UK NSI Act screening for overseas investment in an AI business

A South African-founded UK company develops AI cybersecurity software. A Singapore investor proposes 30% voting rights, board representation and access to technology. An alternative would license the core IP to a joint venture.

The company, investor and proposed licensee have different roles. The company must explain its products and UK activities. The investor must disclose its ownership and proposed control rights. The joint venture would acquire whatever technology rights the licence grants. Establish who owns the IP before deciding which entity can license it.

UK incorporation makes the company a qualifying entity. Mandatory notification also requires specified activities in the UK. A foreign entity can fall within the wider regime through UK activities or supplies to UK customers. Intangible assets need the connection in section 7(6): use in connection with UK activities or supplying goods or services to UK persons. Moving the joint venture overseas does not necessarily remove that connection. (NSI Act, ss. 6(4) and 7(2)–(6).)

The Artificial Intelligence sector covers research into AI, or developing or producing goods, software or technology using AI. The activity must serve at least one specified purpose: identifying or tracking objects, people or events; advanced robotics; or cyber security. Cyber security includes protecting network and information systems, their users and others affected by cyber threats. (SI 2021/1264, Sch. 3, paras. 1–2.)

First map the statutory AI definition. The technology must enable a programmed or trained device or software to perceive environments through data. It must interpret data using automated processing designed to approximate cognitive abilities, and make recommendations, predictions or decisions. Those functions must pursue a specific objective. The listed cognitive abilities include reasoning, perception, communication and learning. Learning is not a separate compulsory element. (SI 2021/1264, Sch. 3, para. 1.)

For this company, the technical lead should explain how the software detects, analyses or responds to cyber threats. Identify the AI component, its purpose and the UK work performed on it. If the company develops qualifying AI cybersecurity software in the UK, the sector condition is met. Merely calling a product AI, or using an AI service somewhere in the business, does not establish that conclusion.

Check other sectors against the actual activities. Cryptographic Authentication covers research into, development or production of a product meeting three conditions. Authentication must be a primary function, cryptography must perform that function, and the product must not ordinarily be supplied or available to consumers. Ordinary use of encryption does not establish that sector. (SI 2021/1264, Sch. 8, paras. 1–2.)

Test the other plausible sectors against the product and contracts:

• Data Infrastructure: check services giving administrative access to the defined infrastructure, or software that configures or manages that access.
• Defence: check the defence or national-security purpose and the required government-contracting or classified-information connection.
• Military and Dual-Use: identify research, development or production of goods or technology within the specified export-control lists.
• Critical Suppliers to Government and Computing Hardware: examine the specified contract-security requirements and any work involving processing units, low-level code or roots of trust.

A cybersecurity supplier does not enter these sectors merely because its customers use computers. Document the activity that meets each relevant definition. (SI 2021/1264, Sch. 6, paras. 1–3; Sch. 7, paras. 1–3; Sch. 9, paras. 1–4; Sch. 10, paras. 1–3; Sch. 12, paras. 1–2.)

The government announced AI-sector changes in March 2026, including an intended exclusion for certain off-the-shelf uses. Those proposed AI changes had not commenced by 4 November 2026. An announcement does not amend the filing perimeter. Apply the operative regulations when the acquisition occurs. (SI 2021/1264, Sch. 3; Cabinet Office, consultation response CP 1529, 12 March 2026, pp. 9 and 18–19.)

The percentage thresholds apply separately to shares and voting rights. An acquisition triggers the relevant test when the holding moves:

• from 25% or less to more than 25%;
• from 50% or less to more than 50%; or
• from below 75% to 75% or more.

Acquiring voting rights that enable the investor to secure or prevent any class of resolution is another test. Trace indirect holdings, joint arrangements and rights held through others under the statutory attribution rules. (NSI Act, ss. 8(2)–(7), 10 and Sch. 1.)

