News Business Reforming EU Foreign Direct Investment Screening: Impact on M&A Transactions
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European Union

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Reforming the EU Foreign Direct Investment Screening Regulation

On 24 January 2024, the European Commission unveiled its proposals to reform the current EU Foreign Direct Investment Screening Regulation (FDI Screening Regulation). These reforms are part of a broader effort to enhance economic security within the EU, driven by geopolitical tensions and technological shifts.

Background

Factors such as safeguarding critical industries, addressing cybersecurity threats, and geopolitical concerns have led to the proliferation of foreign direct investment (FDI) reporting, screening, and review mechanisms globally. The EU and its Member States play a significant role in this landscape.

FDI screening now plays a crucial role in M&A transactions involving EU-based companies operating in sensitive sectors. This adds to existing merger control regimes at both EU and national levels, as well as the recently enacted Foreign Subsidies Regulation.

The Proposed Reform

The Proposed Reform aims to address gaps arising from screening foreign investments solely at the national level, rather than on an EU-wide basis. Key elements of the reform include:

  • Standstill Obligation: All Member States must introduce a standstill obligation during FDI screening.
  • Harmonization: The reform seeks greater harmonization across the EU, addressing shortcomings identified in national FDI regimes.
  • Predictability and Streamlining: While the process for gaining FDI clearance is expected to be more predictable and streamlined, effective transaction planning remains essential.

The Proposed Reform responds to the Commission's consultation on the Regulation's effectiveness and efficiency, building on the OECD's 2022 report. It represents a significant step toward coherent application of FDI regimes within the EU.

Investors navigating this complex regulatory landscape must stay informed and adapt their strategies accordingly.

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