Navigating UK investment screening rules amidst wave of investment in quantum technologies

On 15 December 2025 the UK Government announced that conditions would be imposed under the UK National Security and Investment Act (NSIA) to address national security concerns arising from the proposed acquisition of Oxford Nanoscience Limited (a UK company involved in developing and producing dilution refrigerators used to enable and enhance quantum computing) by US-owned QD Oxford UK Limited. This is the second final order imposing conditions under the NSIA on deals in the fast-growing quantum technology sector in recent months (following IonQ/Oxford Ionics in September). It highlights the importance of considering the potential application of the NSIA in the early stages of deal planning in this sector (even for investors from “friendly countries” or indeed the UK) amidst a wave of investment, as the Government seeks to establish the UK as one of the top three places in the world to create, invest in and scale-up a fast-growing technology business by 2035.

Overview of the UK’s investment screening regime

The NSIA introduced a new standalone regime for screening investments on national security grounds in the UK with effect from 4 January 2022. The Government has the power to call-in for review any transactions which involve the acquisition of a specified level of control over a “qualifying entity” (QE) or “qualifying asset” (QA) (a “trigger event”).  QEs are entities which are incorporated/based in the UK or based abroad but which have activities in the UK and/or supply goods or services to customers in the UK.  QAs include land, tangible property and intellectual property in the UK, or located outside the UK but used in connection with activities carried on in the UK or the supply of goods or services to people in the UK. 

A trigger event engaging the NSIA regime arises where there is a transaction involving:

• the acquisition of a right or interest in, or in relation to, a QA or QE;
• an entity or asset being acquired that is from, in, or has a connection to the UK; and
• the acquisition of a level of control over the QE or QA meeting or passing certain thresholds (for example, a shareholding or voting rights in a QE that exceeds 25%)

The NSIA regime is administered by the Investment Security Unit (ISU), which sits within the Cabinet Office, with decisions taken by the Chancellor of the Duchy of Lancaster (the Secretary of State in the Cabinet Office) (SoS). Following a review of a transaction under the NSIA the SoS may ultimately clear the transaction unconditionally, or issue a final order either imposing conditions on the transaction or prohibiting it entirely (or requiring divestment if the transaction has been completed).

Mandatory notification obligations apply where a trigger event arises in respect of a QE that engages in specified activities in one or more of 17 sensitive sectors (including quantum technology). In addition, the SoS has broad powers to “call in” for in-depth review any transaction in scope of the NSIA regime, in any sector, where there is reasonable suspicion that a trigger event has occurred (or is in progress or contemplation) and the event has or may give rise to a national security risk. The call-in power can be used at any time within five years of completion, so in practice a voluntary notification may be advisable in the interest of legal certainty where potential national security concerns are anticipated.

Completing a transaction without submitting a mandatory filing where one is required, and receiving clearance, renders the transaction void and also risks a penalty of up to 5% of the acquirer’s group worldwide turnover or £10 million (whichever is higher), as well as imprisonment for individuals for up to five years.

In practice, the vast majority of transactions reviewed by the ISU are cleared unconditionally: the most recent ISU Annual Report (covering the period 1 April 2024 – 31 March 2025) indicated that over 95% of notified transactions were cleared to proceed within the initial 30-day review period. However, there is a real risk of conditions being imposed or a transaction being prohibited, and this risk is heightened in sectors such as quantum technology where national security concerns are more likely to arise.

Mandatory notification obligations for certain transactions in the quantum technology sector

Quantum technology is one of the 17 designated sensitive sectors in which mandatory notification obligations will apply if a relevant level of control is acquired over a target company that carries out specified activities in that sector in the UK. Such transactions cannot be completed prior to securing clearance under the NSIA.

“Quantum technology” is defined in The National Security and Investment Act 2021 (Notifiable Acquisition) (Specification of Qualifying Entities) Regulations 2021 (the NARs) as—

(a) quantum communications;

(b) quantum connectivity;

(c) quantum imaging, sensing, timing or navigation;

(d) quantum information processing, computing or simulation; or

(e) quantum resistant cryptography.

The definition of “specified activities” within this sector covers QEs carrying out activities consisting of developing or producing quantum technologies in the UK. Government guidance indicates that the interpretation of “development and production” is wide, with “development” including all stages prior to production, including design, design research, design analyses, design concepts, assembly and testing of prototypes, pilot production schemes, design data, process of transforming design data into goods or software, configuration design, integration design, layouts, and “production” including all production stages, including product engineering, manufacture, integration, assembly (mounting), inspection, testing and quality assurance.

However, not all activities in the quantum technology sector will fall within the definition. The Government guidance states that the following activities are not within scope: (solely) undertaking fundamental research into quantum information science, using quantum goods and services provided by others without having been involved in their development or production, and supplying components for use in a quantum technology systems (although supply of such components could trigger a mandatory notification obligation under one of the other sensitive sector definitions, such as Advanced Materials).

