European Union: EU FDI Screening Regulation Enters Into Force

As of 11 October 2020 the EU FDI Screening Regulation is in force, ending the long wait for a Union framework to screen foreign direct investments. The umbrella spanned by the EU FDI Regulation is a further (crucial) building block in the EU's endeavors to tighten and coordinate the screening of foreign direct investments.

New regimes and higher scrutiny across the EU

The EU FDI Screening Regulation centres around a cooperation mechanism which allows EU Member States and the European Commission (EC) to exchange information and raise concerns related to specific investments. By this token, it enables the EC to issue opinions when an investment poses a threat to the security or public order of more than one Member State, or when an investment could undermine a project of EU interest. Thus, going forward, Member States and the EC will be able to exchange and cooperate on incoming foreign direct investments in the framework of a structured process.

The responsibility for conducting the actual FDI screening will continue to rest with the EU Member States, who have the ultimate decision power to intervene and, in the last resort, prohibit a foreign direct investment. While some (primarily Western European) EU Member States had national screening mechanisms in place already prior to the EU FDI Screening Regulation, FDI screening was for a long time a blank spot on the regulatory landscape for most countries in Central Eastern Europe (CEE). Now, in the wake of the FDI Screening Regulation, national legislators in CEE have followed the EU's call to tighten already existing regimes or enact new measures to transpose the EU FDI Screening Regulation into national law (see here).

Further CEE jurisdictions are currently in the process of ramping up the screening of foreign direct investments. New FDI screening instruments are in the pipeline in the Czech Republic, Slovakia and Romania and are expected to come into force shortly. As a result, almost all Eastern European Member States will be able to vet foreign direct investments and take part in the Union-wide cooperation mechanism.

Outlook

The entering into force of the EU FDI Screening Regulation completes and adds a further layer to the regulatory FDI framework in the EU. Its spans an EU-wide cooperation mechanism over the national screen instruments that together with the influx of new FDI regimes across the EU (and in particular the CEE) will further tighten the FDI screening in the EU.

An overview of the FDI regimes in CEE is available on our Knowledge Portal. To keep pace with the ongoing developments in jurisdictions where new rules are in the pipeline, the Portal will be continuously updated. The information provided therein can also be downloaded in the form of a CEE FDI Booklet (which is now in the 3rd edition).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.