The proposed 30% voting position crosses the first threshold if the investor currently holds 25% or less. An increase from 26% to 30% does not cross that percentage threshold. Changes to shares, resolution rights or other control still require analysis.

A board appointment does not automatically create a mandatory filing. Assess whether the rights newly enable material influence over company policy. Relevant facts include board composition, investor expertise, shareholder dispersion and influence over strategy. Material influence alone is a call-in trigger, rather than one of the mandatory control cases. A contractual veto must be examined for its actual legal operation; it should not automatically be treated as the acquisition of shareholder voting rights. (NSI Act, ss. 6(2) and 8(6)–(9); section 3 statement, paras. 22 and 41–45.)

Before agreeing the rights package, check:

• the current and post-investment share and voting positions, including each share class;
• board appointment, removal, observer, quorum and committee rights;
• vetoes over budgets, business plans, senior appointments, licensing and technical strategy;
• information rights covering code, model weights, training material, vulnerabilities and customer systems;
• conversion, option, security and side-letter rights, including when each becomes exercisable.

Reducing the investment to 25% would require a fresh review of that complete package. It does not establish that the transaction falls outside the Act.

Software, source code, algorithms and commercially valuable know-how can be qualifying assets. Asset control arises where a person acquires rights enabling use, greater use, or direction or control of use. Ownership transfer and exclusivity are unnecessary. The proposed licence can therefore trigger the Act even though the company retains the IP. (NSI Act, ss. 7(4)–(6) and 9.)

For the joint venture, specify the licensed assets and permitted activities. Address copying, testing, modification, deployment, sublicensing and disclosure to investor affiliates. Record the territories, users, duration, termination rights and treatment of improvements. Identify when access and use rights begin. Analyse any acquisition of shares in the joint venture separately.

The asset licence itself is outside mandatory notification as at 4 November 2026. A voluntary filing is the recommended route where it gives the venture substantial rights over security-sensitive core technology. Limited evaluation rights may justify a different assessment, but their substance must be examined. The statement published under section 3 of the NSI Act identifies sensitive technology transfers and joint ventures involving existing IP as potential call-in cases. (NSI Act, ss. 6 and 18; section 3 statement, paras. 26–31.)

The risk is demonstrated by the University of Manchester SCAMP-5 and SCAMP-7 transaction. A 2022 final order prevented an acquisition through a technology licence. The January 2023 variation retained that prohibition. This was an individual national-security decision, not a rule that every technology licence is prohibited. (SCAMP-5 and SCAMP-7 final-order notice, 20 July 2022, paras. 3–7; variation notice, 9 January 2023, paras. 3–8.)

Use mandatory notification where the investor acquires control under a mandatory control test and the target meets a specified UK sector definition. The acquirer must notify and obtain approval before completing. A voluntary form cannot replace the mandatory form. (NSI Act, ss. 6, 13–14 and 18(1).)

Use a voluntary filing where a qualifying acquisition falls outside mandatory notification but creates a credible national-security concern. For this transaction, sensitive technology access favours seeking clearance. Security customers and influence over product strategy would strengthen that case. A smaller investment with newly acquired material influence and a core IP licence belong in this assessment. The seller, acquirer or qualifying entity may submit a voluntary notice. (NSI Act, ss. 1 and 18.)

An acquisition falls outside the call-in regime if it lacks a qualifying entity or asset, the required territorial connection, or a relevant acquisition of control. Separately, an in-scope transaction may present sufficiently limited risk for the parties to proceed without voluntary notification. Record the distinction and the evidence supporting the decision. The present combination of 30% voting rights and technology access does not support a blanket out-of-scope conclusion. (NSI Act, ss. 5–9.)

The filing obligation and the national-security assessment are separate questions. Mandatory notification does not depend on proving that this investor is dangerous. The substantive assessment considers the target, acquirer and control acquired. Singapore incorporation and South African founding history create no automatic clearance. Examine ultimate ownership, funding, state links and the people who could obtain the technology. (NSI Act, ss. 1 and 26(3); section 3 statement, paras. 15–17 and 34–45.)

