On 24 January 2024, the European Commission ("Commission") published five new initiatives to "strengthen the EU's economic security at a time of growing geopolitical tensions and profound technological shifts". Notably, the proposed new EU Foreign Direct Investment Screening Regulation ("EU FDI Screening Regulation"), whilst unlikely to enter into force until 2026 at the earliest, would overhaul the current EU Regulation from 2019 by bolstering the requirements of national foreign direct investment ("FDI") screening regimes and enhancing cooperation and information sharing requirements amongst Member States and the Commission.
As the commencement of the new Irish FDI screening regime under the Screening of Third Country Transactions Act 2023 is awaited (which is expected in Q2 of this year), the proposed new EU FDI Screening Regulation as well as the other proposals within the Commission's economic security package reflect broader developments across the EU and may also require changes to the new Irish regime once the Regulation comes into force.
New EU FDI Screening Regulation
The main changes under the proposed new EU FDI Screening Regulation include:
- Mandatory screening mechanisms for Member States: Member States must introduce FDI screening regimes that comply with the new framework within 15 months of it coming into force;
- Minimum standards and common procedures: Member States ensure that their FDI regimes comply with certain standards and common procedures, confidential information protections and annual reporting obligations;
- Screening of investments in certain critical sectors: Member States must impose authorisation requirements where the target established in their territory is part of or participates in a programme of Union interest or is active in one of a number of sensitive sectors including dual-use items, certain military technology or equipment, certain critical technologies, certain critical medicines or certain critical entities and activities within the EU's financial system;
- Enhanced coordination and cooperation: Enhanced provisions relating to the coordination and cooperation between Member States and the Commission are provided for in the EC's proposal;
- Own initiative procedure: Member States or the Commission may open an 'own initiative procedure' which allows them to initiate a review into a foreign investment in another Member State, if the investment has not been notified to the cooperation mechanism and is likely to negatively affect the security or public order. The 'own initiative procedure' may be opened within 15 months of the completion of the foreign investment;
- 'Same day' notification requirements: For multi-country transactions, merging parties will be required to submit all notifications to EU Member States’ FDI regimes on the same day. Member States must then endeavour to coordinate regarding procedure (although the proposal does not impose a uniform deadline for Member states to issue their screening decisions;
- Scope extended to indirect investments: The scope of the Regulation will now be extended to cover investments from companies which are ultimately owned and controlled by non-EU investors (which seeks to address the outcome of the Xella judgment of the Court of Justice of the European Union of July 2023 in which the current Regulation was said not to apply to EU companies the ultimate owners and controllers of which are non-EU investors subject to certain exceptions); and
- Greenfield investments: Member States are encouraged to screen investments that have the effect of establishing or maintaining a lasting economic link between a non-EU investor and the EU target, including greenfield investments.
Other Initiatives in the Commission's Economic Security Package
The other initiatives in the proposed economic security package include a white paper proposal on the introduction of an outbound investment screening mechanism, a white paper proposal on short and medium-term actions to improve export controls, a white paper proposal for enhancing R&D for dual-use technologies and a proposed Council recommendation on research security.
In particular, the white proposal in relation to an outbound investment screening mechanism regarding advanced technologies that could enhance military and intelligence capacities of non-EU actors is novel and far-reaching.
Next Steps
The proposed New EU FDI Screening Regulation will be subject to the ordinary legislative procedure, where it will be reviewed by both the European Parliament and the Council of the EU. It is unlikely that the regulation will apply before 2026, but there is the possibility that Member States including Ireland may implement the contents of the draft prior to any implementation deadline.
For further information, please contact Niall Collins, Kate McKenna, Calum Warren or Simon Shinkwin.