Introduction
The National Security and Investment Act 2021 (NSIA or the Act) is the UK’s foreign direct investment (FDI) screening regime. Introduced in January 2022, it enables the UK Government to screen business transactions in certain ‘sensitive sectors’, or that may otherwise raise national security concerns. The regime applies to all investors, whether UK-based or overseas, and covers a broad range of transactions involving UK-connected businesses and assets.
On 14 July 2026 the UK Government published its annual report into the operation of the NSIA, providing valuable insight into trends in reporting and scrutiny. In light of that report, this is a good opportunity to review how the NSIA regime is working in practice and what Japanese investors should be aware of, and to look ahead to proposed reform to the regime.
Japanese investment into the UK is substantial, with Japanese FDI reaching £102 billion at the end of 2024. The UK-Japan relationship continues to deepen, including through the UK-Japan Comprehensive Economic Partnership and the recent UK-Japan Economic Security Partnership. In June 2026, the Japanese government announced an £18 billion investment entailing more than £9 billion on UK infrastructure and financial services, and up to £9 billion on UK offshore wind. Further cooperation increasingly focuses on high-growth and strategically sensitive areas, including life sciences, quantum technologies, advanced connectivity, energy and critical minerals. Many of these areas closely align with the sectors specified under the NSIA regime. As a result, Japanese investors are likely to encounter the regime in practice, and national security screening should form a routine part of transaction planning for UK-facing investments.
NSIA regime: how does it work?
The NSIA regime has three core elements:
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Mandatory notification – certain transactions require UK Government approval before they can complete.
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Voluntary notification – any party to a transaction may voluntarily notify the UK Government where the transaction may raise national security concerns.
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Call-in power – even if no notification is made, the UK Government can review on its own initiative a relevant transaction that could raise national security concerns.
Mandatory notification
Transactions that fall within this regime – called ‘notifiable acquisitions’ – must not be completed until the Secretary of State provides clearance. The obligation to notify rests with the buyer. According to the 2025-26 annual report, in this period, 1,135 mandatory notifications were made.
A notifiable acquisition arises where an investor acquires control of a UK business, or a foreign business carrying on activities in or supplying goods to the UK, in one of 17 sensitive sectors, in any of the following scenarios (trigger events):
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the buyer’s shareholding or voting rights in the target entity crosses a specified threshold, moving to more than 25%, more than 50%, or at least 75%; or
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the buyer acquires voting rights in the target entity that enable it to pass or block resolutions governing the affairs of the entity.
The 17 sensitive sectors specified under the Act are: Advanced Materials, Advanced Robotics, Artificial Intelligence, Civil Nuclear, Communications, Computing Hardware, Critical Suppliers to Emergency Services, Critical Suppliers to the Government, Cryptographic Authentication, Data Infrastructure, Defence, Energy, Military and Dual-Use, Quantum Technologies, Satellite and Space Technologies, Synthetic Biology, and Transport.
The legal definitions of these sectors can be broad and highly technical, and whether a particular business falls within scope is not always clear. Where there is any uncertainty, early legal advice is recommended.
Voluntary notification
Even where a transaction does not constitute a notifiable acquisition, any party to the transaction may voluntarily notify the UK Government. This may be appropriate where a trigger event has occurred and the transaction might raise national security concerns, even if the target does not operate in a sensitive sector. For the purposes of the voluntary regime, trigger events include those described under the mandatory regime, as well as acquisitions of material influence over the policy of the target. In 2025-26, 147 voluntary notifications were made.
Filing a voluntary notification and obtaining clearance provides comfort that the transaction will not later be subject to the Secretary of State’s call-in power (described below) or to any post-completion penalties.
Unlike the mandatory regime, the voluntary regime also applies to acquisitions of assets, including land, tangible movable property and certain intellectual property.
Call-in power
The Secretary of State may call in any transaction where there is a trigger event (as discussed above) that may give rise to a national security risk. This may be exercised up to five years after the trigger event. Importantly, this can also apply to transactions completed before the entry into force of the NSIA. For example, in 2023 the government became aware of an investment in Future Technology Devices International Limited by FTDI Holding Limited, which had completed in December 2021, before entry into force of the NSIA. When the government became aware of the transaction, it called in the transaction and ultimately ordered divestment of more than 80% of the shares.
