The results are in: Government confirms changes under the National Security and Investment Act


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These regulations set out the sectors subject to mandatory notification under the National Security and Investment Act 2021 (“NSIA”). The response provides early sight of planned changes, aims to reduce unnecessary filings and maintains safeguards against national security risks. The key changes businesses should be aware of include: the creation of a new schedule for the Water sector; refinements to the Artificial Intelligence (AI) schedule to achieve greater commercial pragmatism; and the introduction of individual schedules for each of the Semiconductor and Critical Mineral sectors. Our team provided a comprehensive response to the Government’s consultation, drawing on our extensive experience of advising clients on multiple NSIA filings across various sectors. It is encouraging to see that the Government took account of our suggestions, particularly in relation to: (i) the importance of balancing the protection of national interests with ensuring that investment in the Water sector are not unduly impacted; (ii) acknowledging our real-world examples in support of excluding the use of licensed third-party AI systems; and (iii) clarifying and reducing the scope of entities falling within the Semiconductors sector. An overview of the proposed changes to the NARs is set out below. Water While Water was not included in the consultation, the Government shared a draft schedule with Water sector stakeholders for comment. The draft is intended to apply to incumbent water companies as well as water companies operating under alternative appointment arrangements, with a minimum size threshold applying to the latter. This reflects a renewed focus on the regulation of water companies which is going under fundamental change. Our previous briefing on this topic is available here. The Government also intends to provide clear accompanying guidance on the scope and requirements of the new schedule and to ensure alignment with the powers of the water regulator and the Competition and Markets Authority, as relevant. AI The Government will revise the draft regulations to: (i) exclude the use of non-consumer AI systems for routine business activities; (ii) exclude the use of licensed third-party AI systems; and (iii) exclude certain modifications to AI systems, as well as testing carried out as part of routine business deployment activities and IT policies. Semiconductors The Government intends to carve out Semiconductors from the Advanced Materials schedule to create a standalone schedule. It also plans to make a number of drafting refinements, including clarifying the definition of “packaging” and confirming that qualified or certified designs, materials, parts and products are within scope. Accompanying guidance for the new Semiconductors schedule is expected to be published to assist stakeholders in understanding which technologies are covered. Critical Minerals The Government intends to carve out Critical Minerals from the Advanced Materials schedule to create a standalone schedule. In addition, it will revise the schedule to ensure that low-risk activities are not caught. The Government has clarified that the list of minerals will not be reduced given the potential defence and dual-use applications of these minerals. Further, in light of projected increases in UK critical mineral production, the schedule will be drafted to account for future activities, including some minerals with low current UK production volumes. Guidance on the new Critical Minerals schedule is expected to be published to provide clarity on both the entities and activities in scope. Other Sectors In addition to the above, the Government intends to introduce clarifying amendments to the Communications, Critical Suppliers to Government, Data Infrastructure, Energy, and Suppliers to the Emergency Services schedules. Further, updated and more detailed guidance will be provided for the Defence sector, to address stakeholder feedback. What’s Next? Overall, these changes reflect that the Government is keen to take a more practical and commercially aware approach to investment, while not compromising on national security. This is clear as on the one hand, these changes are designed to streamline compliance and reduce administrative burdens for businesses; and on the other, the expanded scope of the NARs now brings the Water sector firmly into focus. Organisations operating in the Water sector should anticipate heightened compliance expectations and begin preparing to meet these new requirements. By taking proactive steps now in light of the upcoming changes, businesses across sectors can position themselves to navigate the evolving regulatory landscape smoothly. The timeframe for the implementation of these changes is not yet known, as the Government intends to lay secondary legislation in Parliament later this year. Further reading on the Government’s Consultation Our previous briefing on the Government’s consultation is available is available here. The materials on the Eversheds Sutherland website are for general information purposes only and do not constitute legal advice. While reasonable care is taken to ensure accuracy, the materials may not reflect the most current legal developments. Eversheds Sutherland disclaims liability for actions taken based on the materials. Always consult a qualified lawyer for specific legal matters. To view the full disclaimer, see our Terms and Conditions or Disclaimer section in the footer. 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On March 12, 2026, the UK Government published its response to the consultation on the National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021 (“NARs”). These regulations set out the sectors subject to mandatory notification under the National Security and Investment Act 2021 (“NSIA”). The response provides early sight of planned changes, aims to reduce unnecessary filings and maintains safeguards against national security risks.

