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New and tougher foreign investment controls increased obstacles

Establishing or strengthening foreign investment controls was at the top of the agenda for many jurisdictions in 2020, cementing a rising trend from previous years. 

Covid-19 triggered a number of emergency measures aimed at preventing opportunistic acquisitions of strategic domestic firms or assets during the pandemic. In some jurisdictions, these are only temporary – they will fall away once the pandemic slows. But in many others, the new or tougher measures introduced (or proposed) are permanent, their implementation accelerated as a result of the outbreak.

All of this means additional obstacles to deal making.

New EU-level rules accompany stricter national regimes

A new EU Regulation on foreign investment control took effect in October 2020. The Regulation does not seek to put in place a ‘one-stop-shop’ screening regime – foreign investment reviews will remain in the hands of the Member States. However, it does establish minimum standards for national regimes. And it creates a framework for cooperation between Member States and the EC. The Regulation allows Member States to make comments and the EC to issue an opinion on certain transactions, which national authorities must take into account before adopting a decision.  This brings a risk of increased complexity to national  review processes, by adding extra (and potentially highly political) considerations into the mix. At the same time, the information exchange and inter-Member State cooperation mechanism increases the risk of parallel reviews across multiple EU jurisdictions.

Alongside this, a number of Member States strengthened their national foreign investment regimes during 2020. In France, we saw the rules expand to, for example, cover more types of investment/investor and a wider range of sensitive sectors. Tough new sanctions for non-compliance were also introduced. In Germany, prior approval is now needed for transactions concerning critical infrastructure (the scope of which has been widened) and there is a lower threshold for government intervention. The Italian special ‘Golden Powers’ regime was extended. And Poland introduced new rules. Several jurisdictions brought the health sector within the scope of review.

In all, 16 Member States have foreign investment screening mechanisms in place (the Czech Republic adopted a regime in February 2021 which takes effect from 1 May 2021).  New rules are planned in Ireland and the Netherlands  during the course of 2021.

In a separate (but related) EU development, firms in receipt of foreign subsidies that invest in the EU will likely face greater scrutiny. An EC White Paper last summer set out a number of possible instruments, including a new mandatory notification system for foreign-backed acquisitions of EU businesses with powers to remedy and even block deals. Unsurprisingly, the proposals have been criticised as adding an additional set of burdens. There are strong calls for any new rules to be coherent with existing regimes, including both the EU Merger Regulation and the Regulation on foreign investment. We expect to hear more on the initiative during 2021.

CFIUS reviews more deals

In the U.S. we saw the Committee on Foreign Investment in the United States (CFIUS) refine and finalise rules providing for mandatory filings of certain transactions involving U.S. businesses dealing with critical technologies, critical infrastructure and sensitive personal data. CFIUS has also set out rules involving certain non-controlling investments as well as investments involving real estate located near sensitive U.S. facilities.

CFIUS has become more aggressive in monitoring the market for announced deals. We have seen it increasingly make post announcement inquiries of non-filing parties. This has led parties to make more filings on a cautionary basis, increasing the workload of the of the Committee's staff, and resulting in longer timetables, even in straightforward transactions.

The rest of the landscape is evolving

Outside the EU and U.S., we also saw significant developments in 2020:

  • The UK Government published its much awaited draft national security and investment legislation in November 2020. Read more about these proposals below.
  • In Australia, a major overhaul took effect on 1 January 2021. The rules have been bolstered with a requirement to get approval for all investments in sensitive national security land or businesses regardless of value. The changes also introduced enhanced monitoring and investigation powers together with stronger enforcement and penalties.
  • China has gradually loosened restrictions on foreign investments, as reflected by rules adopted early in 2020 that aim to grant national non-discriminatory treatment to foreign investment in areas that are not on the negative list, and the passing of an expanded Catalogue of Encouraged Industries for Foreign Investment at the end of the year. The EU-China Comprehensive Agreement on Investment, on which negotiations concluded in December, looks set to further open the Chinese market to EU investors. However, as from January 2021, new national security review measures expand the scope of foreign investments as well as industry sectors that may be subject to scrutiny. The application and practical implications of these newest rules are not yet clear.
  • In Japan, foreign investors now need regulatory clearance to acquire stakes of just 1% (down from 10%) in domestic listed businesses in certain industries, although broad exemptions are available.

Across the globe, this trend of intervention shows no signs of slowing. Navigating the regulatory landscape is becoming increasingly complex and, as rules change quickly and frequently, keeping on top of developments is vital. So too is ensuring possible foreign investment filings are considered early, and including appropriate provisions in deal documentation.

New UK national security regime will significantly tighten scrutiny of M&A

The UK Government’s National Security and Investment Bill (the Bill), published in November 2020, is ground-breaking. It will drastically expand the UK Government’s powers to scrutinise investments on national security grounds.

Mandatory notification

Under the Bill it will be mandatory to notify any qualifying transaction in 17 “sensitive” sectors. The regime will catch acquisitions that involve the acquirer taking 15% or more of the
target’s votes/shares (and subsequent specified step increases), or acquiring voting rights that allow the acquirer to enable/prevent passage of resolutions governing the target’s affairs.

“Call-in” power

There will also be a significantly enhanced “call-in” power and voluntary notification system applying to an extremely wide range of transactions that qualify as trigger events across all sectors of the economy. Minority acquisitions, asset purchases, IP licences, loans and conditional acquisitions could all be caught.

Once the Bill is enacted, the UK Government will have the power to call-in any qualifying transactions completed on or after 12 November 2020. It will be able to call-in such transactions within six months of becoming aware of them, subject to an overall limitation period of five years.

Significantly, there are no turnover or market share thresholds attached to either the mandatory notification requirement or the call-in power. The target only needs to operate in the UK or supply customers in the UK to fall within scope.


The UK Government will be able to impose remedies, prohibit transactions or ultimately even unwind completed deals. There will also be tough sanctions for non-compliance, including fines of up to 5% of global turnover or GBP10m (whichever is greater) and up to five years’ imprisonment for individuals in certain circumstances. Critically for dealmakers, transactions subject to the mandatory notification requirement will also be void if they take place without clearance from the UK Government.

National security vetting will be separate from, and may run in parallel with, review by the CMA under the UK’s merger control regime (and, post-Brexit, quite possibly also by the EC under the EU merger rules). But under the proposals UK national security issues can ‘trump’ UK competition concerns (although the CMA will still be able to review deals on other public interest grounds such as financial stability and media plurality).

Still open to foreign investment?

Predictably, in announcing the reforms, the UK Government has stressed that it does not want to discourage foreign investment. Indeed, the new regime applies to domestic and foreign investors alike. But the measures as proposed are far-reaching, and will undoubtedly add a new level of administrative burden, timing uncertainty and potentially also transaction risk to M&A activity in the UK.

The new rules are expected to be adopted later in 2021.


Mandatory notification in 17 “sensitive” sectors

  • Advanced materials 
  • Advanced robotics 
  • Artificial intelligence 
  • Civil nuclear 
  • Communications 
  • Computing hardware
  • Critical suppliers to Government
  • Critical suppliers to the emergency services
  • Cryptographic authentication 
  • Data infrastructure 
  • Defence 
  • Energy 
  • Military and dual-use 
  • Quantum technologies 
  • Satellite and space technologies
  • Synthetic biology 
  • Transport

UK Government estimates (per year)