The UK government and the Competition and Markets Authority (CMA) have announced the withdrawal of draft guidance on the CMA’s powers and procedures with respect to enforcing an EU regulation for screening foreign direct investment (FDI) into the European Union. The withdrawal follows a European Commission decision that the EU FDI regulation does not include the United Kingdom.
As noted in our recent LawFlashes, New Powers For UK Government in Transactions Impacting Public Health Emergencies and National Security and Potential UK Reforms Could Increase Screening of Certain Foreign Takeovers, governments are increasing their scrutiny of certain foreign direct investments (FDI) and enhancing their FDI screening mechanisms.
As part of this trend, the European Union Regulation (EU) 2019/452 adopted on 19 March 2019 (FDI Regulation) establishes a framework for screening FDI into the European Union and creates a cooperation mechanism within the European Union for the exchange of information on issues raising concerns in relation to FDI that might affect the security or public order of EU Member States (Member States). The FDI Regulation is already in effect and will become legally applicable in each Member State from 11 October 2020.
The UK Competition and Markets Authority (CMA) had initiated a consultation on draft guidance concerning its relevant powers and procedures on 7 September 2020. However, on 16 September 2020 the UK government announced that it had withdrawn the relevant draft statutory instrument and on 17 September 2020 the CMA confirmed that it had withdrawn the related consultation.
The CMA stated that the withdrawal follows the European Commission’s decision on 31 July 2020 that references to Member States of the European Commission’s FDI Regulation shall be understood as not including the United Kingdom.
The United Kingdom departed from the European Union on 31 January 2020 (Brexit). However, EU law continues to apply in the United Kingdom until the end of the Brexit transition period on 31 December 2020 (unless extended).
To ensure that the FDI Regulation could operate effectively in the United Kingdom during the Brexit transition period, the Enterprise Act 2002 (EU Foreign Direct Investments) (Modifications) Regulations (2020) Statutory Instrument (FDI SI) and related guidance would have enabled the CMA to: (i) use its powers in the Enterprise Act 2002 to gather information from businesses in response to a request made under the FDI Regulation by Member States or the European Commission; and (ii) share information with Member States and the European Commission. For an overview of the powers to gather and share information and to impose penalties that the CMA would have obtained under the FDI SI and related guidance, please see our LawFlash.
On 16 September 2020 the UK Department for Business Energy and Industrial Strategy withdrew the draft FDI SI, referring to the European Commission’s 31 July 2020 decision that references to “Member States” in the FDI Regulation do not include the United Kingdom.
While the FDI Regulation will still come into force on 11 October 2020 in EU Member States, the UK government will progress its own FDI regime.
The UK National Security and Investment Bill will establish a new, standalone screening regime for acquisitions of UK businesses and assets (including intellectual property) with national security implications. Within the next few weeks the UK government is expected to publish a first draft of the National Security and Investment Bill. Even though no date is available at this stage for a second reading in Parliament, it is expected that the UK government will aim to have its regime in place as soon as possible.
For more information on the UK National Security and Investment Bill please see our LawFlashes on screening of certain foreign takeovers, new government powers in transactions impacting public health emergencies and national security, and new UK powers in transactions impacting national security.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following
Heather C. Sears