Investment control: 400 foreign investments screened by EU Commission

The EU regulation on the screening of foreign direct investments has been in force since 11 October 2020. It has created a uniform framework across Europe for the screening of foreign direct investment (FDI) in European companies in critical infrastructure, defence and other key sectors. According to the European Commission, this procedure is intended to serve the security of its member states and prevent foreign regimes from gaining control over EU-based companies, for example those active in critical infrastructure. The regulation not only sets out a framework for FDI screening, but also obliges member states to cooperate more closely with each other and with the Commission.

The report (PDF/ 1,073 KB) on FDI screening that has now been published is the first since the regulation’s entry into force. It shows that the European Commission has already screened 400 investments under the new screening system.

According to the Commission, most of the notifications from member states for screening concerned manufacturing, information and communication technology companies, and wholesale and retail trade. Most of the investors came from the US, UK, China, Canada and the United Arab Emirates.

According to the report, 80% of the transactions did not require further investigation, "either because of an evident lack of impact on security or public order, or because they fell outside the scope of the national screening mechanism". They were therefore assessed by the Commission within 15 days. 12% of the transactions were cleared with conditions and 2% of the transactions were prohibited. In less than 3% of the cases screened, the Commission issued an opinion. The cooperation mechanism for FDI screening works effectively and does not lead to 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 if FDI screening is required, M&A transactions can be carried out in a legally secure and efficient manner. However, a prerequisite for this is that the acquirer deals with the requirements and procedures of the investment control regulations at an early stage."

Although the majority of transactions notified for screening have been cleared without conditions, the Commission stressed the need for the screening system as the profiles and investment patterns of investors have changed significantly. "The past years have seen a clear change in investor profiles and investment patterns, i.e. increasingly non-OECD investors, occasionally with government backing or direction," it said in its report.

Not all EU members have yet implemented the screening regulation. A total of 18 of the 27 member states now have their own screening mechanism in place. When the EU Commission started working on the screening regulation in 2017, there were only 11 states with FDI screening mechanisms. Some of them have reformed their system to align it with the new EU regime: Germany, for example, has reformed its foreign trade law to implement the Screening Regulation. The European Commission expects all member states to introduce national screening mechanisms, thus increasing the reliability of the European investment control system.

"The national trend to screen more and more foreign investments is also evident at the European level. In future, we can expect case numbers to increase, at the latest when M&A transaction activity picks up again and more EU member states establish a screening regime," said Arkadius Strohoff, antitrust expert at Pinsent Masons.