Preparing your business for changes to national security investment rules

Proposed changes to the National Security and Investment Act could affect whether an acquisition or investment needs government approval.

Richard Williams-Bulkeley, from Harrison Drury’s Corporate team, explains what business owners and investors should consider when planning a transaction.

The Government plans to update the sectors subject to mandatory notification under the National Security and Investment Act 2021 (NSI Act). The changes aim to address emerging national security risks while reducing unnecessary notifications for lower-risk transactions.

For businesses planning a deal, the timing matters. A transaction that does not require notification today could fall within the revised rules by the time it completes.

The existing rules continue to apply

The reforms have been confirmed in principle but are not yet in force. Businesses should continue to apply the existing rules until the new legislation takes effect.

In its March 2026 consultation response, the Government stated that it intended to put secondary legislation before Parliament later in the year. This does not establish a commencement date, so businesses should monitor developments as their transactions progress.

New mandatory sector categories

The proposals include standalone categories for critical minerals, semiconductors and water:

• Critical minerals: covering specified activities involving strategically important minerals, including extraction, processing and recycling.
• Semiconductors: bringing together existing provisions and covering activities such as chip design, manufacturing and advanced packaging.
• Water: bringing water and sewerage undertakers into the mandatory regime, including larger providers operating under New Appointments and Variations, subject to a minimum size threshold.

Critical minerals and semiconductors already fall within existing categories. Water has been added because the Government forecasts around £100 billion of investment into the UK water sector between 2025 and 2030, and wants to retain the screening and intervention powers needed to protect national security while ensuring that investment aligns with its growth mission for the sector.

A narrower focus for artificial intelligence

The artificial intelligence sector will be narrowed to focus on businesses that develop or modify AI systems, with exclusions for certain routine modifications and testing. Businesses that only use off-the-shelf AI products should generally fall outside mandatory notification under this category.

Buyers will still need to examine what a target does with AI in practice, particularly where it adapts third-party models or combines them with proprietary technology or data.

Changes to existing sectors

The Government also plans to clarify or amend definitions covering communications, critical suppliers to government, data infrastructure, energy, suppliers to the emergency services, advanced materials and synthetic biology.

Updated guidance is also expected for most affected sectors and for defence subcontractors.

Proposed exemptions for internal reorganisations

Certain lower-risk transactions, including some internal reorganisations, are expected to be exempted from mandatory notification. However, the exemption does not yet apply, and its precise scope will depend on the final legislation.

What the changes mean for transactions

A transaction that is not currently notifiable could become notifiable if it completes after the new rules take effect. Transactions involving water, critical minerals, semiconductors or AI should be reviewed carefully.

Parties should:

1. Assess targets against both the current and proposed sector definitions.
2. Include suitable NSI approval conditions, co-operation obligations and long-stop dates in transaction documents.
3. Address the possibility of a change in law between signing and completion.
4. Consider whether a voluntary notification is appropriate even if mandatory notification is not required.

Falling outside a mandatory sector does not remove the wider risk of government intervention under the NSI Act’s call-in regime.

Why early assessment matters

A transaction subject to mandatory notification must not complete without clearance. Completing without approval means the acquisition is void, unless subsequently validated, and may result in criminal liability and substantial financial penalties.

NSI analysis should therefore be undertaken early, alongside merger control and other regulatory assessments.

The reforms should reduce some low-risk notifications while extending mandatory scrutiny to water and updating the activities covered in other strategically important sectors.

There is no confirmed date for the new rules to take effect. In its March 2026 consultation response, the Government indicated that draft secondary legislation was expected to be presented to Parliament before the end of 2026.

Businesses and investors should review transactions that may complete after the new rules take effect and revisit their analysis once the final legislation and guidance are published.

Richard Williams-Bulkeley is a Solicitor in Harrison Drury’s corporate team, based in the Manchester office. He has been a valued member of the Harrison Drury corporate team since 2024 where he has assisted numerous clients in navigating the requirements of the NSI Act.

For advice on how the NSI Act may affect a proposed acquisition, investment or group reorganisation, please contact Harrison Drury’s Corporate Team on 0161 513 8181.

Richard Williams-Bulkeley