National Security and Investment Act 2021

Updated September 2025

Introduction

This Briefing Note outlines the regime introduced by the National Security and Investment Act 2021 (NSI Act) for Government scrutiny of, and intervention in, acquisitions and investments that could pose a risk to National Security in the UK.  This Briefing Note should not be relied upon as legal advice and you should contact us for advice on your specific circumstances.

How does the Act define National Security?

Due to the ever-changing nature of threats to National Security, the NSI Act has taken a broad and flexible approach to its meaning. Instead of defining exactly what National Security means within a transaction (explained below), or offering a prescribed list of the factors to assess, it has delivered a statement detailing how the Secretary of State is expected to exercise the power to give a call-in notice; the intention being entities and advisors can look to this statement to see whether their transaction is likely to be called in for scrutiny.

It is stated that the Secretary of State will consider certain Risk Factors including the activities of the target, the sort of control being acquired and its potential uses, and the extent of any security risk posed by the acquirer.

What transaction will be within the scope of the regime?

To help understand the kind of transactions that will fall within the scope of the NSI Act, there are a range of ‘trigger events’ defined, all of which involve the acquisition of rights or interests over a qualifying entity or qualifying asset. Qualifying entities will trigger the mandatory notification regime, whereas qualifying assets will only fall within the scope of the voluntary regime.

What is a qualifying entity?

•  Any entity whether or not a legal person, including but not limited to UK companies, Partnerships, Limited Liability Partnerships, Trusts, and unincorporated associations;
• Any entity formed or recognised outside the UK that carries on activities in the UK or offers goods/services to persons in the UK.

What is a qualifying asset?

•  Land or tangible moveable property;
• Ideas and information which hold economic value relevant to activities carried on in the UK or services offered to UK persons;
• Assets included in the above which are situated outside the UK but used in connection with activities carried out in the UK or goods/services offered to persons in the UK.

Therefore, a “transaction” will include land, business or company acquisitions.

What is the Notification Regime?

The NSI Act operates a hybrid notification regime. The mandatory notification procedure requires acquisitions of a “qualifying entity,” referred to as ‘notifiable acquisitions’ within the Act, to be notified and cleared by the Secretary of State in the prescribed way before the deal takes place. Where a mandatory notification is not made, the transaction may be made legally void, and civil and criminal penalties may be issued. The voluntary notification procedure may be used where an acquisition does not fall within the mandatory notification criteria, but could still be perceived as a threat to national security.

Mandatory Notification

Mandatory notification apples to “qualifying entities” (as defined above) where, as a result of an acquisition, the acquiror will increase its shareholding in the entity:-

• from 25% or less to more than 25%;
• from 50% or less to 50% or more; or
• from less than 75% to 75% or more,

or where it acquires voting rights which offer control of a company. The target entity also must fall within one of the 17 high risk sectors listed below;

However, not all activities within these sectors will be deemed sensitive enough to require mandatory notification. For example, within the transport sector, the regulations apply to ports and harbours, airports, and air traffic control.

It is important to note that the mandatory regime does not apply to “qualifying assets”.  The Government guidance states that acquisitions of qualifying assets can only be called in for assessment if they are reasonably suspected to give rise to a national security risk.

Where there is an acquisition of a right or interest in a qualifying asset with links to a sensitive sector which would provide a great extent of control, parties should seek advice on whether they should use the voluntary regime discussed below.

If there is significant uncertainty about whether an acquisition is notifiable, parties can contact the Government to seek a view. However, it has been made clear that any response from the Government will not constitute legal advice. Therefore, it is critical that any buyer/acquirer who thinks their transaction may be captured by the scope of the Act seeks proper advice.

Voluntary Notification

Acquisitions and investments which do not fall within the criteria of the mandatory regime may be notified to the Secretary of State on a voluntary basis, whereby they can then be called-in for scrutiny if found to be within the scope of the NSI Act.

Parties to acquisitions should carefully consider any perceived risk to National Security, and the consequences of not notifying, as the acquisition may still be called in without notification. The main risk involved is that acquisitions which are called-in and found to be a threat could become subject to an order which imposes conditions on the transaction, or could even render it legally void.

What happens if your transaction is called-in?

If a call-in notice is issued, the Investment Security Unit (ISU) will undertake an assessment of the acquisition. The initial assessment period is 30 days, but this may be extended and the Government may issue interim orders during the period to prevent pre-emptive action by the buyer/acquirer.

The conclusion of the assessment will be based on whether the acquisition is found to give rise to a threat to National Security, on the balance of probabilities. If this is the case, a final order may be imposed, and a notice published by the Business Secretary. If no order is imposed, the Business Secretary will notify the acquirer that no further action will be taken, and that the acquisition may proceed.

Recent Developments

In September 2024 the Annual Report covering the operation of the NSI Act and its regime was presented to Parliament.  Some key statistics were as follows:

• The ISU received 906 notifications over the reporting period, with 753 of those being mandatory, 120 voluntary and 33 retrospective validation applications. Only 24 of the notifications were rejected which suggests there is generally a good understanding of the scope of the NSI Act.
• 48% of the mandatory NSIA filings were in the ‘Defence’ sector. Therefore, any proposed acquisitions in these sectors are particularly relevant.
• Other key sectors reviewed by the UK Government include ‘military and dual-use’, ‘communications’ and ‘advanced materials’.

Summary

The broad nature of the NSI Act’s scope means that a wide range of corporate transactions may require at least a high-level review of their facts.  This should be done at an early stage to avoid any potential delays or problems further down the line. Any connections to a relevant sector may also impact negotiations and risk allocation, as clearance may need to be obtained.

Therefore, acquirers of businesses/companies should be aware that the application of the NSI Act will require additional due diligence to be carried out, and should ensure that proper legal advice is sought before entering into any legally binding commitment.