the EU regulation on the screening of foreign direct investments has been in effect since October 11, 2020. It has created a uniform framework across Europe for the screening of foreign direct investment (FDI) in European companies in critical infrastructure, defense and other key sectors. According to the European Commission, this procedure is intended to serve the security of its member states and to prevent foreign regimes from taking control of companies based in the EU, for example those active in critical infrastructure. The regulation not only sets a framework for the screening of FDI, but also obliges Member States to cooperate more closely with each other and with the Commission.
the report (PDF / 1,073 KB) on the filtering of FDI which has just been published is the first since the entry into force of the regulation. It shows that the European Commission has already screened 400 investments under the new filtering system.
According to the Commission, most of the notifications from Member States regarding screening concerned manufacturing, information and communication technology companies, as well as wholesale and retail trade. Most of the investors came from the United States, United Kingdom, China, Canada and United Arab Emirates.
According to the report, 80% of transactions did not require further investigation, “either because of an obvious lack of impact on security or public order, or because they did not fall within the scope of the law. the scope of the national filtering mechanism ”. They were therefore assessed by the Commission within 15 days. 12% of transactions were cleared with conditions and 2% of transactions were prohibited. In less than 3% of the cases examined, the Commission issued an opinion. The cooperation mechanism for filtering FDI works efficiently and does not cause unnecessary delays in transactions, according to the Commission’s website.
Dr Markus J. Friedl, a transaction law expert at Pinsent Masons, said: “The report shows that the EU and its member states remain open to foreign investors. Even though FDI screening is required, M&A transactions can be done in a legally secure and efficient manner. However, a prerequisite for this is that the acquirer deals with the requirements and procedures of investment control regulation at an early stage. “
Although the majority of transactions notified for screening were allowed unconditionally, the Commission underlined the need for the screening system as the profiles and investment patterns of investors have changed significantly. “The last few years have seen a clear shift in investor profiles and investment patterns, meaning more and more non-OECD investors, sometimes with the backing or leadership government, “he said in his report.
Not all EU members have implemented the screening regulation yet. In total, 18 of the 27 Member States have now set up their own filtering mechanism. When the European Commission started working on the screening regulation in 2017, only 11 states had FDI screening mechanisms. Some of them have reformed their system to bring it into line with the new EU regime: Germany, for example, reformed its foreign trade law to implement the filtering regulation. The European Commission expects all Member States to put in place national screening mechanisms, thereby increasing the reliability of the European investment control system.
“The national tendency to filter more and more foreign investment is also evident at the European level. In the future, we can expect the number of cases to increase, at the latest when M&A transaction activity resumes and more EU member states establish a screening regime, ” noted Arkadius strohoff, antitrust expert at Pinsent Masons.