The publication of the Fifth Annual Report takes place against the backdrop of new reforms expected to be made to the UK’s foreign investment review regime in order to reduce regulatory burdens whilst also adapting to new national security concerns.
In brief
On 14 July 2026, the UK Cabinet Office published its Fifth Annual Report (“Annual Report“) on the operation of the National Security and Investment Act (“NSI Act“), the legislation underpinning the UK’s foreign investment review regime.
The Annual Report shows that the number of notifications made under the NSI Act rose to a record high between 1 April 2025 to 31 March 2026 (the “Reporting Period“). Despite this increase in notification volumes, the review outcomes and trends for this Reporting Period remain broadly unchanged from the previous reporting period: most transactions were cleared without further action, with only a very small proportion called-in for in-depth review and just one transaction prohibited.
Alongside the Annual Report, the Government confirmed that it intends to move ahead with reforms to the NSI Act regime proposed during the consultation last year. These reforms are expected to simultaneously reduce certain common regulatory burdens on businesses, whilst also expanding and updating the scope of the sensitive sectors to reflect evolving national and geopolitical security concerns.
Five key takeaways from the Annual Report
- The number of notifications submitted during the Reporting Period reached 1,324 notifications, a 16% increase on the 1,143 notifications in the previous reporting period.
- 95.6% of notified acquisitions were cleared without any further action, with only 4.4% called-in for in-depth review.
- The number of transactions subject to a final order was nine, down significantly from 17 in the previous reporting period. Eight of these final orders were clearances with conditions and only one was a prohibition.
- The Defence sector accounted for the largest share of total notifications received (58%) and of notifications called-in (47%). However, the highest number of final orders were issued in the Advanced Materials and Data Infrastructure sectors.
- The UK Government reiterated its commitment to reforming the NSI Act regime, including amending the scope of the existing sensitive sectors, establishing three new sensitive sectors, and introducing exemptions for certain internal reorganisations.
In depth
The number of NSI Act notifications continues to increase
The total number of notifications submitted to the Investment Security Unit (“ISU“) for this Reporting Period reached a new high figure of 1,324 notifications. This marks an increase of 16% compared to the 1,143 notifications received in the previous reporting period (2024/25), and a 46% increase compared to 2023/24. This demonstrates the continued year-on-year upward trajectory in the number of notifications witnessed since the NSI Act came into force.
Despite the increase in notification volumes, review outcomes remained broadly unchanged. Of the 1,220 notifications the ISU reviewed, 95.6% (1,166 notifications) were cleared without any further actions, whilst only 4.4% (54 notifications) were called-in for an in-depth review. This is consistent with the previous reporting period, where 95.5% of notified transactions were cleared without any further action. Mandatory notifications continue to constitute the bulk of total notifications submitted to the ISU at 1,135 notifications, whilst voluntary notifications and retrospective validation applications accounted for 147 and 42 notifications respectively.
The ISU issued 60 call-in notices overall, 54 of which were for notified acquisitions and six were non-notified acquisitions which the ISU identified through market monitoring. Call-in notices were made across 16 of the 17 mandatory notification sectors.
The ISU issued a total of nine final orders during the Relevant Period, down significantly from the 17 issued in the previous reporting period (2024/25) but still not as low as the five final orders issued for 2023/24. Only one of the nine final orders was an outright prohibition, whilst eight final orders imposed conditions for clearance. These figures reinforce the trend that has been evident for several years: that whilst notification numbers continue to grow, substantive Government intervention (through imposing conditions for clearance or making prohibitions) remains relatively rare.[1] However, these figures do not account for any transactions that may have been abandoned prior to the issuance of a final order, e.g., due to resistance from the ISU.
Defence remains the most cited sector in notifications
The Annual Report highlights the most common sectors for notification and also shows some interesting changes in the trends for call-in notices and final orders, likely indicating the sectors of particular interest to the Government.
- Total notifications to the ISU: Defence accounted for the largest proportion (58%) of total notifications received by the ISU during this Reporting Period, followed by Military and Dual Use (23%), and Critical Suppliers to Government (20%). This remains consistent with the most common sectors by notification in the previous reporting period: Defence (56% in 2024/25, up from 48% in 2023/24), Critical Suppliers to Government (21% in 2024/25), and Military and Dual Use (19% in 2024/25). The continued rise in the proportion of Defence-related notifications over three consecutive reporting periods reflects the growing importance of the defence sector in the UK.
