The ever-widening scope of the Italian FI rules: What should we expect over the coming months?
The Italian FI rules
Let’s start with the basics. The Golden Powers Regulation (GPR) sets out the rules governing the Italian foreign investment screening mechanism. The authority responsible for the enforcement of the GPR is the Italian Government, which has the power to conditionally approve or veto transactions involving companies active - or having assets or relationships - in sensitive sectors, where such transactions give rise to a threat of serious prejudice to essential national interests.
The GPR originally only covered companies active in a limited number of sectors: defence, national security, energy, transport and communications - but its scope of application has been extended over the years, for example to the 5G sector. And, faced with the Covid-19 pandemic, the Italian Government strengthened and widened the GPR more than ever before.
First, the reforms extended the scope of the GPR to a considerable number of sensitive sectors (most of them outlined in Article 4 of the EU FDI Screening Regulation, see here for the latest developments on the Regulation). Sensitive sectors now also cover among others the finance, health, data, insurance, aerospace, media, artificial intelligence, robotics and cybersecurity sectors.
Second, it introduced new notification requirements covering:
- non-Italian investors acquiring control of a company having “assets and relationships” in a sensitive sector (a Sensitive Company); and
- non-EU investors acquiring a participation of 10% or more of the corporate capital or voting rights in a Sensitive Company.
These new triggering events add to existing ones. For example, lower thresholds (the minimum being 3% of the corporate capital or voting rights) apply to acquisitions of shareholdings in a Sensitive Company carrying out certain highly sensitive activities in the defence or national security sectors.
Further, the GPR not only covers share deals but also asset deals, as well as resolutions, acts or transactions entailing, directly or indirectly, a modification of the control/ownership/availability of the strategic assets and relationships of a Sensitive Company.
The scope of application of the GPR is therefore particularly extensive and does not even spare intra-group transactions or amendments to a company’s corporate object - and to some extent, even the by-laws of Sensitive Companies.
Some interesting statistics
Although there is no official database of GPR decisions made by the Italian Government, there is no doubt that the number of notifications has increased very significantly, in particular over the past year. It went from 83 transactions notified in 2019 to a staggering 341 filings submitted in 2020.
But there is more. Out of the proceedings closed in 2020, the Italian Government declared almost 50% of the transactions to be outside the scope of application of the GPR, evidencing above all its broad discretion in deciding what is covered or not by the GPR.
What to expect over the coming months?
The mentioned legislative changes introduced to fight the Covid-19 pandemic are currently expected to expire on 30 June 2021. It is however possible that the Italian Government will postpone this term or further amend the GPR, also depending on the progress of the Covid-19 pandemic. Absent a postponement, reporting requirements should significantly decrease, especially for EU investors, but the scope of application of the GPR might well be further broadened - in remarks to the press on 8 April, Prime Minister Mario Draghi backed calls for the GPR to be extended to the automotive and steel sectors.
In addition, recently enacted implementing decrees are expected to shed further light of what the GPR will cover in practice.
We also expect the Italian Government to remain open to foreign investments in Italy. In the same interview, Draghi commented that the rules “must be used where necessary”, revealing that the Government had recently blocked the acquisition by a Chinese company of an Italian semiconductor company.
However, the numbers speak for themselves: based on publicly available sources, since the adoption of the GPR the Italian Government has only prohibited three highly sensitive transactions concerning, respectively, the defence and national security, semiconductor and 5G sectors - out of hundreds of notified transactions across various sectors.