UK decides to reboot investment screening to protect its national and economic security in today’s volatile world

The UK Government has decided to implement a package of reforms to the national security and investment regime designed to update the sectors of the economy that are subject to mandatory notification and pre-clearance, to free-up low risk investments and to provide further clarity for investors. 

The changes announced on 12 March 2026 signal a dual objective: to ease mandatory notification requirements for certain transactions and to extend the regime’s reach to address evolving national and economic security risks (see our earlier blog for more background). 

Investors in several sectors should expect the national security net to widen - notably, Water, Critical minerals and Data centres. Investors in other sectors, including Artificial intelligence and Semiconductors, should expect an enhanced focus on higher risk activities where a transfer of know-how or capabilities could undermine UK interests.  

The changes are among a package of reforms under review and come at a time of heightened geopolitical tensions and on-going reviews by the UK Parliament into whether investment screening should be expanded and strengthened. They mark a significant step in the regime's evolution.  Further developments are expected this year. 

Which targets will fall in and out of mandatory national security screening?

The updated sectors reflect consultations, reports and reviews by both the current and previous Governments and live experience with the regime over the last four years.   

Key changes include the introduction of Water as a mandatory notification sector; standalone and expanded sectors for Critical minerals and Semiconductors;  the inclusion of all third-party operated Data centres in the Data Infrastructure sector; and a narrowing of Artificial intelligence to focus on higher risk activities and remove low risk use cases. A more detailed summary by sector is below.

What's new or refocused - and what's the expected impact on numbers of deals caught?

Sector	Changes	Impact
Water	Investments in the water sector that meet the relevant “control” thresholds will be subject to mandatory screening for the first time, with both incumbent water companies and larger New Appointments and Variations (NAVs) in scope.  Recognising concerns about how this new regulatory requirement will interact with other (existing and proposed) regimes for water company acquisitions, the Government has committed to work with the sector to ensure clarity and alignment. Watch this space for more details.
Critical minerals	To reflect their growing importance to economic growth, energy transition and advanced manufacturing, critical minerals will form a standalone schedule, covering all 34 minerals identified in the latest UK criticality assessment, with extraction, processing and recycling of minerals also now in scope. The Government will exclude some low risk activities (e.g. by narrowing the definition of an enabler and limiting which exploration and extraction land rights will be caught), but going forward, more target businesses are expected to be caught.
Semiconductors	Already a focus area for Government interventions, semiconductors will form a new schedule to aid clarity and to reflect their growing importance for a range of foundational technologies and their potential dual-use applications. The schedule will be merged with computing hardware and expanded to include advanced packaging techniques and activities involving the wider design process.
Artificial intelligence	An updated schedule will remove low risk activities and will refocus on entities that create or modify AI systems themselves. Non-consumer AI systems used for routine business activities, the use of licensed third-party AI, and certain modifications and testing of AI systems as part of routine business activities will be excluded. In most cases, companies that are only involved in the end-use of AI systems will therefore fall out of scope of mandatory notification.
Communications	A welcome update to the definition of Associated Facilities will disaggregate the definition from the target’s clients by only including providers of Associated Facilities with a relevant turnover of at least £5m. Turnover thresholds for cable landing stations, submarine cable systems and repair and maintenance services will be removed or updated to ensure all critical providers of repair and maintenance services are captured but low-risk SMEs will be excluded.
Critical suppliers to Government	The updated schedule will catch targets with relevant public contracts with one of the 24 ministerial departments and will focus on the delivery of specific notifiable services, with no changes made to the definition of the notifiable services. Notifiable services are broad in scope, covering accounting or financial services, facilities management, HR, IT and others. In respect of relevant contracts, the Government recognised concerns about the wide range of circumstances where a supplier may access material with an OFFICIAL-SENSITIVE classification by slightly tightening the test but nevertheless, this remains a relatively low bar.
Data infrastructure	All third-party operated data centres alongside certain Cloud Service Providers (CSPs) and Managed Service Providers (MSPs) will fall in scope, increasing the number of notifications in this sector. The Government rejected calls for a materiality threshold for non-critical data centres to avoid excluding small, mission-critical centres or investors that aggregate across many sub-threshold centres.
Energy	Acquisitions of electricity generation businesses and assets will benefit from an updated capacity threshold which introduces a 500MW incremental threshold, but also lowers the current cumulative capacity threshold from 1GW to 500MW. The definition of an aggregator will also be more closely aligned with Ofgem’s definition and multi-purpose interconnectors (MPIs) are also brought in scope. The Government expects the impact of these changes in terms of number of businesses in scope to be neutral.
Suppliers to the Emergency Services	Subcontractors requiring security clearance at Non-Police Personnel Vetting Level 2 (NPPV2) or above will be added, and the Government will clarify key terms and NPPV2 clearance requirements in guidance. The Government rejected calls for exclusion criteria for certain low-risk suppliers due to concerns about weakening safeguards in an area with a diverse range of suppliers and dual-use items.
Synthetic biology	Despite feedback that the current schedule is too long, complex and broad in scope, updates are limited to minor clarifications to the drafting of the exemptions for gene therapies and cell therapies. The Government rejected calls for further simplification because of concerns that gaps may result in transactions with clear potential national security risks not being notified.

What’s not changing - but guidance may aid understanding?

No changes are proposed to the remaining mandatory sectors: Advanced robotics, Civil nuclear, Cryptographic authentication, Defence, Military and dual-use, Quantum technologies, Satellite and space technology and Transport - despite feedback that some of those sectors are due for updates. 

However, the Government has helpfully recognised feedback that the Defence schedule would benefit from updated guidance to aid understanding of a sector which is deliberately broad in scope, and can catch a wide range of entities across the defence supply chain, including targets with limited UK nexus. Updated guidance should be published later this year. 

What’s missing?

The Government’s response is silent on much anticipated exemptions for certain internal reorganisations and the appointment of liquidators from the mandatory notification regime, which the Government committed to introduce through secondary legislation in July 2025. To deliver on the Government’s objective of removing low risk investments, it is vital that these exemptions are introduced soon.

The Government also invited views on other ways the regime could be made more transparent, and many investors called for reforms that would improve certainty and predictability for welcome and trusted investors in strategic sectors. Whether the Government will take such steps remains uncertain. 

Key takeaways for investors and businesses

The Government has committed to reduce burdens for low-risk transactions to drive inward investment and growth, and some of the changes announced reflect a welcome pragmatic approach.  

However, several areas require careful monitoring. These include the wider net for certain critical infrastructure sectors (including water and data centres) and the refocus on important inputs and technologies (including critical minerals, semiconductors and AI). 

Secondary legislation to implement the changes alongside updated guidance is expected later in 2026. Until then, the current definitions remain in force, but the changes announced are good indicators of the Government’s evolving approach to potential risks from investments in strategic and sensitive sectors. 

In the meantime, further strengthening and expansion of investment screening remains in the spotlight. The UK Parliament’s Business and Trade Committee recently launched an inquiry on “China and the UK economy” and invited evidence on whether inbound investment screening should be strengthened and whether an outbound investment screening regime should be introduced. Whatever the outcome, it is clear that the scope of the regime and its impact on investors will continue to evolve in line with ever-changing risks and geopolitical dynamics. 

Proactive and regular review these developments is needed to anticipate and assess the potential impact of national security reviews on current and future transactions. 

If you would like to discuss this update in more detail, please get in touch with the authors or reach out to your usual Freshfields contact. For broader insights on developments in foreign investment reviews globally, see our latest Foreign Investment Monitor report.