in for an in-depth review, a decrease from the 65 call-ins issued in the previous period. Of the call-in notices, 22 followed mandatory notifications and 15 were voluntary, and four were non-notified acquisitions. A total of 37 notified deals (4.4%) (i.e., excluding deals that were non-notified) were called in, compared to 7.2% in the prior year, indicating a slight decline in the government’s enhanced scrutiny of transactions.  
• Final orders: The government issued five final orders in this period, a reduction from 15 final orders in the previous period. No acquisitions were blocked outright or unwound. The government’s reduced intervention rate may suggest a refinement in the government’s focus on deals with genuine national security risks, or simply that fewer deals posed national security concerns in this period. Acquisitions by entities from the UK and US led to the most final orders in this period, with two each, followed by the United Arab Emirates, France, and Canada, each with one. In contrast, in the previous reporting period, Chinese entities had the highest number of final orders, totalling eight. Notably, the data on withdrawals of notifications in the latest period shows that the origin of investment associated with the most withdrawals was China (with 8 withdrawals), followed by the UK with 7, and the United States with 2. The data may suggest that the reduction in final orders in the latest period could be due to investors pulling out of deals that were likely to face adverse outcomes and associated negative publicity.
• Sectoral focus: Acquisitions in the defence sector accounted for 48% of accepted notifications, continuing to represent the largest proportion of transactions under scrutiny. Other key sectors included critical suppliers to government (19%) and military and dual use (17%). A significant portion of call-in notices (34%) also related to the defence sector, followed by military and dual use (29%). The government’s data also suggest an increased focus on computing hardware and artificial intelligence, reflecting evolving national security and regulatory priorities. In relation to AI, for example, the UK government has announced that it will introduce legislation to strengthen safety frameworks around the development of AI models. As part of efforts to refine the NSI regime, the UK government announced in its April 2024 Call for Evidence Response that it is considering creating stand-alone sectors for semiconductors and critical minerals, which are currently included under the broader  “advanced materials” sector. As a result, deals in these sectors are likely to face increased scrutiny by the government moving forward.
• Acquisitions by origin of investment: The government continued to focus on acquisitions involving Chinese investors. In 2023-24, 41% of call-in notices were issued for deals involving China-associated acquirers, nearly the same as the previous year’s 42%. The data suggest that Chinese investment in sensitive sectors, rather than general Chinese investment, is attracting scrutiny. For context, deals associated with acquirers from the UK and the US accounted for 39% and 22% of call-in notices, respectively. More broadly, only 3% of all accepted notifications involved Chinese acquirers, compared to 61% from the UK and 26% from the US.

Practical Implications for Businesses

• Compliance with NSI requirements: Investors should be mindful of the government’s heightened scrutiny in key sectors, particularly military, defence, and advanced technologies. Companies engaged in these areas should carefully assess whether transactions require mandatory notification or might otherwise merit a voluntary notification.
• Geopolitical considerations: The report underscores the country-agnostic nature of the NSI regime. Whilst Chinese investment in sensitive sectors should expect scrutiny, the data show that similar levels of scrutiny should be expected for UK- or US-associated acquirers’ investments in sensitive sectors.
• Preparation for delays: While the majority of notifications are processed quickly, complex cases may face extended review periods, particularly those requiring call-ins. Companies should prepare for potential delays in high-risk sectors and plan accordingly.

^[1] Average number of working days from receipt of a mandatory or voluntary notification to the Secretary of State notifying parties of a decision to accept that notification.
^[2] Based on total number of accepted notifications. 

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