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 2021, covering the period from 1 April 2025 to 31 March 2026. The report outlines key trends and developments within the NSI regime — the UK’s national security screening regime — which enables the government to review and, when necessary, intervene in acquisitions that may pose a risk to UK national security. Given the “black box” nature of the NSI process, with nonfinal decisions unpublished and limited engagement from the government during reviews, these annual reports provide valuable insight into the operation of the regime in practice.

The key takeaway from this year’s report is that the number of issued notifications continues to rise, with review timelines increasing accordingly, while, from an enforcement perspective, the proportion of deals subject to intervention has fallen to record lows.

Key Insights

• Increase in Notifications: During the latest reporting period, the UK government received 1,324 notifications, representing an increase of almost 16% year-over-year and 46% compared with two years ago. Against this backdrop, the government has announced forthcoming reforms to the NSI regime, including exemptions for certain acquisitions currently caught by the mandatory notification sectors.
• Consistent Intervention Rate: Despite the increased caseload, the proportion of transactions called in for an in-depth review has remained broadly stable. Of the 1,220 notifications reviewed during 2025/26, 60 (4.9%) were called in, compared with 56 of 1,079 (5.2%) in the previous reporting period. This suggests that, notwithstanding the increase in notifications, the government has not become materially more selective in its screening approach, with the number of in-depth reviews broadly scaling in line with overall case volumes.
• Record-Low Intervention: The government imposed nine final orders during the 2025/26 reporting period. When combined with the four transactions abandoned by the parties following a call-in, the overall intervention rate was approximately 1.1% — the lowest level since the first full year of the NSI regime in 2022/23. The unusually low intervention rate may reflect merger parties’ increasing reluctance to pursue higher-risk transactions in a complex geopolitical environment, resulting in fewer problematic deals reaching the review stage. Equally, it may suggest that the NSI regime remains overinclusive, capturing a significant number of transactions that do not raise substantive concerns. While the government’s forthcoming reforms may reduce notifications in certain sectors, defence, military and dual-use, and critical suppliers to government — which together account for the vast majority of filings — remain largely untouched. Therefore, it remains unclear whether the proposed changes will be sufficient to halt the continued rise in notification volumes.
• Prohibitions Remain Rare: Of the nine final orders imposed during the 2025/26 reporting period, only one transaction was prohibited (i.e., a UK joint venture company between Anhui Boundary Innovative Materials Technology Co Ltd and Versarien Plc). This trend is consistent with the government’s decisional practice in recent years, which saw just one prohibition or unwinding order in 2024/25 and none in 2023/24. The data therefore reinforces that outright prohibition remains an exceptional outcome under the NSI regime. The overwhelming majority of transactions (98.9%) proceeded without intervention, and, if national security concerns are identified, the government continues to show a clear preference for imposing targeted remedies rather than blocking deals altogether.
• Timing: The government continued to make all call-in and clearance decisions within the statutory 30-workday review period, reinforcing the predictability of the NSI review process. However, the impact of rising notification volumes is increasingly evident in pre-acceptance timelines. The average time taken to accept a notification increased to 11 working days in 2025/26, up from seven working days in 2024/25 and four working days in 2022/23, suggesting mounting pressure on the government’s resources as filing volumes grow.
• Sectoral Focus: Defence, associated with 58% of notifications reviewed in 2025/26, continued to represent the largest proportion of transactions under scrutiny, consistent with the 56% from 2024/25. Other associated key sectors this year included military and dual-use (23%) and critical suppliers to government (20%). Defence also accounted for the largest proportion of call-in notices (47%), followed by critical suppliers to government (33%) and military and dual-use (33%). However, the sectors most frequently subject to final orders were advanced materials (five), data infrastructure (three), and military and dual-use (two). This serves as a useful reminder that notification volumes are not necessarily a reliable indicator of enforcement risk. While defence-related transactions continue to attract the highest levels of scrutiny, the government remains willing to intervene across a broader range of sectors if it identifies genuine national security concerns.
• Origin of Investment: UK-linked investors accounted for the largest share of association with both call-ins (52%) and final orders (five) during the reporting period. China remained the next most common origin of investment, featuring in 30% of call-ins and three final orders, followed by the US, which was associated with 23% of call-ins and two final orders. Notably, Chinese investors continued to account for a disproportionately high share of call-ins relative to their notification volume, despite representing fewer than 5% of notified acquisitions during the reporting period (compared with 72% for UK investors and 28% for US investors). This trend mirrors last year’s figures, when Chinese investors accounted for 32% of call-ins despite similarly low notification volumes, and suggests continued heightened scrutiny of Chinese-linked investments under the NSI regime.

Looking Ahead to Regulatory Reforms and Political Developments

• NSI Reforms: On 12 March 2026, the UK government published its response to the October 2025 consultation on proposed reforms to the NSI regime, announcing targeted changes to several mandatory notification sectors. Key developments include (i) excluding businesses that simply use standard, off-the-shelf artificial intelligence (AI) tools from the AI sector; (ii) expanding the scope of critical infrastructure caught by the regime, now including data centres in this remit; and (iii) broadening the definition of advanced materials. While the reforms are intended to “improve clarity” and “reduce unnecessary notifications,” the expansion of certain sectors may restrict this goal in practice. The ultimate impact will depend on the final wording of the revised sector definitions. The changes are expected to be implemented through secondary legislation, which the government intends to introduce later this year.
• ISU Changes and New Prime Minister: On 21 July 2026, the UK government announced that the Investment Security Unit (ISU), which administers the NSI regime, will transfer from the Cabinet Office to the newly renamed Department for Business, Innovation, Science and Trade. It will be important to monitor whether this institutional change influences the regime’s application, including intervention and call-in rates. The announcement follows the formation of the new Andy Burnham–led Labour government on 20 July 2026. Early indications suggest that economic growth and national resilience will remain key priorities, potentially signaling greater enforcement of the NSI regime in 2026/27. More broadly, the new administration’s approach to balancing inward investment with national security considerations is likely to emerge over the coming months and will be an important area for businesses and investors to watch.

Practical Takeaways for Businesses

1. Allow More Time, Even for No-Issue Deals: The time taken by the government to formally accept a notification has risen sharply, from four working days in 2022/23 to 11 working days this year. Even when a transaction is unlikely to raise substantive national security concerns, businesses should factor in this extended pre-acceptance period when planning transaction timetables.
2. Scrutiny Extends Beyond the Obvious Sectors: Businesses operating in sectors that may not immediately appear sensitive from a national security perspective should not assume a lighter-touch approach from the UK government and should carefully assess whether the regime applies to their transactions at the outset.

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We would like to thank Holly Leonard-Morgan for her assistance with this alert.