EU FDI Screening Regulation becomes fully applicable

• 28/10/2020
• News

On 11 October 2020, the EU FDI Screening Regulation[1] entered into force. Adopted in March 2019, it covers EU Member States’ procedures to assess, investigate, authorise, condition, prohibit or unwind foreign direct investment (FDI).

FDI screening protects national security interests by controlling investment in strategic undertakings. In the European Union, national security measures are the sole responsibility of each Member State. In other words, the European Union itself cannot screen or block investments, nor can it oblige Member States to introduce a screening mechanism. The purpose of the EU FDI Screening Regulation is therefore limited to introducing a collaborative model with common standards for screening mechanisms, common screening grounds and rules for cooperation between EU Member States, between EU Member States and the Commission, and between the Commission and third countries.

In order to implement the necessary operational requirements for the full application of the EU FDI Screening Regulation: (i) EU Member States had to notify their existing national investment screening mechanisms to the European Commission; (ii) EU Member States had to establish national contact points and secure communication channels with the European Commission; (iii) EU Member States and the European Commission had to develop procedures to quickly react to FDI concerns and to issue opinions. EU Member States also agreed to informally cooperate where a foreign investment could affect the EU single market.

In the wake of the adoption of the EU FDI Screening Regulation, and due to concerns fuelled by the COVID-19 pandemic, a number of EU Member States newly introduced or reformed their screening mechanisms, mostly lowering screening thresholds, expanding the scope of the mechanisms and extending review periods. The field remains dynamic, and further amendments are expected this month in several EU Member States.

It is crucial for foreign investors to be aware of the EU FDI Screening Regulation and the screening mechanisms at Member State level. Fifteen out of 27 Member States already have FDI screening mechanisms in place which vary widely in scope and operation. Some EU Member States rely solely on antitrust instruments to block acquisitions on national security grounds, while others have dedicated FDI screening mechanisms. In most EU Member States, screening is carried out by executive authorities, often with input from various ministries and governmental services. Duration of the proceedings also varies widely and can be coupled with standstill obligations. Failure to follow the screening procedure can lead to hefty fines or even custodial sanctions.

On the VBB FDI screening webpage you will find a regularly updated summary of the screening requirements in all EU Member States, plus the UK and Switzerland (the VBB FDIrectory). For exhaustive information, legal advice, and assistance please get in touch with our lawyers.