Nonetheless, even if it is determined that a target company’s activities fall outside the scope of the specified activities and a mandatory notification is therefore not required, investors should be mindful that there is a heightened risk of call-in for transactions in this sector on national security grounds, and a voluntary filing may be advisable to obtain legal certainty. A voluntary filing may also be advisable where a transaction in this sector involves licensing of quantum technology: the mandatory notification regime only applies to share deals, but the call-in powers can also be used in respect of asset deals, and Government guidance makes clear that this includes licensing of technology.

The Government recently consulted on proposals to refine and update the scope of the specified activities in some of the sensitive sectors, following criticism that too many transactions are caught by the mandatory notification requirement that clearly do not raise national security concerns. No specific changes were suggested for the definition of specified activities in the quantum technology sector. However, the proposed definition for specified activities in a new standalone semiconductor sector also encompasses certain quantum-related activities: “semiconductor devices, components and sub-systems with specific utility for quantum applications or with the utility to exploit quantum effects”.

Recent NSIA final orders relating to quantum technologies

Until recently no final orders imposing conditions on clearance or prohibiting a transaction had been issued in respect of transactions in the quantum technology sector, and the number of notifications has been relatively low (less than 5% of all notifications accepted or rejected by the ISU in 2024/25 involved the quantum technology sector). However, two final orders have been imposed in this sector in recent months:

• On 11 September 2025, the SoS imposed conditions on US-based IonQ’s US$1.1 bn takeover of quantum computing hardware developer Oxford Ionics. The conditions were aimed at ensuring that the UK retains access to key quantum computing capabilities, with the SoS mandating that Oxford Ionics’ most sensitive operations must remain anchored in the UK – including skilled personnel, tangible and intangible assets, and manufacturing capacity.
• On 15 December 2025, the SoS imposed conditions on the acquisition of Oxford Nanoscience Limited by US-owned QD Oxford UK Limited. The conditions were once again aimed at ensuring development and production capabilities remain in the UK and continued access to key products and services for quantum technology – in this case dilution refrigerators used for cooling to enable and enhance quantum computer – to ensure demand from UK Government projects and programmes can be met.

It seems likely that we will see more final orders in this sector going forward as significant investment is encouraged by the UK Government. It is notable that both cases to date have involved US acquirers, providing a good reminder for investors that the NSIA regime is not only concerned with investment from countries traditionally perceived to be more likely to raise national security concerns, such as China and Russia. Indeed, the regime also applies equally to UK investors (although in practice the risk of prohibition is much lower).

Practical implications for investors

The UK’s quantum technology sector is benefitting from a wave of investment amidst expectations that the sector could be worth £11 billion by 2045. The UK Modern Industrial Strategy published earlier this year identified the broader Digital and Technologies sector as one of eight core sectors for driving UK growth, and the Government has stated that its aim is for the UK to be one of the top three places in the world to create, invest in and scale-up a fast-growing technology business by 2035. Significant amounts of Government funding have recently been announced, including £670 million for quantum computing, alongside international partnerships with Japan, California and – most recently – Germany.

Achieving the Government’s objectives will require considerable private investment, but the national security implications of quantum technology (in particular for defence and cybersecurity) mean that investors should be prepared for in-depth scrutiny of transactions under the NSIA regime and undertake a detailed assessment in the early stages of deal planning to determine whether a mandatory notification is required and, if not, whether a voluntary notification is advisable.

Investors should also be aware that potential national security concerns may be identified that require in-depth assessment under the NSIA even where an investor is from a “friendly” jurisdiction – the two recent final orders in the quantum technology sector discussed above both involved US investment, and conditions have also been imposed on deals in other sectors involving investment from countries such as Australia and France.

In practice, the vast majority of transactions reviewed under the NSIA will ultimately be cleared to proceed. However, from a deal planning perspective, it is important to ensure that tailored conditions precedent are included in the SPA and that sufficient time for an NSIA review is factored into the overall deal timetable and longstop date. If an in-depth “Phase 2” review is required this can take a number of months to conclude, and the statutory timetable is often extended by “stop the clock” provisions pending responses to ISU requests for additional information. The recent Oxford Nanoscience acquisition provides a good illustration of this: when the deal was announced, the parties stated that they expected to obtain all regulatory clearances and complete the deal by the end of September 2025, but the NSIA conditional clearance was not obtained until almost three months after that.

In the small number of cases where conditions are ultimately imposed on a transaction by an NSIA final order, the requirements can be long-lasting and burdensome, and may impact the commercial rationale for a transaction. Where it is anticipated that potential national security concerns are likely to be identified, it can therefore be helpful to consider upfront what remedies would be acceptable from a commercial perspective, and seek to pro-actively discuss with the ISU how any concerns can be addressed.

For more information, or to discuss the potential application of the NSIA to a particular transaction, please reach out to Graeme Young or your usual CMS contact.