Global Regulatory Scrutiny Tightens: US, EU, and Asia Overhaul Foreign Investment Rules

In several jurisdictions, regulatory scrutiny related to foreign investment has tightened significantly.
This year, both the US and Europe have shown a further trend towards more stringent foreign direct investment (FDI) reviews.
The Committee on Foreign Investment in the United States (CFIUS) recently released its annual report, highlighting an increased focus on compliance and enforcement, with an unprecedented number of civil penalties issued in 2023.
In Europe, the EU has proposed reforms to the Foreign Direct Investment Screening Regulation, which took effect in 2020, to broaden the scope of investment review.
Even in Asia, Singapore, known for its business-friendly environment, has introduced the Significant Investment Review Act (SIRA), aimed at using "new tools" to manage substantial investments in key entities.
Ninette Dodoo, head of the China antitrust practice at Freshfields Bruckhaus Deringer, noted that regulatory scrutiny over foreign investment is tightening across multiple jurisdictions.
"The scope of foreign direct investment is expanding, with more countries introducing investment review mechanisms," she said.
According to Dodoo, nations are identifying new concerns that could potentially threaten national security.
Taking the United States as an example, CFIUS's authority has been expanding, with reviews becoming more stringent.
Initially, the committee focused on traditional areas such as defense, military, and specific key technologies, but now it also looks into cutting-edge tech fields like quantum computing and artificial intelligence.
CFIUS's 2023 annual report revealed that, despite a decline in global M&A activity, the volume of CFIUS cases remained high.
In 2023, CFIUS reviewed or evaluated 342 transactions, slightly down from 440 in 2022 but still at historically high levels. The committee issued four civil penalties in 2023, double its previous nearly 50-year history total.
This compliance and enforcement surge stems from the U.S. Treasury's October 2022 CFIUS enforcement and penalties guidelines.
In April, the Treasury indicated further revisions to the regulations, aiming to "strengthen certain CFIUS processes and enhance its penalties and enforcement authorities." The proposed changes are vast, including expanding the types of information CFIUS can require, demanding substantive responses to risk mitigation proposals within three business days, broadening subpoena authority, and increasing the maximum civil penalty to $5 million.
"The CFIUS review process is becoming increasingly politicized, especially given the current U.S. election climate, with both parties vying to demonstrate how they can ensure U.S. interests and national security," Dodoo advised. Companies considering transactions in the U.S. should proactively engage with CFIUS.
Earlier this year, the EU proposed amendments to the FDI Screening Regulation.
Although the regulation has been in effect since October 2020, it only established a cooperation mechanism across the EU.
The European Commission noted that significant FDI into the EU was directed to member states without screening mechanisms, necessitating an expansion of the current system's scope.
One major change proposed is the regulation's extension to indirect investments by entities controlled by foreign investors within the EU.
Additionally, a list of sensitive sectors has been introduced, mandating compulsory FDI reviews with a suspensive effect in those fields across member states.
On a global scale, the investment environment has deteriorated.
The UNCTAD's recent World Investment Report 2024 highlighted that global FDI dropped by 2% to $1.3 trillion in 2023 due to economic slowdowns and rising geopolitical tensions.
Excluding significant fluctuations in European investment flows, the decline exceeded 10%. FDI into developing countries fell by 7% to $867 billion.
UNCTAD found nearly half of the negative policy changes for foreign investors involved newly established or expanded FDI screening mechanisms.
In 2023, four additional countries introduced FDI review systems, with more expected in 2024.
For instance, beyond the US and EU, the UK is also considering adjustments to its National Security and Investment (NSI) regime.
In the Asia-Pacific, Australia announced tighter foreign investment controls on mining and refining critical minerals in April.
In the same month, Singapore's SIRA took effect.
In Singapore, SIRA reflects a strategic shift given the city-state's global economic hub status.
The new law provides the government with broader review powers, covering transactions previously outside regulatory scope, according to Antitrust Partner Ranran Yin.
She noted that Singapore's FDI review tools target "designated entities" focusing on investments involving significant ownership thresholds, regardless of whether the investor is foreign or domestic.