Proposed Reforms to the Monitoring Act Strengthen Finland’s National Security

Light surfaces, LIEKE L-symbol

The Finnish Government aims to reform the Act on the Monitoring of Foreign Corporate Acquisitions in Finland (172/2012, hereinafter the “Monitoring Act”) to better address the risks of national security, supply security and hybrid influence activity. On 5 February 2025, the Ministry of Economic Affairs and Employment of Finland published an assessment report VN/15267/2024 on the reform of the Monitoring Act (hereinafter the “assessment report”), which assesses the possible need for amendments to the key provisions of the existing Monitoring Act and the need for amendments to national legislation resulting from the reform of the EU Monitoring Regulation (EU) 2019/452.

Changes in the security environment, particularly Russia’s war in Ukraine, have reinforced the global trend whereby an increasing proportion of international investments are subject to security-based monitoring in the country of investment. States pursue their strategic security interests via economic means. Rapid changes in the security environment have led to a loss of predictability in the framework of M&A screening, which requires M&A screening to be able to adapt quickly to different situations. The concept of security has become more complex and encompasses economic security as a whole, where economic linkages and interdependencies between countries and companies, previously seen as neutral, are increasingly recognized as harmful vulnerabilities. According to the assessment report, the scope of Finnish Monitoring Act needs to be reassessed in the changed security situation, as it is important that Monitoring Act can be used to assess security-critical foreign acquisitions as effectively as possible. The main proposals for the amendment of the Monitoring Act set out in the report are examined below.

Extension of the Scope of Mandatory Application Procedure

The scope of the Finnish Monitoring Act is narrower than in comparable countries with respect to the mandatory confirmation procedure. In particular, M&A transactions in the technology sector, which would be subject to mandatory monitoring in the countries of comparison, are often completely excluded from the scope of mandatory application in Finland. Many mergers that would be subject to mandatory monitoring in other countries remain subject to a voluntary notification procedure in Finland. The assessment report therefore proposes that mandatory application should be extended via combining Section 4  (defense and security acquisitions) and Section 5 (other acquisitions) of the Monitoring Act into a single mandatory application procedure, whereas the current voluntary notification procedure should be abolished. Those companies which are important for essential societal functions and supply security purposes and which are, under the current regime, subject to the voluntary notification procedure, would also be subject to a mandatory ex-ante approval procedure. These would include companies operating in critical infrastructure and critical service infrastructure such as energy, water, finance, health, traffic/transport, telecoms, cloud services and media. In addition, companies involved in IT security and classified information, technology development in particularly sensitive sectors as well as other companies critical to national security or public order, should also be considered for inclusion in the mandatory ex-ante approval procedure.

Modification and Extension of Sectoral Coverage

Finland does not currently have a sectoral list of the scope of the Monitoring Act, due to a conscious choice. Incorporation of a sectoral list in the Monitoring Act would require updating the list via a legislative process whenever the security environment changes. However, the new EU proposal for Monitoring Regulation (COM 2024/23) would obligate all Member States to establish a national monitoring mechanism for the monitoring of foreign direct investment and to monitor at least the sectors listed in the regulation. Based on the proposed regulation, Member States would have to ensure that the national monitoring mechanisms cover at least the sectors listed in the proposed regulation, such as dual-use items, military and defense equipment, advanced semiconductors, quantum technologies, biotechnology and AI. The modification and extension of the sectoral coverage is one of the key issues in the reform of the Monitoring Act. The assessment report contains an appendix with an indicative list of minimum sectors which should be covered by the Monitoring Act.

Inclusion of Greenfield Investments in the Scope of Mandatory Application Procedure

Greenfield investments are not currently covered by the Monitoring Act. However, restrictions on the incorporation of companies have in recent years been included in the monitoring legislation of various EU countries. Whereas the current EU Monitoring Regulation and the proposed new regulation do not require the inclusion of greenfield investments in national monitoring legislation, the proposed regulation does encourage Member States to include foreign direct investments in entirely new activities among those transactions covered by their national monitoring mechanisms. According to the assessment report, the incorporation of all greenfield investments in Finland would mean a major change in the scope of the Act and in the number of applications, but a targeted monitoring of greenfield investments should still be made possible considering the changed security environment. Consequently, the assessment report proposes that consideration should be given to the inclusion of greenfield investments within the scope of the Monitoring Act via targeted and limited regime for those sectors wherein it is considered particularly important. Such important sectors could include, for example, mining and minerals, battery industry, wind power, nuclear energy installations, cloud service, transport critical infrastructure and service infrastructure.

Expanding the Definition of Foreign Acquirer

The current Monitoring Act already covers investors from the EU and EFTA Member States, but only in case of acquisition of defense industry companies. According to the assessment report, this should be the premise for all acquisitions, including companies which are important for essential societal functions, supply security and critical infrastructure. In security sector acquisitions the definition of foreign acquirer should be expanded in order to include EU and EFTA investors in scope of the ex-ante approval procedure as well. Whereas the premise for the application of the EU Monitoring Regulation is investments from third countries into the EU, Member States may nevertheless further define and limit the scope of application, within the framework of the free movement rules of the EU.

New Ownership Review Points

According to the assessment report, the application thresholds of the Monitoring Act should be reviewed, and considering preliminary assessments it is considered important to add new ownership review points to the Act in addition to the existing ones, in particular for situations where 50% of the target is initially acquired and the whole company is acquired at a later stage. Increasing ownership of the target company can be a long-term process and the company may develop into a security-critical company after an initial 50% investment, if the nature of the company’s activities and clientele change over time. In such situations, intervention would no longer be possible, unless the Ministry of Economic Affairs and Employment has imposed a specific condition in its confirmation decision regarding possible future acquisition of additional shares. Consequently, the assessment report proposes adding new ownership review points to the Monitoring Act beyond the 50% shareholding, based on the following thresholds of the Limited Liability Companies Act (624/2006): 66.7% (critical review point for a qualified majority decision and the default condition for a qualified majority decision under the Limited Liability Companies Act) and 90% (redemption right).

Expanding the Use of Conditions

In the 2020 amendments of the Monitoring Act, a new provision (Section 5 b) on the imposition of conditions was included in the Act. Under the current regime, the Ministry of Economic Affairs and Employment may, in its confirmation decision, impose conditions on the acquisition which are considered necessary in order to safeguard very important national interests. Whereas the current provision limits the imposition of conditions to the protection of very important national interests, the assessment report proposes that in the future the imposition of conditions should, based on a case-by-case risk assessment, also be possible as an alternative to a prohibition decision in situations other than those wherein very important national interests are at risk, if the acquisition can be given the green light via imposition of conditions as a mitigating measure.

The Significance for Businesses of the Proposed Reforms

The proposed amendments of the Monitoring Act will have a significant impact on Finnish companies, especially those operating in critical sectors or attracting international investors. Modifications to the application requirements, sectoral reviews and the definition of foreign acquirers may entail more bureaucracy in acquisitions, but the modifications may also increase legal predictability and clarity in the acquisition process. The amendments may introduce new obligations and review points for your business which require legal expertise – given our extensive experience of M&A projects, we can assist you in safeguarding your business interests in the changing security landscape.

For more information please contact