EU Regulation on the Screening of Foreign Direct Investment now operational

Yesterday, on 11 October 2020, the EU Regulation on the Screening of Foreign Direct Investment (“FDI” and “the EU FDI Regulation”) became fully operational.  This creates, for the first time, an EU-wide framework for the coordination of FDI screening. Any companies engaged in current or future deals involving FDI into the EU should consider the impact of the EU FDI Regulation carefully.

The power to vet FDI will remain with national governments and FDI reviews will take place under applicable national law but also observing the procedural framework put in place by the EU FDI Regulation. The EU FDI Regulation will create a network allowing EU Member States and the European Commission to exchange information and issue comments or opinions to the relevant Member State(s) where the FDI is taking place:-

• Deadlines will apply for the Commission and Member States to cooperate with each other, subject to confidentiality requirements;
• Member States that have their own FDI regimes must follow certain core requirements in relation to sectors covered and the process applied;
• The Commission will be able to issue opinions where a particular investment poses a threat to the security or public order of more than one Member State, or when an investment could undermine a project or programme of interest to the whole EU, such as Horizon 2020 or Galileo; and
• Member States can issue comments to be taken into account by the reviewing Member State.

15 of the 27 EU Member States currently have their own FDI regime and many have implemented changes over recent months to comply with the EU FDI Regulation.  In March 2020, the Commission issued guidance to Member States calling on them all to set up national screening mechanisms at a time of public health crisis and related economic vulnerability.  A number of other Member States, including Ireland and the Netherlands, are currently consulting on new regimes.  In the UK, it is anticipated that the Government will introduce its National Security and Investment Bill to the parliamentary process in the coming weeks.

The EU has emphasised that it is trying to balance the welcoming of foreign investment with an ability to screen that investment when required.  Executive Vice-President Valdis Dombrovskis commented: “The EU is and will remain open to foreign investment.  But this openness is not unconditional.  To respond to today’s economic challenges, safeguard key European assets and protect collective security, EU Member States and the Commission need to be working closely together.  If we want to achieve an open strategic autonomy, having an efficient EU-wide investment screening cooperation is essential.  We are now well equipped for that.”

For further details on the Regulation, see our briefing here:

Contacts