Re-examining the UK’s national security & investment regime

Freshfields sponsors TheCityUK International Conference and co-writes report on “Foreign direct investment and national security regimes: a path to best practice in the UK”  

For the fourth year in a row, Freshfields LLP has sponsored TheCityUK’s International Conference, which took place in London on 24 April 2025. This year’s conference focused on how the UK can assert itself as a world-leading financial centre.

The conference coincided with the launch of a report by Freshfields and TheCityUK on best practice across foreign direct investment and national security screening regimes (FDI regimes). The report offers practical suggestions on refining the UK’s FDI regime to drive growth and investment, being a key focus area for the government, whilst simultaneously upholding national security. As part of this analysis, Freshfields conducted research into FDI regimes across a number of key jurisdictions[1] to identify how the UK government may draw upon best practice to improve the UK regime under the National Security and Investment Act, 2021 (the NS&I Act). The following metrics were considered:

• definitional triggers – protecting national security vs protecting other interests
• transaction types and exceptions
• economic activity and sectors covered
• treatment of foreign investors
• timelines
• discretion afforded to the decision make
• consequences of non-compliance – penalties and transaction effects 
• transparency

The comparative assessment of FDI regimes underlines that there are many areas in which the NS&I regime is functioning well. While there have been some incremental improvements in its operation since adoption, there are best practice features of other regimes that could be harnessed to improve investors’ experience of, and confidence in, the UK’s regime. Given the government’s growth priority, a re-examination of the regime is appropriate in order to ensure that regulatory policies aimed at protecting national security do not disproportionality disincentivise much needed investment. 

The recommendations in the report provide practical ideas to refine the UK’s regime under the NS&I Act so that it can operate in a more proportionate and targeted manner. These recommendations would support the government’s objective of boosting economic growth and investment, while upholding the national security imperative. They would also reduce the administrative burden on the government, thus saving both time and money. The recommendations are as follows:

• First, increase transparency and dialogue regarding the process: 
  • define the 17 mandatory notification strategic sectors more precisely, which would provide greater certainty to businesses regarding whether their investments will be caught by the NS&I Act
  • provide more transparency over the decision making process
  • introduce earlier engagement between parties and the government
• Second, limit the scope of transactions covered:
  • exclude internal reorganisations, appointments of liquidators, official receivers and special administrators
  • limit the scope to transactions that have a direct impact on a UK company/branch
  • introduce a de minimis threshold for investments with minimal impact in the UK
• Third, introduce a risk-based fast-track or post-closing procedure to streamline the system, establishing a more proportionate and efficient process for the overwhelming majority of transactions which do not raise national security risks 
• Fourth, amend the effect of non-compliance:
  • transactions which require mandatory notification to the ISU but which are implemented prior to receiving approval should be voidable but not automatically invalid
  • remove criminal liability for non-compliance

Commenting on the report at the Conference, Anne Richards DBE, Chair of TheCityUK, noted that “in this competitive trade environment, the UK's National Security and Investment Act must be calibrated carefully, ensuring we protect genuine national security interests without deterring vital international investment".

Baroness Swinburne, one of the panellists at the Conference, explained how “it is important that industry continues to press for those things that make us more competitive” and spoke about the “need to get our regulators fit for purpose”.

In addition, three Freshfields partners featured in panel discussions and conversations at the conference. Claire Wills chaired a panel discussing how the UK can remain successful and relevant when major markets are becoming less open, Cyrus Pocha took part in a panel considering how the UK can respond to emerging trends in the development and delivery of financial and related professional services, and Emma  Rachmaninov led a conversation with The Rt Hon Douglas Alexander MP. 

The full report can be read here: foreign-direct-investment-and-national-security-regimes-a-path-to-best-practice-in-the-uk.pdf

[1] The following jurisdictions were analysed: Australia, Austria, Canada, China, France, Germany, Italy, Romania, Spain, the United Kingdom and the United States.