State of Play: Foreign investment screening and approval: what investors need to know in 2021

Transcript

Political frictions and trade issues between Australia and China have been making headlines globally and while the Australia/China relationship is of course significant, investment from China and Australia doesn't put China in the top 5.  In fact it's fallen from $16.5 billion at its peak in 2016 to about $1 billion last year.  Admittedly though, all FDI in Australia fell last year.  But the biggest source of foreign direct investment in Australia however is the US and the US inbound investors are beginning to voice their discontent with our screening and approval mechanisms. 

FIRB changes over the last year have slowed the approval process down and that process is impacted by the involvement of other regulators, including of course the ACCC and the ATO.  That just doesn't impact timing.  FIRB's last performance framework report recognises the need for FIRB to work with other regulators to streamline requests made on investors as well.  That correlates with some of the concerns we're hearing from our clients as well.  Average increased processing times according to FIRB from 42 to 46 days, and up to a 6 month delay last year given a zero dollar screening threshold and FIRB is of course aware of these issues.  Its last performance framework report indicates an increase of processing times to 51 days over part of the COVID period last year and just as importantly a willingness to improve application processing times going forward.

The drivers of delay now include national security business rules and restrictions on the money lending exemption.  And the concerns from US investors are captured by a recent report from the American Chamber of Commerce in Australia and PwC Australia significantly joined by some large US companies.  That report sets out some concerns with Australia's foreign investment review process, including as mentioned before:

• processing timeframes and the drag on global deals with an Australian element
• interactions with other agencies
• uncertainty about the criteria for approval
• restructures that ultimately don't change the beneficial ownership still being caught, and
• an expansive definition of foreign government investor.

And its recommendations to improve the process include setting policy considerations in the legislation, materiality thresholds for Australian components of global deals, passporting regular investors, and FIRB does recognise a number of these points. Particularly standardising the process for applying foreign investment conditions and monitoring condition outcomes and the Australian Government has responded too.  It says it will look at these concerns alongside its already planned review of the changes to the FIRB regime introduced on 1 January which should be done, by the way, by the end of 2021.  That will look to balance facilitating foreign investment against the need to protect Australian's national interest.

So investors and their advisors should consider making a submission.  A helpful start for investors is to look at FIRB's own performance framework which assesses FIRB's performance against six regulator performance KPIs and so a number of the concerns expressed by investors can be tracked against those KPIs, including the need for regulators to operate efficiently, communication to be clear, targeted and effective and the need for regulatory frameworks to be continuously improved and so it provides a great roadmap for investor submissions.