New EU FDI Regulation: striking the right balance? 

On 8 May 2025, the European Parliament (EP) adopted an amended version of the European Commission's proposal for a new regulation on the screening of foreign investments (FDI) into the European Union (the Draft Regulation) to repeal and replace Regulation (EU) 2019/452 (2019 Regulation).

On 11 June 2025, the Council of the European Union approved its own amended version of the European Commission's proposal. The two new versions of the Draft Regulation take different approaches to substantive and procedural matters. However, the proposed rules in both versions aim to enhance effectiveness, promote harmonisation across Member States and reflect evolving concerns over strategic dependencies and economic security, at least compared to the 2019 Regulation.

What you need to know

• The proposed rules would require all Member States to establish and maintain a national screening mechanism, replacing the current voluntary approach.
• The Draft Regulation requires the scope of the national screening mechanisms to be broadened to cover indirect investments via EU-based entities, but the EP and the Council have taken different approaches to greenfield investments in sensitive sectors and transactions linked to a broader range of projects or programmes of EU interest.
• A strengthened EU cooperation mechanism would impose stricter notification requirements and mandate coordination for multi-jurisdictional filings.
• Unlike the Council, the EP is supportive of expanding the European Commission’s powers to intervene. 
• The trilogues between the European Commission, the EP and the Council are currently ongoing.

Background

Following the European Commission proposal of a new regulation on the screening of FDI in the EU in January 2024, the EP adopted an amended version of the Draft Regulation on 8 May 2025. The Council adopted its amended version on 11 June 2025. The European Commission, EP and the Council are currently involved in the trilogues to agree on the final text that, once approved by the EP and the Council, will mark a key step in the revision of the EU FDI framework.

While the three EU institutions have taken different approaches in their draft texts, their shared intention is to repeal and replace the 2019 Regulation to improve its efficiency and effectiveness, and to promote greater harmonisation across Member States. This reform also responds to a shifting geopolitical landscape and increasing concerns over strategic dependencies and foreign influence in critical areas.

Reflecting this broader strategic context, the Draft Regulation expands the scope of FDI screening beyond public security and public order to also include the protection of the EU’s economic security.

A unified approach to national FDI screening regimes: the path to increased harmonisation

The Draft Regulation introduces a mandatory requirement for all Member States to establish and implement FDI screening mechanisms. This marks a departure from the 2019 Regulation, which merely encouraged such regimes.

In addition, the new framework seeks to address the current fragmentation among national regimes (characterised by divergent scopes, timelines and thresholds) by harmonising key procedural and substantive elements, including the scope of review, procedural structure, interaction with the EU cooperation mechanism, and judicial review rights. Minimum standards are also set for addressing non-compliance and circumvention.

At the same time, the Draft Regulation preserves a degree of flexibility at national level. Member States may choose to extend the scope of their screening regimes to cover additional types of FDI or sectors, provided that such extensions remain compatible with the EU framework.

Minimum substantive requirements for national FDI screening

Alongside a push for harmonised procedures, the three EU institutions agree that the Draft Regulation should also expand the categories of FDI which should be screened at national level by broadening the definition of "foreign investment" to encompass both direct and indirect investments by third-country investors. This includes those made via EU-based subsidiaries that confer effective management or control over an EU target.

However, there is currently no consensus on the categories of transactions that should be subject to national screening. This is perhaps the most controversial point of the current trilogues.

The draft text approved by the EP:

• confirms the European Commission's proposal of mandatory filings for foreign investments in an undertaking established under the laws of a Member State (a so-called "Union target") which is (a) involved in projects or programmes of Union interest (Annex I) or (b) is active in sensitive sectors (Annex II); and
• proposes greenfield investments (i.e., the establishment of new facilities or undertakings) should require prior authorisation if (a) the (to be established) Union target is involved in projects or programmes of Union interest (Annex I) or is active in sensitive sectors (Annex II); (b) the investor falls within certain risk-based categories, and (c) the transaction value is at least EUR 250 million.

In the draft texts prepared by the European Commission and the EP, Annexes I and II list the activities / sectors that will trigger mandatory national filings. In particular, Annex I has been significantly expanded (particularly by the EP) to cover 21 projects / programmes of Union interest (compared to the current 8), while Annex II introduces an extensive list of sensitive areas where FDI may pose a risk to security or public order. The European Commission draft included an extensive list of such sectors, including semiconductors, AI, quantum technologies, biotechnologies, advanced connectivity (including 5G/6G infrastructure), sensors, space and propulsion, energy, robotics, advanced materials and recycling, critical medicines, banking financial and payment infrastructure and institutions, to which the EP added transport (including the automotive industry), media, electoral infrastructure, critical raw materials and farming. According to the EP, the Union target will be considered to be active in one of these sectors if it is involved in the development, production, design, extraction, processing, recycling or supply of the relevant assets / technologies. In parallel, the EP has introduced a new definition of critical infrastructure, encompassing not only physical assets but also systems and networks necessary to the delivery of essential services. 