- Call-in notices: Defence also remained the most common sector for transactions subject to a call-in notice (47%, up from 36% in 2024/25), followed again by Military and Dual Use (33%, up from 29% in 2024/25) and Critical Suppliers to Government (33%, up from 21% in 2024/25). However, there were significant changes in other sectors: Artificial Intelligence call-in notices dropped to 7% (down from 21% in 2024/25 and 15% in 2023/24), while Energy call-in notices also fell considerably to 10% (down from 25% in 2024/25 and 17% in 2023/24). In contrast, Data Infrastructure call-in notices increased significantly to 30% (up from 11% in 2024/25 and 17% in 2023/24), perhaps driven by the Government’s focus on data centres as part of its Industrial Strategy and growth agenda. These changes in call-in notice trends offer an early indication of evolving Government priorities, particularly as the proposed NSI Act reforms include changes to both the Artificial Intelligence and Data Infrastructure sectors.
- Final orders: For the first time, Advanced Materials and Data Infrastructure received the highest number of final orders, with five and three final orders respectively. Military and Dual Use was the third most common sector with two final orders, with Critical Suppliers to Government, Defence, Manufacturing, Quantum Technologies and Suppliers to Emergency Services receiving one final order each.[2] This is a noticeable change from 2024/25, in which Defence was the most cited sector with nine of the 17 final orders. The prominence of Advanced Materials and Data Infrastructure is particularly noteworthy given both sectors will be revised under proposed reforms to the NSI Act (see below), further suggesting that the Government is particularly interested in transactions in these sectors.
Origin of investor trends remain consistent
The Annual Report suggests that the origin of investors remained broadly consistent with previous reporting periods.
In terms of acquirer nationality, the majority of accepted notifications involved investors associated with the UK (72%, up from 65% in 2024/25), followed by the US (28%, down from 29% in 2024/25), with France and Luxembourg each accounting for 6% of accepted notifications (no change with the previous reporting period). Other jurisdictions had far smaller percentages.[3]
Of called-in acquisitions, the UK accounted for the highest proportion (52%, up from 48% in 2024/25), while China accounted for 30% (down from 32% in 2024/25 and 41% in 2023/24). Of the nine final orders made during the Reporting Period, five involved investors from the UK, while three involved Chinese investors despite China only constituting 2% of accepted notifications. As in previous years, the data suggests that transactions involving Chinese investors continue to be overrepresented in call-in notices and final orders. The consecutive decline in the proportion of call-notices with a Chinese investor may be a reflection of decreasing appetite by Chinese investors to invest in the UK in light of the NSI Act regime, rather than necessarily suggesting that Government review and intervention against Chinese investment is softening.
However, alongside the jurisdictions already identified, transactions with acquirers from countries and territories such as Germany, Hong Kong, Canada, Jersey, Russia, UAE and Singapore were also frequently subject to call-in notices and/or final orders, demonstrating the jurisdiction agnostic nature of the regime.
Importance of considering the NSI Act early
The Annual Report findings reinforce the importance of prioritising NSI Act considerations as early as possible in a transaction timeline, for the following reasons:
- Review timelines should be factored into transaction planning: Although the ISU continued to comply with its statutory 30 working day period for deciding whether to call-in a notified transaction, the time taken to initially accept notifications as complete following submission increased during the Reporting Period. The average acceptance period rose from seven to 11 working days for mandatory notifications and from eight to 13 working days for voluntary notifications. Such timing considerations need to be factored into transaction planning and timetables.[4]
- Early engagement may reduce intervention risk: More than half of the final orders issued during the Reporting Period (five of nine) related to either retrospective validation applications or called-in non-notified transactions (three of the six called-in non-notified transactions received a final order). While each NSI Act case will be decided on its specific facts, these figures indicate that transaction parties which who fail to prepare early and take proactive initiative over a notification to the ISU may start on the backfoot should the transaction later be called-in or require a retrospective validation application, thereby demonstrating the importance of prioritising NSI Act considerations early to avoid the later possibility of a final order.
