Reed Smith Client Alerts

The EU Foreign Investment Screening Regulation (Regulation 2019/452) entered into force on 10 April 2019 and will be applicable from 11 October 2020. This new Regulation creates a mandatory information sharing mechanism between Member States, and allows Member States and the European Commission to comment on foreign investments foreseen in other Member States. Since the adoption of the Regulation, some EU Member States have already strengthened their investment screening regimes, and more are considering to follow suit. In its March 10 communication on a New Industrial Strategy for Europe, the European Commission indicated that it would table proposals for the strengthening of the Regulation. 

In practice, this means that it is becoming increasingly hard to predict the timing and outcome of transactions. Businesses are advised to take these new restrictions into account when planning acquisitions. These new tools are also available to (try to) prevent acquisitions contemplated by others. The developments also reflect a wider global trend of major jurisdictions (e.g. Australia, Canada, the United Kingdom and the United States) increasingly toughening foreign investment controls.

Authors: Yves Melin Isabelle Rahman Max Seuster Jin Woo Kim

EU Investment Screening Regulation in force

The European Union (EU) Foreign Investment Screening Regulation(Regulation 2019/452) (Regulation) entered into force on 10 April 2019 and will be applicable from 11 October 2020.

With this Regulation, the EU aims to safeguard Europe's security and public order by introducing the first EU-wide foreign investment screening cooperation mechanism and scrutinising purchases by foreign companies that target the EU's strategic interests.

The key features of the Regulation are as follows:

  • Creating a cooperation mechanism between the European Commission (Commission) and EU Member States to exchange information and raise concerns related to specific investments.
  • Allowing the Commission to issue a non-binding opinion if (i) an investment poses a threat to the security or public order of more than one Member State, or (ii) an investment could undermine projects of interest to the whole EU, such as EU programmes for energy, transport and telecommunication networks (TEN-T, TEN-E, Trans-European Networks for Telecommunications), Horizon 2020 and Galileo. While the Commission will have no direct powers to block transactions, it may nonetheless have the opportunity to 'influence' the outcome of foreign investment screening by issuing an opinion to a Member State.
  • Allowing EU Member States to provide comments to the Member States reviewing an investment, when they consider that the investment will affect their security or public order. The reviewing Member State must give due consideration to such comments. Member States may even provide comments where the Member State in which the investment takes place is not conducting a screening.
  • Laying out a non-exhaustive list of factors that could trigger a screening process on the grounds of security or public order - and, thus, expanding the scope of investments to be reviewed. This list includes, inter alia:
    • Critical infrastructure (energy, transport, water, health, communications, media, data processing or storage, aerospace, defence, electoral or financial infrastructure and sensitive facilities).
    • Critical technologies and dual use items (artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defence, energy storage, quantum and nuclear technologies, as well as nanotechnologies and biotechnologies).
    • Critical inputs (energy, raw materials and food security).
    • Access to sensitive information (personal data).
    • Media freedom and pluralism.
  • Providing certain basic requirements for Member States who choose to introduce a screening mechanism at national level: (i) transparency and non-discrimination between third parties; (ii) established timeframes for screening; (iii) protection of confidential information; and (iv) possibility of judicial redress against the Member States' decisions.