In contrast, the Council proposes to leave the decision on whether greenfield investments should be subject to mandatory filings to the individual Member States and would only require mandatory screening for foreign investments in a Union target which develops, produces or commercialises:

• dual-use items (as listed in Annex I to Regulation (EU) 2021/821); or
• goods and technologies listed in the EU Common Military List. 

The Council's approach reduces the content and the importance of Annexes I and II to the Draft Regulation. Instead of listing the sectors and activities for which mandatory filings are required, the Annexes would merely list the sectors that should be "taken into account" by Member States and the European Commission when assessing whether a foreign investment is likely to negatively affect security or public order.

Minimum procedural requirements for national FDI screening mechanisms

The Draft Regulation sets out minimum procedural requirements for national screening mechanisms, which the three EU institutions have agreed upon, including:

• a standstill obligation pending completion of screening;
• a two-phase review process (Phase I: the EP has proposed a maximum of 35 days while the Council has proposed a maximum of 45 days; Phase II: in-depth investigation); 
• mechanisms for monitoring compliance and preventing circumvention; and
• the ability to open ex officio investigations within 15 months of completion for non-notified transactions.

The Draft Regulation also requires national authorities to be empowered to impose mitigating measures, prohibit transactions, unwind completed transactions in cases of gun-jumping, and levy effective, proportionate, and dissuasive fines for non-compliance.

Minimum requirements for the assessment of the FDI

The Draft Regulation, as amended by the EP, includes a detailed and broadened list of risk factors that Member States and (within the cooperation mechanism) the European Commission must consider in their assessment of the FDI, including security of military and sensitive facilities, internal market stability, technology leakage, supply chain resilience, food security, financial stability, protection of sensitive information and intellectual property, media pluralism, and the risk of economic coercion by third countries. The Council refers to some of these areas as well as public health, critical transport infrastructure and the effects on the projects and programmes of Union interest listed in Annex I and on the sectors listed in Annex II.

Authorities must also assess information related to foreign investors, including their prior involvement in prohibited FDIs, FDIs subject to conditions, illegal activities, or activities negatively affecting the security or public order in a Member State. The EP has included additional factors, such as foreign investors' links to third-country governments or sanctioned jurisdictions and whether they operate in regimes with systemic AML / CFT deficiencies or aggressive civil-military fusion strategies.

The Draft Regulation encourages the use of risk mitigation measures over prohibitions wherever possible. The EP's version provides a non-exhaustive list of potential remedies including: changes to the Union target's governance structure, modification of the voting rights conferred on the investor, supply or sourcing commitments, ensuring the continuation of business activities, implementation of cybersecurity protocols to protect against potential threats, obligation to store and process specific data within the Union, and even the requirement to establish a joint venture with an EU partner.

A coordinated approach to multi-jurisdictional transactions

The Draft Regulation introduces new coordination requirements for FDIs which are notifiable in more than one Member State. The European Commission and the Council are more aligned: their proposals suggest a general coordination between the relevant Member States (mainly in relation to the EU cooperation mechanism) and imposing a (quite burdensome) obligation on the applicants to file on the same day. The EP text goes further and would require Member States to coordinate on scope, timelines and remedies, aiming for consistent decisions and, where possible, simultaneous final determinations. 

Importantly, the EP seeks to promote alignment on both the assessment of whether the FDI should be subject to a filing obligation and the final outcome, with the aim of encouraging authorities to reach consistent decisions, particularly where remedies are being imposed.

The new role of the EU cooperation mechanism for notified transactions

The three EU institutions have also taken different approaches to the extent to which the EU cooperation mechanism should be reinforced and centralised. Under the new rules, notification to the European Commission and other Member States under the cooperation mechanism becomes mandatory for certain FDIs but there is no consensus on which categories of transactions should be in scope.

The EP and the European Commission are of the view that the EU cooperation mechanism should apply to the following categories of FDI:

• Category 1: transactions where the Union target is involved in a project or programme of Union interest listed in Annex I;
• Category 2: transactions where (i) the Union target is active in one of the areas listed in Annex II; and (ii) the investor falls within defined risk categories, i.e. state-controlled, subject to EU sanctions, prior involvement in prohibited FDIs or FDIs cleared with conditions, or with "opaque ownership structures" (this is a new concept introduced by the EP referring to cases where the ownership or control of the investor is unclear, for example, because of complex legal structures, multiple layers of ownership or trusts which obscure identity of the beneficial owner); and
• Category 3 (added by the EP): greenfield investments where (i) the (to be established) Union target is involved in a project or programme of Union interest listed in Annex I or operates in one of the strategic areas listed in Annex II; (ii) the foreign investor falls within the above-mentioned risk categories (with the exception of "opaque ownership structure" – potentially an oversight); and (iii) the value of the transaction reaches at least EUR 250 million. 

The Council has adopted a narrower approach with a focus on investments relating to dual-use goods and goods / technologies on the EU Common Military List where the investor falls within the defined risk categories (with the exception of "opaque ownership structure").