- Risk of statutory penalties or compliance obligations: The Annual Report serves as a reminder that notification and compliance obligations should be taken seriously: during the Reporting Period, the ISU identified 42 potential offences involving the completion of notifiable acquisitions without approval. While no penalties were imposed, parties were required to provide assurances regarding future compliance with the NSI Act. It is possible that in the future, the ISU may begin to apply the statutory penalties for such offences to serve as a deterrent and so compliance with the NSI Act should be taken seriously.
Upcoming reforms to the NSI Act
In its Annual Report press release, the UK Government reiterated its commitment to bring forward secondary legislation to implement proposed reforms to the NSI Act regime first proposed during the consultation which took place between July and October 2025. The reforms aim to balance national security against investor certainty and economic growth objectives and will include:
- Introducing new exemptions from the mandatory notification requirement for certain internal reorganisations and other low-risk transactions – to date, further details on the type of internal reorganisations (and other transactions) that will be subject to the exemptions has not been provided;
- Revising the scope of the mandatory notification sectors under the NSI Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021. This will include:
- Introducing a standalone Water sector (including sewerage);
- Introducing standalone sectors for Critical Minerals (separated from Advanced Materials)[5] and Semiconductors (separated from Advanced Materials and merged into Computer Hardware)[6];
- Narrowing the scope of the Artificial Intelligence sector to exclude low-risk transactions from notification and to focus instead on the development and modification of advanced Artificial Intelligence;
- Amending the scope of the Communications, Critical Suppliers to Government, Data Infrastructure, Energy, Suppliers to Emergency Services and Synthetic Biology sectors, in addition to providing new guidance in respect of these changes; and
- Providing updated guidance for some sectors on common questions regarding scope or definitions, including for Defence to clarify the position on subcontractors.
These reforms to the NSI Act’s sectoral scope reflect the Government’s evolving national security priorities resulting from a renewed focus on enhancing the UK’s national resilience and competitiveness in an increasingly complex geopolitical environment.
Whilst these reforms are expected to make the NSIA regime more targeted and practical, businesses should note that current notification requirements remain in force unless and until the proposed changes are implemented.
What happens next?
The UK Government will set out secondary legislation to implement its proposed reforms to the NSI Act and will also publish revised guidance to assist businesses with understanding the revised scope of sectors affected by the reforms. Revised notification forms will be published to reflect these reforms – therefore, businesses which are already familiar with the NSI Act regime or have previously submitted NSI Act notifications should still pay close attention to changes over the coming months to avoid issues arising in future notifications in the revised sectors.
[1] For comparison, again only one prohibition was made in the previous reporting period (2024/25) despite the higher number of final orders issued (17 final orders), whilst no prohibitions were made at all in 2023/2024.
[2] Note that a single transaction may be within scope of multiple sensitive sectors, hence the reason why the number of sectors listed exceeds the number of final orders.
[3] The NSI Act Annual Reports provides the best statistics available on the origin of foreign investors, however they may not present the full picture. Acquisitions may be “associated” with more than one origin of investment through a single acquisition involving multiple acquirers. An “association” may indicate one of several factors, such as the location of the immediate acquirer’s headquarters or the headquarters of the ultimate beneficial owners, however the data in the Annual Report does not specify the type of association determined for each notification.
[4] The average time for the ISU to issue a final order decision following a call-in notice remained consistent at 69 working days (70 working days in 2024/25).
[5] The Government is expected to expand the scope of critical minerals covered by the NSI Act to include all minerals listed in the Critical Minerals Intelligence Centre’s critical assessment and possibly additional minerals identified in the UK’s 2025 Critical Minerals Strategy. The drafting of the new Critical Minerals schedule in the NSI Act will ‘future-proof’ the regime’s ability to capture minerals which currently have low production levels in the UK that may rise in the future.
[6] The Government will expand the scope of this new Semiconductors sector to include activities across the design and production chain for semiconductors, including advanced packaging techniques, activities involving the design process of processing units and memory chips, semiconductor-related devices and advanced design chips. This reflects the UK Government’s priority under the National Semiconductor Strategy to develop UK capabilities in semiconductor R&D and chip design specifically.
