The EU’s foreign investment screening regulation – Part 1: how successful has it been?

In the latest episode of our Global Foreign Investment Podcast Series, Linklaters Antitrust and Foreign Investment Partner Christoph Barth, discussed the implementation of the European Union’s foreign investment screening regulation with Damien Levie, Head of the Technology and Security unit for FDI screening in the Directorate-General for Trade (DG Trade) at the European Commission.

The FI Screening Regulation established a legal framework for foreign investment screening within the EU. Part 1 of this blog post looks at how successful the FI Screening Regulation has been since it came into force in October 2020. Part 2 of this blog post will consider what the future of FI screening within the EU might hold.

How is the regime working?

It has been almost three years since the Regulation was introduced, and Levie’s view is that it has worked very well. Since its inception, the Commission has evaluated over 1000 transactions, with around 400 cases in the last year alone. It has learned a lot in this time, and the level of cooperation among authorities, including with the Commission, is high.

In addition, when the FI Screening Regulation came into force, about 15 Member States had (some form of) legislation in place to screen foreign investment. By July 2023, legislation had been introduced by an additional six countries, making a total of 21 Member States.

Discussions with Member States tend to happen virtually, and informally, when the need arises. Jurisdictionally complex deals can trigger multi-country calls, with several authorities comparing notes on the procedure and substance for assessing the transaction. There is no fixed rule on when these conversations take place, but they have become more systematic as the EU FI regime has matured.

How does the Commission process notifications?

When DG Trade first set up its team to process notifications, it sought input from various authorities, including those in Germany, France, and the US. These authorities did not appear to organise their teams by sector, nor did they recommend that DG Trade take this approach. Instead, the focus is on the investigative skills in the team and the ability for the unit to reach out to experts in particular sectors within the Commission.

The Commission organises itself in a very similar way to national authorities. DG Trade is the entry point for notifications, and the case handlers in this unit carry out the initial assessment of each transaction. A short summary is then shared with various contact points within the Commission, depending on the sectors impacted. Generally, DG Trade does not interact with the notifying parties but mainly with Member States’ authorities, who are fronting the overall foreign investment review vis-à-vis the parties.

When a Member State authority has formally informed the Commission of a case, DG Trade has 15 calendar days to decide whether to ask questions and conduct an in-depth investigation. In roughly 80-85 per cent of cases, the Commission will close the case during this first 15 days – effectively in ‘Phase I’, meaning that these cases are so straightforward that no further information is required. This leaves about 15 per cent of cases where a decision will be made to open an in-depth investigation.

When an investigation is commenced, this part of the process takes about 20 days. The key question for the Commission is to decide whether it considers that the investment is likely to affect security or public order in more than one Member State, or whether it has relevant information in relation to that foreign investment, and whether it should therefore adopt an Opinion. The Commission issues Opinions in less than 3 per cent of cases and we were told that this statistic remains rather stable. It is then for the Member State in question to decide on the case, based on the Opinion and any formal comments from other Member States.

Has transparency increased?

With the developments we have seen over the last three years, Levie was of the view that the screening process is evolving towards more transparency. As national FI regimes expand and apply to more transactions, Governments feel the need to communicate more about what they do. Also, as authorities become more experienced, they gain a better sense of what can and cannot be disclosed. This can be seen in real-life examples. For instance, we were told that in 2020 France published a one-page report, whereas the country’s latest report was almost 70 pages. 

Nevertheless, Member States are adopting a rather conservative approach to disclosing the triggering factors and details of the transactions that they are reviewing, and DG Trade takes the position that it will not provide any more information than that disclosed by Member States. Levie highlighted the importance of the strong confidentiality culture that has been created, with no leaks – to his knowledge – among any of the cases that the Commission has handled to date.  

What might the future hold? Stay tuned for Part 2 of this blog post, which looks at where EU foreign investment screening might be heading.