However, exercise of the call-in power is relatively rare – in the 12 months ended 31 March 2026, 60 transactions were called in of which six were non-notified transactions.
In deciding whether to exercise the call-in power, the Secretary of State will consider three risk factors:
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Target risk – whether the entity or asset being acquired is being used, or could be used, in a way that poses a risk to national security. In this regard, the top 5 sectors in the 12 months ended 31 March 2026 were Defence, Critical Suppliers to Government, Military and Dual-Use, Data Infrastructure, and Advanced Materials.
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Acquirer risk – whether the acquirer has characteristics that suggest there is, or may be, a risk to national security from the acquirer having control of the target.
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Control risk – the degree of control that has been, or will be, acquired. A higher level of control may increase the level of national security risk.
Outcomes, remedies and penalties
Following an NSIA notification, the Secretary of State may clear the transaction unconditionally or make a final order to mitigate risks to national security arising from an acquisition by imposing conditions, or blocking, requiring divestment of, or unwinding the transaction. Conditions may include restricting access to sensitive sites, limiting access to confidential information, or preventing intellectual property transfers. In the 12 months ended 31 March 2026, five out of nine final orders were in the advanced materials sector.
Completing a notifiable acquisition without prior notification renders the transaction void. In addition, the parties may be subject to civil and criminal penalties, including:
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fines of up to £10 million or 5% of the company’s global turnover (whichever is higher);
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imprisonment of up to five years for individuals involved; and
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disqualification of directors.
Where a notifiable acquisition has been completed without the required prior notification, the parties may apply to the Secretary of State for retrospective validation.
Timelines
The NSIA review process can add significant time to a transaction, and it is important to factor this into deal timelines from the outset. Following submission, the notification process is as follows:
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Acceptance period – the UK Government aims to notify parties of acceptance within five working days, although this often takes slightly longer in practice. In the 12 months ended 31 March 2026, however, acceptance of mandatory and voluntary notifications took on average 10 and 14 working days respectively. Notifications were also rejected with a longer time frame.
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Screening period – a statutory 30-working day review period begins from the date the notification is accepted. Before the end of this period, the transaction is either cleared or called in for further assessment. More than 95% of cases were cleared at this stage in the past three years.
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Assessment period (if called in) – a further statutory 30-working day assessment period follows, during which the UK Government carries out a full national security review.
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Extension – the assessment period may be extended by a further 45 working days, and further still with the agreement of the parties.
NSIA reforms
The NSIA regime is expected to undergo reform later this year, including changes to the scope of certain sensitive sectors and clarifications to existing definitions. For example, a new water sector definition is being introduced, and proposed changes to the Artificial Intelligence sector would narrow its scope to focus on higher-risk activities. Adjustments to the definitions for semiconductors and critical minerals are also planned, which may have particular relevance for Japanese investors operating in these sectors.
These reforms are intended to improve clarity and reduce unnecessary regulatory burden, but are not expected to fundamentally alter the operation of the regime.
Practical takeaways for Japanese investors
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Consider NSIA early. NSIA should be assessed at the outset of every acquisition or investment involving a UK-connected business or asset. Analysis and preparation of the notification form can be a time-intensive process, and legal advisers should be engaged at an early stage. Also consider whether completed transactions could be called in, and whether retrospective clearance should be sought.
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Investors in sensitive sectors should be particularly alert. The NSIA regime’s increased focus on advanced technologies, semiconductors and critical minerals, combined with market growth in these areas, means that investors in these sectors should be especially mindful of UK investment screening requirements.
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Factor NSIA into the transaction timetable. Where NSIA may apply, the review process and its potential duration should be factored into the transaction timetable from the outset, including whether clearance should be a condition precedent to completion and how any longstop dates should be set to accommodate the review timeline.
This publication is not intended as legal advice. It is intended for general guidance and represents our understanding of the relevant law and practice as at July 2026.