A notifiable acquisition completed without approval is void. Retrospective validation is available, but it is not a substitute for pre-completion approval. A notifiable acquisition completed contrary to a final order is also void. Breaches can attract civil or criminal consequences. (NSI Act, ss. 13, 15–17, 32 and 39–41.)

The statutory review period is 30 working days from notification of acceptance. Submission and acceptance are separate stages. Acceptance or rejection must occur as soon as reasonably practicable; the Act does not fix a numerical acceptance deadline. The 2025–26 annual report recorded median acceptance times of 11 working days for mandatory notifications and 13 for voluntary notifications. Those are historical observations, not promised processing times. (NSI Act, ss. 14(5)–(9) and 18(5)–(9); Annual Report 2025–26, executive summary, para. 26.)

Call-in starts a separate 30-working-day assessment. A further 45 working days is available where the statutory conditions are met. Further periods require written agreement with the acquirer and the statutory findings. Information and attendance notices can stop the assessment clock. They do not stop the initial review clock. Working days exclude weekends and bank holidays anywhere in the UK. Build the long-stop date around these stages, response time and possible remedies. (NSI Act, ss. 23–24 and 65.)

A voluntary notification does not itself impose the mandatory standstill. For this sensitive licence, agree a contractual hold on completion and technology release until the clearance condition is satisfied. Any interim order must be obeyed. (NSI Act, ss. 18 and 25.)

For completed unnotified acquisitions, call-in is generally limited to six months after the Secretary of State becomes aware and five years after the trigger event. The five-year limit does not protect a notifiable acquisition completed without approval. False or misleading information that materially affects a decision can permit reconsideration. (NSI Act, ss. 2(2)–(3) and 22.)

Appoint one transaction lead to assemble the filing. The technical lead should produce the sector assessment and asset description. The company secretary or finance lead should reconcile the capitalisation and rights. The investor should provide the ownership chain, decision-makers and funding explanation. Counsel should align the notification with the transaction documents.

The evidence pack should contain:

• a product and UK-activity description mapped to each potentially relevant sector;
• current and proposed ownership charts, share classes and voting calculations;
• the term sheet, investment agreement, articles, shareholders' agreement and side letters;
• the IP schedule, ownership chain, licence terms and access permissions;
• relevant government, defence and infrastructure relationships, including funded research;
• the commercial rationale, proposed timetable and related acquisitions.

Use the prescribed mandatory or voluntary form and its declarations. Explain linked entity and asset steps expressly. A filing for one acquisition should not be assumed to cover every linked arrangement. The company and investor should verify their respective factual statements. (SI 2021/1272, regs. 3–4 and Schs. 1–2; notification-form guidance, updated 12 October 2026.)

Begin diligence with redacted documents, architecture summaries and controlled demonstrations. Limit named recipients and onward disclosure. A non-disclosure agreement should restrict use as well as disclosure. Examine evaluation licences and technical testing permissions before granting them: a read-only label does not determine whether asset rights have been acquired. Keep operational access, repository credentials and exploitation rights behind the relevant approval conditions. (NSI Act, s. 9.)

Check export controls before overseas disclosure or remote access to controlled software or technology. Identify the transferor's location and the applicable Great Britain or Northern Ireland rules. Review customer confidentiality and personal-data transfers separately. The standard NSI portal must not receive information classified above OFFICIAL; use the prescribed secure-arrangement process. (Assimilated Council Regulation (EC) No 428/2009, arts. 2(2) and 3(1); ECJU, Exporting military or dual-use technology, remote-access sections; notification-form guidance, Data classification section.)

For the underlying title, licence and dependency work, see Legal Due Diligence of AI Projects.

