UK Government Launches Consultation on Proposed Reforms to the NSIA Regime: 3 Key Takeaways

Accompanying the publication of its fourth annual report on the operation of the National Security and Investment Act (“NSIA”) regime – and following its Call for Evidence in November 2023 – the UK government has launched its long-awaited consultation on proposed changes to the NSIA's mandatory notification sectors. The aim is to make the regime more predictable and proportionate.

If implemented, the proposals would amend the current sector definitions within the Notifiable Acquisition Regulations (“NARs”) to better reflect national security risks. There are three key areas of proposed change:

1. Water Sector Inclusion

A new schedule would be added to the NAR to cover the water sector, bringing all 17 appointed regional water and sewerage companies, as well as water-only companies, within the scope of the mandatory filing regime.

The government will consider the Independent Water Commission's findings when coming to a view on the inclusion of water as an NSI mandatory area, such as its 21 July 2025 final report.

2. Sector Reorganisation: Semiconductors and Critical Minerals

The sectors “Semiconductors” and “Critical Minerals” would be removed from the broader “Advanced Materials” category and established as standalone schedules. The new “Semiconductors” schedule would also incorporate the currently separate “Computing Hardware” sector.

Definitions in the “Critical Minerals” area would be expanded to include additional activities, such as extraction, processing, and recycling. Notably, 19 more critical minerals and rare earth elements would be added, aligning the NSIA’s list with the Critical Minerals Intelligence Centre’s latest criticality assessment.

3. Amendments and Clarifications to Existing Sector Definitions

• Artificial Intelligence (AI): The AI sector definition would be refined to exclude the use of 'off-the-shelf' AI in internal processes that do not result in material R&D. The focus would shift to entities developing AI systems or conducting safety and capability testing.
• Data Infrastructure: The scope would be broadened to include third-party-operated data centres alongside certain cloud and managed service providers.
• Critical Suppliers to Government: In response to evolving risks, this definition would be updated to reflect a wider range of public sector authorities and security classifications. The definition of “Suppliers to the Emergency Services” would also expand to include certain subcontractors.
• Other Sectors: Updates would be made to the definitions of the Communications, Energy, and Synthetic Biology sectors.

If adopted, these changes would increase the number of sectors subject to mandatory notification from 17 to 19. However, as only the “Water” sector would be entirely new – while “Critical Minerals” and “Computing Hardware” are already covered under existing categories – the government anticipates a modest net change in annual notifications, estimated to range between 10 fewer and 35 more filings per year.

The consultation is open until 14 October 2025.

Separately, the government has also announced plans to exempt certain internal reorganisations and the appointment of liquidators from the mandatory notification requirement. It is hoped that these updates (along with tighter sector definitions and newly introduced exemptions) will reduce the number of deals requiring notification under the NSIA.