Over the recent years, the EU & its individual member states (including its former members, such as Great Britain) have been tightening FDI screening rules, with the main emphasis being placed on national security. However, for the sake of this article, we’ll be focusing more on the specifics of company registration & FDI regulation in Great Britain.
In its recently published guidance on FDI, the EU Commission has stated clearly that proper validation tools should be used to determine of all FDI deals. Starting from October, EU member states will be authorized to consider investments by taking into account national security considerations. It should be kept in mind that the guidelines apply to all sectors and do not introduce any minimum threshold values.
New Rules for Verifying FDI in the EU
To be able to predict the steps Great Britain is likely to take with regard to the measures initiated by the EU, we should reiterate its current legislative position.
Under current legislation, opening firms in England is linked directly to FDI regulation. Under the 2002 Enterprise Act, the sole authority responsible for overseeing M&A deals in Great Britain is the Competition & Markets Office. It has a right to intervene in a transaction if:
- a target business has a turnover of seventy million pounds in the last fiscal year;
- a buyer and an owner of a company to be acquired provide the same goods/services.
If a transaction fails to meet the above criteria, the right to intervene is limited to transactions involving certain media outlets (e.g. certain newspapers & broadcasting companies) or posing a threat to national security.
Under recently amended legislation, two tests (Turnover Test & Share of Supply Test) are to be applied to cases involving delivery of identical goods or services in Great Britain. As a result, even closer attention is now paid to the sectors which are under direct supervision of the British government.
How the COVID-19 Pandemic is Affecting Businesses in Great Britain
According to recently adopted legislation, UK financial regulators can interfere in transactions capable of affecting the government’s ability to deal with emergencies in the public health sector, such as the Covid 19 pandemic. Those include include pharmaceutical companies, companies involved in vaccine research & PPE manufacturers.
The new legislation also covers companies involved in the food supply chain & logistics companies that play an important role in supply chains.
It is expected that Great Britain’s position on FDI will undergo further changes. In particular, British lawmakers have yet to vote a bill into law whereby a special notification & verification system will be introduced. If passed, the law will require businesses to notify the local regulators of the deals that have the potential of damaging the country’s security. In their turn, the regulators will have a right to place additional demands on or block a transaction if it has the potential of jeopardizing national security.New Rules for Verifying FDI in Great Britain
Under the bill, the government’s powers will be greatly expanded, allowing it to verify & intervene in any transaction in order to provide potential investors with the confidence & transparency they need to do business in Great Britain. The bill also aims to ensure that Great Britain remains the world’s number one free trade center & one of the most FDI-friendly countries in the world.
The new bill is now in the center of attention of investors from Europe and other countries of the world. Our legal professionals are closely monitoring the situation & will keep you posted on the latest developments.
If you’re considering concluding an M&A deal Great Britain or have questions related to the topic of the article, do not hesitate to contact IQ DEcision UK. Please, keep in mind that you can also order a consultation on the new rules of FDI verification in Great Britain.