In brief
On 23 June 2025, the UK government published its Modern Industrial Strategy paper (the “Strategy Paper“). Among other important proposed reforms to corporate governance and regulatory red-tape, the Strategy Paper sets out plans to hold a 12-week consultation period (the “Consultation“) to identify areas of the National Security and Investment Act 2021 (“NSIA“) mandatory notification sector definitions that could be amended to encourage inbound foreign direct investment (“FDI“) to the UK.
The Strategy Paper also makes several other important commitments by the current government relating to the transparency and scope of the NSIA regime, including the issuance of updated guidance and the announcement of exemptions to the NSIA mandatory regime (the “Commitments“).
While the Strategy Paper echoes some of the proposals for reform that were signalled by the former Conservative government last year following a Call for Evidence (see blog post), the Commitments mark a significant step by the current Labour government towards creating a more attractive FDI screening regime in the UK.
We set out a summary of the Commitments below.
- Consultation on amending the mandatory notification sector definitions
Currently, the NSIA’s mandatory notification regime covers 17 key sectors of the economy that are deemed sensitive to the UK’s national security interests. The list of key sectors includes traditionally sensitive areas (such as nuclear, defence, military and dual use, and critical suppliers to government), critical infrastructure (such as energy, communications, transport and data infrastructure), and emerging technologies (such as artificial intelligence, advanced robotics, quantum technologies and synthetic biology) (the “Mandatory Notification Sectors“).
Many of the Mandatory Notification Sectors (in their current form) are extremely expansive in scope and trigger filings across a broad range of business sectors and industries. Notably, it is also possible to submit voluntary notifications in respect of transactions which fall outside the remit of the Mandatory Notification Sectors. Furthermore, the scope of the government’s call-in powers is not limited to the Mandatory Notification Sectors, especially where the Investment Security Unit (“ISU“) deems the identity of the acquirer to pose a potential national security risk.
Following the Consultation, it is hoped that updated definitions of the Mandatory Notification Sectors – particularly those which have been seen widely as lacking sufficient clarity (such as Advanced Materials, Cryptographic Authentication, Defence and Data Infrastructure) – will be more targeted towards investments that are likely to be called in because they pose a national security risk. In 2024, over 95% of mandatory notifications made were not called in for in-depth review for this reason.
The government has not yet indicated a start date nor clarified a precise scope for the Consultation.
- Introduction of specific exemptions
In addition to the Consultation, the Strategy Paper confirms that the ISU will introduce certain exemptions for transactions which would otherwise trigger a mandatory notification.
While no further detail is provided as to the nature of the exemptions, the Strategy Paper indicates that they will be announced “shortly” by the government, with the hope that this will take place before the end of 2025.
Unlike in certain other jurisdictions (such as France and Spain), it is not currently anticipated that intragroup share transfers as a class of transaction will be granted exemption from the NSIA mandatory regime. However, it remains to be seen whether certain de minimis financial thresholds may be introduced.
- Updated guidance and improved transparency
Thirdly, the Strategy Paper affirms the government’s plans to continue updating and improving its guidance on the scope and application of the NSIA regime.
The current NSIA Market Guidance was most recently updated last year (see blog post), prior to the change in government. Therefore, future updates to the guidance will be the first of their kind to reflect the investment security policy of the current Labour government.
As stated in the Strategy Paper, the updated guidance will aim to ensure greater clarity for prospective investors, while simultaneously protecting national security interests. Equally, it is expected that any updates to the guidance will align with the current government’s pro-growth agenda, as set out in the rest of the Strategy Paper.
In summary
The Strategy Paper sets out several promising commitments by the government to improve its current screening process for foreign investments. Although the scope and timing of the Consultation remains unconfirmed, it is anticipated that at least some of the Commitments will be announced during the remainder of 2025.
Separately, on 24 and 26 June 2025 respectively, the government published its National Security Strategy 2025 and its Trade Strategy papers. Notably, the government reiterates the centrality of the NSIA regime and the ISU to its approach to economic security in both these papers. All three publications emphasise the need for businesses and investors to keep up-to-date with developments relating to foreign investment screening in the UK.
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