Increase in ISU activity?

The ISU is reviewing more transactions

The NSIA framework is now known as one of the world’s most active investment scrutiny regimes. This year’s report shows a c. 26% overall increase in the number of notifications handled by the ISU – moving from 900 to 1,147 notifications received. By way of comparison, France received 392 notifications under its FDI regime in 2024, while the US saw 116 declarations and 209 full notices in that same calendar year.

Whilst this latest increase for the UK remains well within range of what the UK Government envisaged at Bill stage – predicted between 1,000 and 1,830 transactions per year, we are hopeful that the proposed reforms will result in a smaller number of transactions caught by the mandatory filing requirement and welcome the clarifications to the scope of the AI sector and exemptions from the notification requirement for all insolvency practitioners and certain internal re-organisations.

The ISU is more actively monitoring deal activity

The ISU is more actively monitoring the market for non-notified transactions, having identified 60 offences for failure to notify (up from 34 last year) and called in 7 non-notified transactions (up from 4 last year). 

Alongside this activity, there were also 52 retrospective validations in relation to deals which the parties should have notified before closing (up from 32 last year). 

For now the Government is yet to impose any fines or prosecute any offences, which aligns with the broader ongoing messaging that the UK is open for business and welcomes investment – query whether this approach might tighten as the regime beds in further and the ISU starts expecting more awareness of the regime from dealmakers. 

But the ISU is still calling in the same proportion of deals for in-depth review as before

Despite the overall increase in the number of notifications, and in the number of call-ins, the good news is that most transactions are cleared at the end of the ISU’s first 30-day review period. Fewer than 5% are called in for an in-depth assessment.

Any changes noted in the ISU approach on call-ins?

Similar sensitive sectors of interest, with uptick for AI

Sectors including defence, military and dual use, advanced materials and energy remain of particular interest. Unsurprisingly, there has also been an uptick in the scrutiny of transactions involving AI technology. AI sector transactions accounted for 21% of call-ins and 18% of final orders, despite only comprising 15% of notifications during the relevant period.

Scrutiny is still more about target risk than origin of investment

In terms of most scrutinised countries of investment origin, as in previous years the greatest proportion of call-ins relates to investors from the UK and “friendly States” such as the USA and France, and this year China is no longer the top associated country of investment origin, having been superseded by the UK. This is consistent with our recent experience that the ISU is increasingly placing greater weight on "target risk" as opposed to "acquirer risk" and is seemingly taking a more conservative approach to any foreign investment in companies critical to UK security.  This means that if the target's activities are in any way related to UK critical infrastructure, critical industries or services, the deal is likely to be called-in regardless of the nationality of the foreign acquirer. 

Beware of call-ins for minority interests in high-risk targets

It is worth noting for investors with minority interests that the ISU recently scrutinised two transactions and imposed remedies where the level of investment fell below the 25% interest threshold, with the ISU considering that the investor would be able to exercise material influence over the target. In one case, the percentage was as low as 12.8% (Paragraf Limited / MIC UAE Investments 2 RSC Limited).

Any developments in ISU’s approach to remedies?   

Outcome stability year on year

The likelihood of remedies (or deal abandonment) following a call-in remains broadly stable (37% of call-ins), although there was an increase in the number of final orders (17 compared to 5 last year). Consistent with our experience, the ISU is becoming more pragmatic in its engagement with businesses during the remedies process, with parties being able to materially influence the shape of the final order through multiple opportunities to submit written representations on suitable measures and in-person meetings with key Government stakeholders. 

Behavioural remedies still preferred

In addition, our analysis of final orders to date indicates that where remedies are imposed, these with minor exceptions tend to be behavioural in nature but are often extensive and burdensome to manage – for example, auditing and reporting requirements (including notifying the ISU prior to taking key commercial decisions), physical and IT security measures, governance safeguards, staff appointment conditions and security clearances. 

Remedies can be very onerous

More recently we have seen a few particularly onerous remedies imposed, such as Government step-in rights to ensure the continuity of supply or a requirement to source only from a pre-approved supplier list.

Any points to note on process?

Liberal use of extensions during in-depth assessments 

As in previous years, we are seeing that while most deals are cleared without remedies within the 30 working day statutory period for initial assessments, the likely length of more detailed assessments is much harder to predict. During the period covered by this latest annual report, it took on average 135-136 calendar working days between the ISU receiving a notification and issuing a final order (vs. 105-113 in 2023-24).

This is in part due to the ISU’s frequent use of its “stop the clock” powers when it requests further information from the parties and increasing reliance on statutory extensions once a deal has been called in for further assessment. During the relevant period, the ISU extended the statutory timelines on 21 occasions (versus 12 in 2023-2024).

The last year has also seen judicial review challenges to two final orders, both of which required the parties to unwind a completed deal – LetterOne/ Upp and FTDI Holding Limited/ Future Technology Devices International Limited. Based on the judgments in these two cases, the key takeaway is that ISU’s wide discretion and ability to withhold sensitive information under the regime makes it incredibly difficult to mount a successful challenge to ISU decisions.

Under the NSIA regime, the substantive assessment takes place behind closed doors and is contained in detailed internal ISU documents that are submitted to the Chancellor of the Duchy of Lancaster as the ultimate decision-maker. Parties are only informed of national security concerns in very high level, generic terms.

In both judicial challenges, the claimants argued among other things that they lacked sufficient information about the nature of the national security risks and were not given a fair opportunity to explain why less intrusive remedies were adequate.

However, the High Court ruled there is no duty on the ISU to disclose internal assessments to the parties and communicating a “gist” of the concerns is sufficient. The Court was also satisfied that the parties had been given several opportunities to make representations to the ISU on suitable remedies.

In both cases, the High Court showed considerable deference to the Executive’s assessment of what constitutes a national security risk and found that national security bears considerable weight as a public interest consideration, which outweighs any individual rights to property. 

As we previously reported, the UK Government has also recently confirmed that it would proceed with targeted reforms to the NSIA regime over the coming months. These will include designating a new sensitive sector for the water industry, refining some of the existing sectors, and introducing welcome exemptions from the notification requirement for all insolvency practitioners and certain internal re-organisations. Timings for implementation are still to be confirmed but we would expect these to apply from around Q1 2026. 

For more detail on what changes are in the pipeline and what they might mean for transactions with a UK nexus going forward, you can view our July 2025 briefing here.