FCA or Prudential Regulation Authority change-in-control approval applies where the acquisition concerns a relevant regulated firm. Supplying cybersecurity software to a bank does not, by itself, establish that status. Competition review has separate jurisdiction and competition tests. Company authority, applicable pre-emption rights and constitutional approvals must also be addressed. NSI clearance does not satisfy those requirements. (Financial Services and Markets Act 2000, ss. 178 and 191F; Enterprise Act 2002, ss. 23 and 35; Companies Act 2006, ss. 549, 561 and 570.)

South African founding alone does not establish a South African approval requirement. Check exchange-control residence, IP ownership and public research funding. For a resident licensing IP to a non-resident, the South African Reserve Bank (SARB) permits Authorised Dealer approval of an arm's-length licence at a fair market price. SARB's Currency and Exchanges Manual requires the agreement, an auditor's letter and repatriation of fees within 30 days of entitlement. The separate outright-sale route requires an unrelated buyer. (SARB, Currency and Exchanges Manual for Authorised Dealers, B.2(A)(iii)–(iv).)

If the IP arose from publicly financed research governed by Act 51 of 2008, resolve the National Intellectual Property Management Office's requirements separately. Offshore assignments and exclusive licences require approval and evidence of insufficient local development or commercialisation capacity and benefit to South Africa. Non-exclusive licences have different conditions. (Intellectual Property Rights from Publicly Financed Research and Development Act 51 of 2008, s. 12; GN R.675 of 2010, reg. 12.)

Singapore incorporation alone does not establish a Singapore filing for this UK purchase. Check designated-entity controls, national-security intervention powers and any sectoral regime affecting the relevant target or joint venture. A foreign entity can have the Singapore connection required for designation through activities or supplies there. (Significant Investments Review Act 2024, s. 17; OSIR, Obligations of investors or owners.)

Before an onward joint-venture transfer, classify technology transmitted electronically from Singapore or made available on a computer there for access abroad. Strategic-goods controls can require a permit, subject to statutory exceptions. Receiving technology from the UK does not, by itself, establish that onward-transfer trigger. (Strategic Goods (Control) Act 2002, ss. 2(1), 5(1)(c), 5(3)–(5) and 7.)

For the investment, use a conditional subscription agreement or share purchase agreement, with the agreed governance documents attached. Make the NSI outcome a condition to completion and defer the rights that would complete the acquisition. For the licence, defer effectiveness, delivery and exploitation rights until the agreed screening and export conditions are met.

The documents should allocate responsibility for filings, information requests and costs. Agree who may accept remedies and what conditions would permit termination. Address restrictions on directors, technical access, customer information and onward licensing. Include a long-stop mechanism that accommodates statutory extensions, information requests and agreed changes. Require notice of changes to ownership, funding, technology access or the rights package before closing.

Keep interim consent rights proportionate to preserving the investment. Rights that transfer influence over strategy or use of assets before closing require their own review. An indemnity cannot authorise a prohibited completion or make a void acquisition valid. (NSI Act, ss. 8–9 and 13.)

Before closing, the transaction lead should confirm:

1. The technical classification and voting calculations still match the notified transaction.
2. The clearance notice or final order covers the relevant acquisition, and pre-completion requirements have been satisfied.
3. Other required approvals, IP consents and company resolutions are complete.
4. The final documents contain the reviewed rights package and any required security restrictions.
5. Funds, shares, appointments and technology access will be released in the agreed sequence.
6. A named owner will maintain any continuing order, access and reporting requirements.

A material change after notification may require a new assessment or filing. Confirm the effect before completion. (NSI Act, ss. 5–9, 13 and 22; acquisition guidance, When to notify.)

The recommendation changes if the technical activity falls outside every mandatory sector, the investor already holds the relevant control, or the licence grants materially narrower rights. Sensitive customers, defence applications, state-linked influence or wider access can increase the case for voluntary notification or require redesigned terms. Resolve those facts before replacing the main route with a smaller stake or offshore joint venture.

For entity and IP placement, read Incorporation & Jurisdiction Strategy for High-Risk AI. For the wider operating-country analysis, see AI Projects Across Jurisdictions.