UK Government report concludes that the NSIA Notifiable Acquisition Regulations are meeting their objectives but outlines potential improvements

On 19 December 2024, the Government published its first statutory report on the performance of the National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021 (the NARs) since the UK’s investment screening regime came into force. The NARs are a critical component of the National Security and Investment Act 2021 (NSIA) regime, as they prescribe which activities in the 17 sensitive sectors fall within the scope of the mandatory notification regime. The report concludes that, overall, the NARs are generally achieving their objective, including in relation to the UK Government’s growth mission.

Businesses and practitioners have had to become very familiar with the NARs, often having to pore over the technical definitions in them to assess whether the activities of a certain business would be caught by the mandatory regime. The complexity, breadth and ambiguity of some definitions in the NARs (such as the advanced materials, AI, defence, data infrastructure and synthetic biology sectors) has been a common cause for frustration, in some cases leading to precautionary filings where the assessment is not clear cut. 

The report draws on statistics from the NSIA Annual Reports (see our post on the 2023-24 Annual Report here), some additional statistics on the regime, responses to the Government’s Call for Evidence in November 2023, as well as feedback from the Government’s regular engagement with key stakeholders. 

While the report is welcome, its assessment is largely unremarkable; it concludes that, overall, the NARs are working well and generally achieving their objectives. The NARs appear to be identifying the high-risk activities warranting mandatory notification. While the large majority of mandatory notifications across all the sectors were not called in, the NARs are not disproportionately covering activities unlikely to pose a national security risk. Finally, the NARs are sufficiently clear for stakeholders to determine if an acquisition must be notified, as there was no evidence of widespread misunderstanding about how to interpret the NARs.

Despite the overall thumbs up, the report notes that a small number of potential improvements to the drafting and guidance are possible and cites in particular the following input from stakeholder responses to the NSIA Call for Evidence:

• The inclusion of additional areas of the economy into the NARs (e.g. Generative AI and Life Sciences Research and Development and Pharmaceuticals in the Synthetic Biology area, and areas within the Data Infrastructure sector (co-location data centres were mentioned in the Call for Evidence). The report makes it clear that the majority of respondents considered the current list of sectors to be sufficient but notes the above as areas that may be considered for inclusion by the Government. Given the existing wide scope of the NSIA, which already attracts more filings than comparator regimes, and the feedback that most stakeholders view the mandatory sector list to be appropriate, it is questionable whether adding these broad sectors is proportionate in view of the objectives of the NARs. There is a risk that adding new broad sectors would undermine the objective of minimising burdens on businesses.
• Carving out the areas of Semiconductor and Critical Minerals. Semiconductors already fall within the NARs under the Advanced Materials and Computing Hardware sections and are seen as a particularly high-risk area, given their critical role within so many technologies and supply chains. The Government is very focused on this area, with four final orders being issued under the NSIA in relation to semiconductor deals, two of which were blocked (out of a total of six prohibitions across all sectors). Similarly, activities in Critical Minerals are already covered by the Advanced Materials sector but the Government clearly considers that these minerals - which are those with the highest global supply risk and economic vulnerability, typically without good substitutes (if any) - warrant a standalone section. Statements in the Call for Evidence suggest the Government plans to bring the definition in line with the British Geological Survey’s latest assessment of critical minerals. Adding standalone sections for both these areas should bring helpful clarity and make them more user friendly, given the long and technical Advanced Materials definition is unclear and unwieldy. 
• Providing clarification and additional guidance for the activities covered by certain sectors such as Semiconductors and Critical Minerals. Practitioners and acquirers will embrace any additional clarification and guidance in these new areas, as well as other sectors, which will help improve legal certainty and business confidence around the NSIA regime.  

In summary, the report demonstrates that the Government considers the NARs to be functioning adequately and indicates that reforms are likely to be in the realm of targeted ‘improvements’ rather than open heart surgery. The report does not, however, deal with the more substantive reforms to streamline the regime raised in the Call for Evidence (e.g. to introduce certain exemptions for some internal reorganisations or the appointment of liquidators etc.) and it remains to be seen whether any of these will be taken forward by the Government.