Why the expansion of FDI/national security regimes?
Many countries are continuing to introduce and strengthen their FDI and national security regimes, due to an evolving appreciation of what is a risk to national security and lines being blurred with economic stability. There is also much greater focus on new technologies and the risks potentially posed by these (especially if dual-use, i.e. with military and civilian uses). And the COVID-19 pandemic has put greater emphasis on medical equipment/vaccines, and supply chains generally.
The new UK national security regime
2022 saw the UK’s new national security regime commence. Hundreds, if not thousands, of transactions will be reviewed each year, with mandatory notifications for certain acquisitions of entities in 17 “sensitive” sectors, plus voluntary notifications for other types of transactions. Deals may also be called-in if not notified.
Other notable features of the new UK regime include that relatively limited UK nexus is required for a review, and a mandatory notification can be needed even if an acquirer is from the UK or a deal is intra-group. There are also significant civil and criminal penalties for non-compliance.
Despite the new regime’s broad scope (capturing not only M&A deals and minority acquisitions but also, e.g. IP transfers), few transactions have raised serious concerns so far. As at March 15, 2023, only five transactions had been prohibited (mostly with acquirers linked to China), plus ten cleared with remedies. To learn more about how the NSI regime is being applied, see our briefing on the first year of the regime here.
What is happening in the EU?
The EU FDI Regulation, setting out minimum requirements for EU Member State regimes and a mechanism for coordinating EU reviews, has now been in force for two years – and has contributed to a significant increase in Member State regimes. In 2019, 11 EU Member States had FDI regimes, and nine Member States introduced or amended their FDI regimes in 2021. By 2022, 25 (of 27) Member States had or were introducing FDI regimes.
As mentioned in our discussion of merger control and jurisdictional creep, the EU’s new FSR regime introduces new tools in 2023 for the European Commission to combat distortions of competition on the EU internal market caused by foreign subsidies. Intended to address a perceived gap between merger control and FDI, this includes a new mandatory notification requirement for concentrations meeting thresholds based on parties’ EU turnover and financial contributions from non-EU states, as well as enabling the Commission to review below threshold deals (see our briefing here to learn more).
The US and Canada
The US CFIUS regime is well-established but continues to evolve. Monitoring and enforcement is increasing, and towards the end of 2022 an Executive Order from President Biden highlighted five risk factors, and the first ever enforcement and penalties guidelines were issued (see further here).
Canada also has an established FDI regime, but its national security regime continues to evolve. This includes a new focus on the critical minerals sector. In 2022, a voluntary filing regime was introduced for investments not subject to mandatory notification, while reforms proposed in late 2022 include mandatory notification for investments in sensitive sectors before implementation, possible interim conditions and fines of up to C$0.5 million for non-compliance. See our briefings here and here to learn more about the Canadian reforms.
The position in Asia-Pacific remains relatively stable, but FDI regimes were subject to reform in the aftermath of COVID-19. Australia notably introduced significant FDI reforms in 2021, including a new national security aspect and dramatically higher penalties. Australia’s regime has many similarities with the new UK regime. However, many Asian countries have not changed their approach, often simply prohibiting foreign investment in a number of sectors.
National security remains a relatively novel concept in most of Africa. In 2019, an amendment was introduced in South Africa to require notification of mergers involving a foreign acquirer and an adverse impact on South Africa’s national security interests. However, it remains unclear when these provisions will enter into force.
Latest antitrust and competition trends
Merger control and jurisdictional creep
An increasing challenge for M&A parties is identifying where their deals will be reviewed in a context where merger control authorities are finding new ways to take jurisdiction over transactions falling below traditional (usually turnover-based) notification thresholds
Merger control and new theories of harm
Linked to jurisdictional creep and killer acquisitions is the trend of competition authorities looking at new theories of harm when assessing transactions for substantive concerns, with much greater focus in particular on innovation competition, dynamic competition and vertical concerns.
Internal documents, gun-jumping and merger control penalties
An enduring merger control trend is the authorities’ greater focus on parties’ internal documents, and the related risk of penalties and delays to reviews where parties fail to submit complete responses to RFIs or provide incomplete or misleading submissions.
Digitalization, Big Tech and copycat antitrust investigations
A noticeable global trend is more antitrust investigations into Big Tech, in particular for suspected infringements of rules that prohibit the abuse of a dominant position or monopolization, as well as privacy concerns.
Antitrust investigations and new areas of focus
As well as the recent focus on Big Tech, there are a number of other new areas of focus for antitrust authorities. See below to learn more about these.
More aggressive antitrust enforcement?
In the US, the Biden administration is synonymous with more aggressive enforcement in all areas of antitrust, emphasised by Lina Khan (FTC Chair) and Jonathan Kanter (DOJ Assistant Attorney General for the Antitrust Division).
The continuing rise of antitrust damages actions
The US and Canadian antitrust damages regimes are well-established and continue to thrive.
Antitrust damages actions and dominant firms
While damages claims are often thought of in the context of harm caused by cartels, there is an increasing trend of damages claims against dominant companies.