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Potential increased scrutiny for investors into the European Union as from 11 October 2020

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09 October 2020

Companies planning to invest into the European Union should be aware that their transactions could face more intense scrutiny with the entry into full effect of EU Regulation 2019/452 of 19 March 2019 establishing a framework for the screening of foreign direct investments into the European Union (EU FDI Regulation) on 11 October 2020. 

FDI reviews remain the prerogative of EU Member States

The EU FDI Regulation does not create a single, unified, FDI review regime across the EU (comparable to, for instance, the ‘one-stop-shop’ EU merger control regime or the U.S. CFIUS review). 

FDI reviews in the EU will continue to be conducted at national level, on the basis of national legislation. Final decisions approving or rejecting any investment will be adopted by the competent national authorities. Moreover, EU Member States will not be under an obligation to adopt national FDI review legislation; currently, only half of them have a review regime in place. 

Increased cooperation across the EU

The EU FDI Regulation aims to enhance the effectiveness of national screening regimes by creating a cooperation mechanism under which Member States and the European Commission (Commission) are able to exchange information and examine security or public order concerns raised by specific investments pursued by non-EU investors. 

Importantly, with effect from 11 October, a Member State receiving a filing under its national FDI regime (receiving Member State) has an obligation to immediately inform all other Member States and the Commission of that filing and provide information as required by the other Member States and the Commission. 

In addition, the EU FDI Regulation allows Member States and the Commission to make comments or issue opinions to receiving Member States when an investment poses a threat to security or public order in other Member States, or when an investment could undermine a project or programme of interest to the whole of the EU. As noted above, the receiving Member State retains the last word on whether or not a specific investment should be permitted in its territory. However, it does have an obligation to take these comments or opinions into account before adopting a decision.

More generally, the EU FDI Regulation sets out certain procedural requirements for Member States that wish to maintain or adopt a screening mechanism at national level, including on the need to operate under short business-friendly deadlines and robust confidentiality requirements. The EU FDI Regulation also encourages European cooperation on investment screening, including sharing experience and best practices.

Advice for non-EU investors

The EU’s general trade policy orientations have not changed: welcoming FDI is crucial to the EU’s continued economic growth, innovation and job creation. Yet the full implementation of the EU FDI Regulation will likely increase the regulatory obligations of non-EU investors. Successfully navigating the EU foreign investment landscape, which will continue to evolve rapidly in the coming months, requires thorough preparation of investment plans and the adoption of a consistent approach. It is more critical than ever to consider any possible impact of an investment on security or public order across the EU, and not just at the level of the country in which an investment takes place. 

The UK position

The UK Government’s intention is that the EU FDI Regulation will not apply to the UK from 1 January 2021 (after the end of the Brexit transition period). However, the UK Government is keen to take action in this area: it is expected shortly to publish the text of its National Security and Investment Bill, which we anticipate will significantly enhance its powers to scrutinise foreign investment in the UK.

The Allen & Overy global team is closely monitoring developments on the implementation of the EU FDI Regulation, national regimes, and the impact of the Covid-19 pandemic on enforcement trends. You can access our 2019 alert for more information on the EU FDI Regulation and our Covid-19/FDI tracker for updates.