As we have previously reported on this Blog the UK is due to table a National Security and Foreign Investment Bill before Christmas which is likely to bring in a system similar to the US CFIUS regime.
However, the UK is not alone in tightening up rules on foreign investment as a reaction to certain hostile foreign actors investing in certain key parts of their economies which potentially endanger national security. About 15 of the EU 27 Member States now have their own Foreign Direct Investment (“FDI”) Regime with a number of other countries such as Ireland and the Netherlands currently consulting on new regimes.
With the increase of FDI scrutiny by Member States the EU has brought into force legislation to ensure Member States’ exchange information with each other about the FDI filings they each receive. This legislation also ushers in a procedure under which the EU Commission and other Member States can comment upon applications received by other Member States which could particularly impact the Community as a whole or particular Member State’s economies. This could cause further delay to the merger clearance process and is an important development for companies to bear in mind when contemplating transactions in the EU.
The EU Regulation on the Screening of Foreign Direct Investment Regulation, Regulation (EU) 2019/452 (“the Regulation “) was adopted on 19th March 2019 but became fully operational in the European Union on 11th October 2020. The Regulation ushers in for the first time an EU-wide framework for coordinating between Member States the screening of foreign investment filings. Whilst the national governments of Member States will retain the power to vet foreign investments in their own countries and according to their own laws there will now be a framework under which each Member State has to exchange information about the foreign investment filings it receives with other Member States and the EU Commission .
The essential features of the procedural framework set out in the FDI Regulation are as follows:
- The legislation sets out deadlines within which the Commission and Member States will cooperate with each other to exchange information about FDI applications subject to the requirements of confidentiality;
- The Regulation permits the EU Commission to issue opinions where a particular investment poses a” threat to the security or public order” of more than one Member State, or when it is in the interest of the Community as a whole; and
- Member States can issue comments where the transaction would have an effect on public security or order in their own jurisdiction.
The reviewing Member State has to take into account the opinion of the EU Commission and any comments from other Member States before coming to a decision. These comments are advisory, so the reviewing Member State still holds considerable discretion in coming to decision on any applications.
This new regime is likely to further increase the complexity and uncertainty in the foreign investment process. It will also lead to an increase the duration of national FDI screening processes. Member States will be obliged to give the European Commission’s opinion and other Member States’ comments due consideration. If a Member State is subjecting a particular transaction to national screening , the Regulation permits other Member State comments or an opinion of the EU Commission to be issued up to 35 days after notification of the foreign investment application to the other Member States and the European Commission. This is likely to mean that Member States will wait until this period has expired before taking any position on a transaction which is subject to their national screening procedures.
