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Liquidity risk was amplified by the COVID-19 pandemic with regulators introducing a number of initiatives to mitigate the corresponding risk.
However, it’s not the only area which has seen increased attention as a result of COVID-19. As summarised below, despite the G20 commitment to “support global trade and investment” during the pandemic, foreign investment restrictions have been on the rise.
In late March, the European Commission published guidance to Member States concerning foreign investment and free movement of capital from third countries, and the protection of Europe’s strategic assets.
The Commission indicated that Member States need to be vigilant and use all tools available at Union and national level to avoid the current crisis leading to a loss of critical assets and technology. In doing so, the Commission called upon Member States to make full use of FDI screening mechanisms to take fully into account the risks to critical health infrastructures, supply of critical inputs, and other critical sectors as envisaged in the EU legal framework;
Following the EU’s developments, the Foreign Investment Review Board of Australia lowered the threshold amounts which apply in determining whether particular foreign investments made are subject to Australia’s foreign investment framework to $0. Previously, the thresholds ranged depending on the country of the investor and the type of investor to as high as AUD1,192bn. Foreign persons proposing to take certain actions will need to notify the Treasurer if the action satisfies the meaning of a notifiable action under the Act. Under section 47 of the Act, a notifiable action is a proposed action by a foreign person:
- to acquire a direct interest in an Australian entity or Australian business that is an agribusiness; or
- to acquire a substantial interest in an Australian entity; or
- to acquire an interest in Australian land.
Generally, the action is only notifiable if the entity, business or land meets the threshold test.
It should be noted that private foreign investors may not require approval for acquisitions of less than 20 per cent in a publicly-listed entity.
Acquisitions of interests in securities of particular entities may require approval at a lower percentage threshold. For example:
- Acquisitions of 10 per cent or more in an Australian agribusiness or land entity, or where the foreign person has a legal arrangement in place with the entity or is in a position to participate, influence or control the management of the entity;
- Acquisitions of 5 per cent or more in an Australian media business, as defined under the Act; and
- Acquisitions of 10 per cent or more in any Australian entity by a foreign government investor, or where the foreign government investor has a legal arrangement in place with the entity or is in a position to participate, influence or control the management of the entity.
In April, France also made amendments to foreign investment rules, with the lowering of the notification thresholds from 33.33% to 25% for investment in strategic sectors made by non-EU/non-EEA investors.
Additionally, the strategic sectors were extended to include biotechnology. The strategic sectors concerned now include:
- public health,
- spatial industry,
- artificial intelligence R&D,
- print and online press services,
- food safety,
- energy storage, and
- quantum technologies.
Similar measures were imposed in Spain in response to COVID-19. On 17th March 2020, Royal Decree-Law 8/2020 was approved. New Article 7 bis on the “suspension of the regime of liberalization of certain foreign direct investments in Spain” was added and new rules on sanctions also established in Articles 8 and 12 of Act 19/2003. The suspension imposes obligation to obtain a prior express authorization by the Spanish public authorities. A 10 per cent threshold on foreign investment will apply.
Foreign investors, investing in Strategic Sectors require ex ante authorization from the Spanish Government. Absence of this prior authorization will result in the foreign investment being deemed null and void and considered as an infringement.
Canada has also introduced enhanced scrutiny under the Investment Canada Act. The Government will scrutinize with particular attention under the Act foreign direct investments of any value, controlling or non-controlling, in Canadian businesses that are related to public health or involved in the supply of critical goods and services to Canadians or to the Government.
The Government also announced that it will subject all foreign investments by state-owned investors, regardless of their value, or private investors assessed as being closely tied to or subject to direction from foreign governments, to enhanced scrutiny under the Act.
In response to the impact of COVID-19, New Zealand has amended the Overseas Investment Act 2005 by putting in place temporary requirements for foreign investors to notify an intention to take a controlling investment in any New Zealand business, if that results in more than a 25% ownership interest, or increases an existing interest to or beyond 50, 75 or 100%.
Germany requires filing and approval for any investments over 10% for non-German investors in specific sectors, and 10% if listed on statute as a “critical activity” for non-EU/EFTA investors.
The German Government has extended the list of companies for which the acquisition of a stake by a purchaser from outside the European Union can be examined. The new list includes companies that develop or manufacture goods that are “indispensable for the maintenance of a properly functioning health system in Germany”, such as personal protective equipment (PPE), drugs and vaccines.
The amendment now requires any acquisition of a stake of 10% or more in security-relevant businesses in the health branch to be reported and examined.
On 8th May 2020, the Modifications to the Foreign Exchange and Foreign Trade Act (FEFTA) Rules and Regulations entered into force. Full implementation starts on 7th June 2020 (30 days after the entry into force of the amended Act).
The FEFTA revisions require overseas investors to submit a prior notification of stock purchases to the government via the BOJ (Bank of Japan) if they plan to acquire a stake of 1% or higher in companies in designated sectors. The previous threshold was 10%.
There is a list of over 3000 companies of which 518 are in 12 sectors deemed important to Japan’s national security – available here.
There are blanket exemptions for certain foreign financial institution. Foreign financial institutions include:
- Securities firms
- Insurance companies
- Asset management companies
- Trust companies
- Registered investment companies（including mutual fund and exchange-traded fund
- High-frequency traders