Print article
Author
Article:
The latest annual report on the operation of the UK’s National Security and Investment Act 2021 (NSI Act) provides a useful snapshot of how the UK’s foreign direct investment (FDI) screening regime is operating in practice. While notification volumes continue to increase, the latest figures indicate that Government intervention remains targeted and relatively rare.
The NSI Act requires mandatory notification of certain acquisitions involving entities active in any one of 17 sensitive sectors in the UK, including Defence, Military and Dual-Use technologies, Data Infrastructure and Artificial Intelligence (note that some minor changes to some of the sector definitions are due later this year). Notifications take time to prepare and once submitted took on average 11 working days to be accepted prior to the commencement of the 30 working day statutory initial review period.
Completing a notifiable acquisition without approval can render the transaction legally void and expose parties to significant criminal sanctions. The Government also retains wide powers to review acquisitions outside the mandatory regime where national security concerns may arise.
Record notification volumes do not translate into greater intervention
The Investment Security Unit received 1,324 notifications during 2025/26, a 15% increase on the previous year. Despite this increase, intervention levels remained broadly consistent. Of the 1,220 notified acquisitions reviewed, 95.6% were cleared without further action and only 4.4% were called in for a detailed national security assessment, extending the initial review period.
The Government issued nine final orders during the year. Eight transactions were permitted to proceed subject to conditions and only one transaction was prohibited.
Defence and strategic technologies remain under the spotlight
Defence continued to dominate NSI activity. The Defence sector accounted for 58% of notifications and 47% of all call-ins. Critical Suppliers to Government and Military and Dual-Use activities also featured prominently.
However, scrutiny extended beyond traditional defence businesses. Advanced Materials was associated with the largest number of final orders issued during the reporting period, while Data Infrastructure also featured prominently in intervention activity.
The Government continues to review acquisitions outside the mandatory regime
The latest statistics serve as a reminder that NSI risk is not confined to the 17 mandatory sectors. Of the 60 call-ins issued during the reporting period, 11 followed voluntary notifications and six related to acquisitions that had not been notified at all. The Government also made final orders in relation to both voluntarily notified and non-notified acquisitions.
These figures demonstrate the continuing importance of assessing potential national security issues even where a transaction does not fall squarely within the mandatory notification regime.
Investor nationality still influences scrutiny levels
The origin of the investor remains relevant to the Government’s assessment of risk. Despite being involved in a relatively low overall percentage of transactions, Chinese-linked investors were associated with 30% of call-in notices, while US-linked investors were associated with 23%.
While Chinese investment continues to receive particular scrutiny, the figures confirm that acquisitions involving UK and other international investors are also subject to intervention where the activities in question give rise to potential national security concerns.
How can we help?
The 2025/26 report confirms that NSI risk is now a routine aspect of deals where the target has activities in the UK. Whether a transaction falls within the mandatory notification regime or raises more nuanced national security considerations, early analysis can help maximise deal certainty, avoid costly unforeseen delays and manage risk.
Michelmores regularly advises UK and international investors on NSI risk assessments, mandatory and voluntary notifications, transaction structuring and engagement with the Investment Security Unit in the Cabinet Office. If you would like to discuss the implications of the NSI regime for your business or a specific transaction, please get in touch with Noel Beale or your usual Michelmores contact.