Navigating the proposed NSIA reforms

On 22 July 2025, the Cabinet Office opened a consultation to consider proposals for reforming the mandatory sector definitions under the National Security and Investment Act 2021 (“NSIA”).  

Currently under the NSIA, businesses are legally required to tell the government about acquisitions of certain entities in 17 sensitive sectors of the economy (as defined in secondary legislation). 

The consultation proposes various reforms to the definitions of these sensitive sectors of the economy, changing the criteria under which a mandatory notification will be required. 

The consultation is live and closes on 14 October 2025.

Key proposals include:

Changes to existing definitions

The government has proposed to refine the existing definitions of the sensitive sectors subject to mandatory notification, for the following:

• Advanced Materials

This definition currently covers a technically detailed list of materials, including those listed on the UK Strategic Export Controls list. It also currently covers specific activities such as researching, developing or producing and recycling said materials and is extremely long and detailed.

The consultation proposes to remove Semiconductors and Critical Minerals from the list of Advanced Materials, to instead form standalone sector categories as outlined below. 

The new draft definition also includes Rare Earth Elements and their use in the production of certain dual-use objects, alongside some additional materials such as activated carbon, to mitigate possible national security concerns associated with these materials. 

• Artificial intelligence (AI)

Currently, this is a broad definition whereby a target company is within the scope of the NSIA if it carries out research into, or develops or produces goods, software or technology that uses AI for the purposes of identification, tracking, advanced robotics or cyber security.

The consultation proposes removing ‘low risk’ cases involving consumer AI, so that where AI that is available to consumers is used as a tool within an internal process, it is no longer in scope of mandatory notification. 

Instead the definition will focus on ‘artificial intelligence systems’ which is a narrower scope than the current definition, capturing “a machine-based system that, from the input it receives, can infer how to generate predictions, digital content, recommendations, decisions or other similar outputs, or influence a physical or virtual environment, with a view to achieving an explicit or implicit objective”.

This is likely to be a welcome change for businesses using AI for low-risk activities. 

• Communications

This definition requires mandatory notifications where the entity acquired is a public electronic communications network or service with a turnover of at least £50 million, or is a provider of certain associated facilities by reference to such a public electronic communications network or service.

Respondents to the Call for Evidence called for a clearer explanation of an “associated facility”, as it could be difficult to establish whether a company falls under the definition without knowing the turnover of a target entity’s clients who provide a public electronic communications network or service. 

The consultation addresses this by amending the “associated facility” provisions to include providers of associated facilities with a turnover of at least £5million. Acquirers will therefore no longer have to find out a third party’s turnover to determine whether they are caught by the definition. 

The proposals also include removal of the turnover thresholds for cable landing stations, submarine cable systems and the repair and maintenance services for both. Although most of these were already caught by the existing sector specification, the government wishes to ensure that all are covered as they represent critical segments of the telecommunications sector.

• Critical Suppliers to Government

This definition includes suppliers that hold direct contracts with government (meaning “contracting authorities” as defined in Public Contracts Regulations 2015) which include: processing and/or storing “Secret” or “Top Secret” material, a requirement to have list X accreditation, or a requirement for employees to be vetted at or above Security Check level.

The consultation proposes removing the public sector authority data provision from the Data Infrastructure schedule and adding it to the Critical Suppliers to Government schedule. 

The draft definition also narrows the public sector authorities definition to focus on the 24 ministerial departments and provides further clarity by adding the specific services that are within scope, such as accounting or financial services, facilities management services and human resources or recruitment services. 

A service-led approach to the scope means third parties can clearly identify whether they should be subject to mandatory notification based on the services they are providing.

• Data Infrastructure

Currently this covers a specified list of activities, including the owning and operation of data infrastructure; the management of data infrastructure or facilities where is located, as well as other services in the same supply chain. 

The definition of ‘data infrastructure’ covers supply to a list of specific public sector authorities, so although the definition is broad in terms of activities, it is limited by the fact it only captures supplies to those specific entities.

The consultation proposes to removes the requirement to notify solely on the basis of having a contract with a public sector authority.  However, businesses will still need to notify with reference to the ‘Critical Suppliers to Government’ sector definition if they hold a contract with one of the 24 ministerial departments and provide specific services (see above). 

The consultation also proposes to expand the definition to capture third party operated data centres, including data processing and data storage facilities. This is likely to have a significant impact on businesses in the data infrastructure industry.

The elements relating to public electronic communications networks and submarine cable system elements remain the same.

• Energy

This definition includes target entities connected to the production of upstream oil and gas, downstream gas, electricity and downstream oil. 

The proposed changes include clarifications relating to the definition of ‘downstream gas activities’ and ‘enabling the operation’ of a petroleum facility. 

The proposed changes will also clarify the thresholds for upstream oil and gas, bring multi-purpose interconnector licences into scope, and amend the megawatt (MW) thresholds for electricity accumulation to 500MW intervals (instead of the brightline 1GW threshold currently in place).

• Suppliers to the Emergency Services sectors. 

Currently this definition includes acquisitions of entities that supply the emergency services with one or more of the goods and services used for the operational delivery of that emergency service. 

The consultation seeks to clarify provisions relating to subcontractors by expanding the scope of the specified sector to include immediate subcontractors with staff who are required to hold Non-Police Personnel Vetting (NPPV) Level 2 or above. 

This change aims to allow the government to ensure that the national security risks of procurement to the emergency services are fully considered.

New standalone definitions

The consultation proposes to create new standalone definitions for:

Critical Minerals

Critical minerals are currently covered by the NSIA within the existing specified sector of Advanced Materials. The proposals will create a new specified sector for Critical Minerals and clarify which minerals are covered by the Regulations by aligning the list of critical minerals with the latest UK criticality assessment. 

The proposal also adds the extraction, processing, and recycling of Critical Minerals to the new sector definition, so any entities that are part of this value chain would fall within the scope. 

Semi-conductors

Semi-conductors are also covered by the current Advanced Materials definition.

The consultation recommends removing semi-conductor activity from the Advanced Materials sector specification and merging it with the Computing Hardware sector. The proposals will incorporate advanced packaging techniques and activities related to the design process of processing units and memory chips, such as research and development within the semi-conductor industry, thus broadening the scope. 

Adding Water as a new definition

Currently water infrastructure and services are outside the scope of the mandatory NSIA notification regime and, under the government’s proposals, acquisitions involving water assets would become notifiable under the NSIA. 

The proposals specify that mandatory notification would be required for the acquisition of a company that has statutory powers and duties to supply water and/or sewerage services to premises within a specified geographical area by virtue of an appointment under section 6 of the Water Industry Act 1991 (a ‘water and/or sewerage undertaker’). 

A water and/or sewerage undertaker holds the de facto monopoly to provide water or sewerage services to premises in its area of appointment. The proposed extension of the regime covers the regional water and/or sewage monopolies operating across England and Wales.

Companies operating solely as a retailer in the non-household retail market for water are excluded from the proposed increased scope.

Reform for internal reorganisations

Whilst the consultation primarily addresses the scope of the sensitive areas of the economy subject to mandatory notifications, the Cabinet Office has also noted that upcoming changes will also include “ensuring mandatory notifications are no longer needed for certain internal reorganisations and the appointment of liquidators”. 

This proposal is likely to be a welcome change for large scale businesses (for example in the Energy sector) to avoid the need to make a mandatory notification for every internal change. 

If you would like to understand how these reforms might have an impact on your business, please get in touch with our NSIA specialist team.

This post was co-authored with Evelyn Quinn and Richard Eccles