Foreign investment: Rising Tides of Politics in Regulation – newly updated report

We are delighted to share with you the latest update of our report on Foreign Investment: Rising Tides of Politics in Regulation.

This edition has been fully updated to reflect the tabling of the National Security and Investment Bill before the UK Parliament, which seeks to introduce a new distinct regime and standalone powers for the review of foreign direct investment (FDI) insofar as national security interests are concerned and will, in principle, also apply to UK investors (for detailed analysis see our separate briefing). It also reflects the latest developments in other major FDI regimes around the world, many of which have continued to expand their scope.

Important trends which investors need to be aware of include increased use of mandatory notification requirements, expansion of the sectors to which FDI regulation applies, differentiation based on the identity of the investor, lowering of financial and/or shareholding thresholds for notification and increased powers to impose sanctions for non-compliance. The new EU Regulation on FDI screening mechanisms (fully operational since 11 October 2020) is also likely to encourage those EU Member States that do not currently have their own regime (just under half of them) to introduce one.

FDI filings have already become an increasingly important piece of the regulatory jigsaw for cross-border M&A. The focus continues to stretch well beyond acquisitions by certain Chinese companies, and the concept of “national security” continues to be extended, to include critical infrastructure, communications assets, advanced technology and data, and – influenced by the Covid-19 pandemic – healthcare.

The combined effect of the recent reforms considered in this report will inevitably be to further ramp up the level of FDI scrutiny faced by dealmakers involved in cross-border M&A, particularly against the backdrop of the pandemic and political concerns regarding opportunistic takeovers by foreign acquirers.

It is now more important than ever to consider early in the transaction process whether a transaction is likely to give rise to investment screening issues, and how to navigate these effectively and as quickly as possible.   Investors need to understand both the legal framework as well as the political and policy contexts they are operating in, and ensure a consistent global approach to any FDI filings required.

In this updated report, published jointly with Global Counsel, we consider both the current landscape and the latest restrictions taking effect this year – including the new standalone FDI regime in the UK, and enhanced regimes in the US, Australia, Japan, Canada, India, France as well as a number of other European countries. We also set out practical advice on how to navigate these FDI controls through effective deal planning and execution.

Alongside this report we are also publishing an interactive map and country-by-country guide summarising the FDI/public interest control processes and trends in key jurisdictions, an essential tool when considering potential deal hotspots. Email fdipublications@hsf.com to access your copy.

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