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 (FDIs) and enhancing their FDI screening mechanisms. The UK Competition and Markets Authority (CMA) has started a consultation on a draft guidance concerning its powers and procedures in relation to cooperation mechanisms established by Regulation (EU) 2019/452 (FDI Regulation) (Guidance). The consultation started on 7 September 2020 and lasts until 5:00 pm on 18 September 2020.
THE FDI REGULATION
The FDI Regulation establishes a framework for screening of FDIs into the European Union and creates a cooperation mechanism within the European Union for the exchange of information and raising concerns in relation to FDI that might affect the security or public order of EU Member States (Member States).
To ensure that the FDI Regulation can operate effectively in the United Kingdom, the Enterprise Act 2002 (EU Foreign Direct Investments) (Modifications) Regulations (2020) Statutory Instrument (FDI SI) will enable 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.
Both the FDI Regulation and FDI SI will apply from 11 October 2020 until the end of the Brexit transition period agreed in the UK-EU Withdrawal Agreement, currently 31 December 2020 (Transition Period).
THE FDI REGULATION GUIDANCE
The Guidance explains how the CMA will apply its powers under the FDI SI to (i) 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.
Guidance on Extended Information Gathering Powers
The CMA will generally obtain information by issuing a notice mandating the parties to provide information. The notice will inform the parties that the information is requested for the purposes of responding to a request received under the FDI Regulation as opposed to CMA’s review of a transaction.
The CMA will be able to request information in relation to transactions which were entered no earlier than 10 April 2019 but will cease to issue notices and share information under the FDI Regulation once the FDI SI is revoked at the end of the Transition Period.
The Guidance states that in order to answer a request under the FDI Regulation, the CMA may request information concerning:
- the ownership structure of the foreign investor and the undertaking in which the FDI is planned or has been completed, including information on the ultimate investor and participation in the capital;
- the approximate value of the FDI;
- the products, services, and business operations of the foreign investor and of the undertaking in which the FDI is planned or has been completed;
- the Member States in which the foreign investor and the undertaking in which the FDI is planned or has been completed conduct relevant business operations;
- the funding of the investment and its source; and
- the date when the FDI is planned to be completed or was completed.
Guidance on Penalties
The Guidance notes that the CMA can exercise administrative and criminal penalties to ensure compliance with information-gathering powers in connection with the FDI Regulation.
Guidance on Information Sharing
The Guidance notes that information gateways already exist through which the CMA can disclose specified information where this is required for the purpose of EU obligations and to comply with obligations under FDI Regulations. Furthermore, the FDI SI enables the CMA to disclose information for the purpose of providing comments on FDIs taking place in the territory of EU Member States.
Even when one of these gateways is available, however, the CMA needs to have regard to three considerations before making a disclosure. These are:
- the need to exclude from disclosure (so far as practicable) any information whose disclosure the CMA considers to be contrary to the public interest;
- the need to exclude from disclosure (so far as practicable) commercial information the CMA considers might significantly harm the legitimate business interests of the undertakings or information relating to the private affairs of an individual which the authority thinks might significantly harm that individual’s interests; and
- the extent to which the disclosure of commercial information or information relating to the private affairs of an individual is necessary for the purpose for which the CMA is permitted to make the disclosure.
Following the consultation, a final Guidance will be adopted and will remain in force until the end of the Transition Period. After the Transition Period ends the CMA will not gather and/or share information in connection with the FDI Regulation.