Insights from the 2024/25 UK Foreign Direct Investment Annual Report, along with Plans for Changes and Modernization in the Investment Sector

In the fourth Annual Report on the UK's National Security and Investment Act 2021 (NSIA), the government has outlined significant changes aimed at streamlining business operations and expanding the scope of regulated sectors.

The government's intention to "reduce unnecessary red tape for businesses" is evident in the proposed exemption of the appointment of liquidators and certain internal restructures from mandatory notification. This move is expected to ease the burden on businesses while maintaining national security.

The report reveals a 26% increase in the total number of notifications received by the Investment Security Unit (ISU) in the Cabinet Office during the third full year of the NSIA's operation. This increase is accompanied by a rise in call-in reviews, with 56 call-in notices compared to 41 during the previous year.

One sector that triggered the most mandatory notifications was defense, accounting for over half with 56% of notifications received. In response, the government is considering the addition of a new Water sector, capturing all 17 of the regional water and/or sewage monopolies. Changes in ownership to water retailers will not be subject to mandatory notification under the new Water sector.

The scope of activities in the Semiconductors sector could potentially expand significantly. This expansion includes activities involving wider design and analysis of semiconductors, chips, and processing units, as well as advanced packaging techniques. Semiconductors will move from the Advanced Materials sector into its own standalone sector along with Computing Hardware.

The critical minerals sector is also set for an overhaul. Aluminium, borates, hafnium, helium, iron, magnesite, magnesium, manganese, natural graphite, nickel, phosphorous, rare earth elements, rhodium, silicon, sodium, tin, titanium, and zinc will be added to the list of critical minerals. The scope of activities related to Critical Minerals will expand to include extraction, processing, and recycling.

The proposal would definitively remove the use of 'off the shelf' AI from mandatory notification but will add the development or enhancement of non-consumer AI systems and testing of AI systems with specified purposes.

In the Critical Suppliers to Government sector, holding 'List X' Accreditation for government subcontractors would be replaced as a trigger criterion, with a requirement to have either Facility Security Clearance and/or Industry Personnel Security Assurance. Any acquisition target that has a contract with any one of 24 Ministerial Departments for the provision of defined services, which will be expanded to include, amongst others, bookkeeping, payroll processing, recruitment, etc., could be captured where that provision involves access to OFFICIAL - SENSITIVE information.

The government is also consulting on changes to the NSIA Regulations, which set the scope of activities that require mandatory notification. The consultation will run until 14 October 2025.

It is worth noting that unlike many other FDI regimes, the NSIA is agnostic as to an investor's origin when it comes to the obligation to notify a transaction. Additionally, just over 10% of call-in notices relate to unnotified transactions.

Between April 2024 and March 2025, the UK government reported an increase in notifications and call-in reviews under the National Security and Investment Act 2021, but the specific countries with the most notifications and call-in reviews were not disclosed in the publicly available reports for that period.

In 2024/25, 17 final orders were issued, with all but one imposing conditions. Retrospective validation applications increased from 33 in 2023/24 to 55 in 2024/25. Voluntary notifications also increased in the 2024/25 Reporting Period, with an increase of approximately 12%.

The fourth Annual Report on the UK's National Security and Investment Act 2021 provides a comprehensive overview of the Act's operation and the proposed changes aimed at enhancing national security while fostering a conducive business environment.

Insights from the 2024/25 UK Foreign Direct Investment Annual Report, along with Plans for Changes and Modernization in the Investment Sector