On 23 June 2025, the UK government published its new Modern Industrial Strategy document (the “IS Document”), outlining the government’s current strategies for UK economic growth. The policy paper focuses on eight priority sectors: professional and business services; advanced manufacturing; clean energy; creative industries; defence; digital technologies; financial services; and life sciences (the “IS Priority Sectors”), which together represent 32% of the UK’s economy. The IS Document makes specific (albeit brief) reference to the UK government’s plans in relation to the UK’s investment screening regime, which is governed by the UK National Security and Investment Act 2021 (“NSIA”), and confirms that long-awaited updates to the NSIA are still on the government’s to-do list.
In particular, the IS Document states that the UK government will:
- launch a 12-week consultation on the definitions of the 17 sensitive areas of the economy which are subject to mandatory notification requirements under the NSIA, as specified under the National Security and Investment Act (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021 (the “Regulations”);
- issue additional UK government guidance, including in relation to the government’s decision making process under the NSIA;
- announce “specific new exemptions” to the mandatory notification regime under the NSIA; and
- explore ways to “bring greater transparency to the NSIA process and ensure that it protects national security while minimising burdens and supporting growth”.
Background
An update in relation to revisions to the Regulations has been expected for some time. This week’s announcement follows the UK government’s November 2023 Call for Evidence on the NSIA, which the government responded to in April 2024, as well as a report on the Regulations published by the UK government in December 2024 (the “December 2024 Report”). The December 2024 Report both fulfilled the government’s statutory requirement to review the Regulations every three years and summarised the government’s findings following the November 2023 Call for Evidence.
The December 2024 Report indicated that the UK government was reviewing whether amendments are needed to the following sectors specified in the Regulations:
- the Advanced Materials, Artificial Intelligence, Defence and Synthetic Biology sectors – in response to feedback from respondents and stakeholders, the government acknowledged that the definitions of these sectors may benefit from further clarification and guidance, due to their breadth and technical nature, and indicated that there may be room for improvement in this regard;
- the Artificial Intelligence and Data Infrastructure sectors – the government stated that the scope of these sectors could be expanded to ensure that the Regulations provide the government an opportunity to scrutinise additional types of transactions involving new technologies that may pose UK national security risks (e.g., to cover generative AI technology in relation to the Artificial Intelligence sector). On the other hand, the government acknowledged stakeholder suggestions that the Artificial Intelligence sector could also be narrowed, for instance to exclude medical or agricultural AI use cases – noting that potential improvements could be made; and
- the Advanced Materials sector – the government suggested that there is scope to explore carving out Semiconductors and Critical Minerals, which are currently captured within the Advanced Materials sector, into their own standalone sectors on account of their technical nature.
Commentary and Takeaways
- Consultation on the Regulations: We can likely expect the changes reported as having been under consideration in the December 2024 Report (summarised above) to feature in the upcoming 12-week consultation on the sector definitions in the Regulations. However, it will also be interesting to see whether the consultation introduces any discussion of new sectors or activities to be covered by the Regulations, taking into account the newly announced IS Priority Sectors. While some of the IS Priority Sectors overlap with certain of the 17 sectors in the Regulations (e.g., defence, advanced manufacturing, and some digital technologies), activities undertaken in other IS Priority Sectors (e.g., professional and business services, clean energy, financial services, creative industries, and life sciences (excluding certain synthetic biology related activities)) are generally unlikely to be covered under the current Regulations.
- Potential Exemptions: Many will especially be hoping to see the introduction of an exemption from filing requirements for internal reorganisations – 27% of respondents to the UK government’s November 2023 Call for Evidence suggested that internal reorganisations should not be notifiable under the NSIA. Most would consider there to be merit to such an exemption as in many cases, it is hard to see how an internal reorganisation can be consequential from a national security perspective, particularly where the reorganisation does not change a qualifying entity’s ultimate beneficial owner, introduce any new third parties, or involve any foreign entities or entities incorporated in jurisdictions considered to be “hostile” to the UK’s interests. We may also see exemptions focused on transactions involving Scots law share pledges or public bodies. If any exceptions to filing requirements under the NSIA are introduced, the government will likely seek to minimise their scope to maintain the NSIA regime’s breadth and to ensure that no transactions that potentially present UK national security risks slip through the cracks. Perhaps an exception introduced in relation to internal reorganisations could be limited to internal reorganisations involving the direct/indirect acquisition of a “qualifying entity” (as defined by the NSIA) by an entity incorporated in the UK or another jurisdiction which is considered to be “friendly” to the UK and that has a transparent and reliable company register.
- Increased Transparency: It is unclear how the UK government might seek to introduce greater transparency into its investment review processes under the NSIA other than by providing more information about review timelines and publishing more statistical data relating to the review processes. It is likely that the UK government will want to keep details regarding how exactly it evaluates national security risks stemming from transactions caught by the NSIA out of general public knowledge, for obvious reasons.