The key changes businesses should be aware of include:

the creation of a new schedule for the Water sector;
refinements to the Artificial Intelligence (AI) schedule to achieve greater commercial pragmatism; and
the introduction of individual schedules for each of the Semiconductor and Critical Mineral sectors.

Our team provided a comprehensive response to the Government’s consultation, drawing on our extensive experience of advising clients on multiple NSIA filings across various sectors. It is encouraging to see that the Government took account of our suggestions, particularly in relation to: (i) the importance of balancing the protection of national interests with ensuring that investment in the Water sector are not unduly impacted; (ii) acknowledging our real-world examples in support of excluding the use of licensed third-party AI systems; and (iii) clarifying and reducing the scope of entities falling within the Semiconductors sector.

An overview of the proposed changes to the NARs is set out below.

Water

While Water was not included in the consultation, the Government shared a draft schedule with Water sector stakeholders for comment. The draft is intended to apply to incumbent water companies as well as water companies operating under alternative appointment arrangements, with a minimum size threshold applying to the latter. This reflects a renewed focus on the regulation of water companies which is going under fundamental change. Our previous briefing on this topic is available here.

The Government also intends to provide clear accompanying guidance on the scope and requirements of the new schedule and to ensure alignment with the powers of the water regulator and the Competition and Markets Authority, as relevant.

AI

The Government will revise the draft regulations to: (i) exclude the use of non-consumer AI systems for routine business activities; (ii) exclude the use of licensed third-party AI systems; and (iii) exclude certain modifications to AI systems, as well as testing carried out as part of routine business deployment activities and IT policies.

Semiconductors

The Government intends to carve out Semiconductors from the Advanced Materials schedule to create a standalone schedule. It also plans to make a number of drafting refinements, including clarifying the definition of “packaging” and confirming that qualified or certified designs, materials, parts and products are within scope. Accompanying guidance for the new Semiconductors schedule is expected to be published to assist stakeholders in understanding which technologies are covered.

Critical Minerals

The Government intends to carve out Critical Minerals from the Advanced Materials schedule to create a standalone schedule. In addition, it will revise the schedule to ensure that low-risk activities are not caught. The Government has clarified that the list of minerals will not be reduced given the potential defence and dual-use applications of these minerals. Further, in light of projected increases in UK critical mineral production, the schedule will be drafted to account for future activities, including some minerals with low current UK production volumes. Guidance on the new Critical Minerals schedule is expected to be published to provide clarity on both the entities and activities in scope.

Other Sectors

In addition to the above, the Government intends to introduce clarifying amendments to the Communications, Critical Suppliers to Government, Data Infrastructure, Energy, and Suppliers to the Emergency Services schedules. Further, updated and more detailed guidance will be provided for the Defence sector, to address stakeholder feedback.

What’s Next?

Overall, these changes reflect that the Government is keen to take a more practical and commercially aware approach to investment, while not compromising on national security. This is clear as on the one hand, these changes are designed to streamline compliance and reduce administrative burdens for businesses; and on the other, the expanded scope of the NARs now brings the Water sector firmly into focus. Organisations operating in the Water sector should anticipate heightened compliance expectations and begin preparing to meet these new requirements.

By taking proactive steps now in light of the upcoming changes, businesses across sectors can position themselves to navigate the evolving regulatory landscape smoothly. The timeframe for the implementation of these changes is not yet known, as the Government intends to lay secondary legislation in Parliament later this year.