There seems to be more consensus on when investments should be notified under the cooperation mechanism. Notification will be required if: (i) the screening Member State opens a Phase II investigation (subject to certain conditions in the Council's proposal) or (ii) the Member State where the Union target is established (the so-called "host Member State") considers that the transaction may be of interest to the other Member States and the European Commission. In addition, the EP has proposed cases should be notified where the screening Member State intends to impose measures or prohibit the transaction without a Phase II investigation.

The Draft Regulation excludes from the scope of the cooperation mechanism: (i) minority stakes without control or influence, (ii) portfolio investments, (iii) internal restructurings, without a change in control by a third-country investor and (iv) transactions involving resolution tools (i.e. measures adopted mainly in cases of insolvency). In addition, the Council text excludes write-down and conversion powers (i.e. the powers conferred to national resolution authorities to write down or convert capital instruments into shares or other instruments) from the scope of the cooperation mechanism.

The process is likely to be more complex than the one currently in place and governed by strict timelines. Significantly, according to the EP, the European Commission should have enhanced powers to issue opinions, propose remedies, and, in certain cases, directly prohibit or authorise transactions subject to conditions. In contrast, the European Commission and Council's proposals show a clear intention to leave the screening Member State(s) to adopt the final decision and do not suggest that the European Commission should have the power to make the final decision.

Scrutiny of non-notified transactions

Member States and the European Commission may intervene in non-notified transactions within 15 months of completion if concerns arise regarding security or public order.

Under the Draft Regulation, any Member State may raise concerns over a FDI which is planned or which has already completed in another Member State, even if the FDI has not been notified or if the screening procedure in that country has not triggered the cooperation mechanism.

The European Commission is also empowered to act on its own initiative, where it believes the FDI negatively affects the security or public order of more than one Member State or projects or programmes of Union interest.

However, the draft texts take different approaches to the extent of the powers granted to Member States and the European Commission. Both the European Commission and the EP (the latter as usual referring to a more complex procedure) suggest a structured "own initiative" procedure whereby the European Commission or a Member State may request the host Member State to provide information on the FDI and issue comments or opinion. In contrast, the Council proposal does not contain a specific procedure: instead the Council's view is that Member States and the European Commission should be free to provide comments and/or an opinion.

Enhanced powers of the European Commission

The EP has proposed granting the European Commission investigative powers where cross-border analysis is required, including the ability to request information from the parties to the transaction and third parties, suspend procedural deadlines and impose (even heavy) fines for non-compliance. This enhanced scrutiny applies to both notified and non-notified transactions, thus reinforcing the system’s capacity to address circumvention of national FDI regimes.

More broadly, under the EP proposal, the European Commission is also tasked with developing a business intelligence capability to help Member States anticipate and assess risks. This includes coordinated risk mapping, the design of training programmes, and a Union-wide capacity-building strategy aimed at aligning standards and promoting best practices. A permanent Expert Group on FDI Screening will support these efforts.

However, neither the European Commission or the Council have proposed granting the European Commission with these new powers.

Practical aspects

The EP's version also seeks to strengthen the operational backbone of the screening mechanism through new infrastructure and dedicated resources. It provides for the establishment of a single electronic portal for filings that will be used by applicants (who select the relevant screening Member State(s) and provide at least the information required under the cooperation mechanism). The European Commission and the Council proposals are more limited and simply suggest setting up a secure database for information sharing.

Implementation and strategic consistency

The Draft Regulation contains a set of provisions designed to ensure coherent implementation across the EU, in synergy with other EU and international legal instruments. The EP version refers to the Foreign Subsidies Regulation and the International Procurement Instrument, in addition to the WTO obligations.

Next steps and entry into force

Trilogues for the negotiations on the final text started on 17 June 2025 and are currently ongoing. The Draft Regulation will enter into force following formal adoption by the EP and the Council. Currently, the three EU institutions have proposed different dates for when the Regulation should apply from: the EP has proposed one year after the Regulation enters into force while the European Commission and the Council have proposed 15 months and two years respectively.

Takeaways

The Draft Regulation highlights the EU’s aim to harmonise national FDI screening regimes and strengthen cooperation, with the European Commission as the central authority. The trilogues are expected to be long and complex given the diverging views on (i) the types of FDI and relevant sectors that should be caught by mandatory national filings and (ii) the extent of the powers to be granted to the European Commission.

While the list of sectors proposed by the EP is arguably over-inclusive, the Council's proposal seems to propose a return to FDI regimes which are mainly focused on the military sector, without taking into account the broadened scope of national regimes following the 2019 Regulation and the Covid-19 pandemic. The three institutions also need to agree whether the Regulation should require Member States to screen greenfield investments.

The trilogues will also consider whether additional powers for the European Commission and Member States (as proposed by the EP) are required, particularly given the European Commission’s limited involvement in FDI reviews to date. According to the European Commission's Fourth Annual Report on the Screening of Foreign Direct Investments into the Union, in 2023 the European Commission issued an opinion in less than 2% of notified transactions, i.e. less than 10 over 488 notifications (see our October 2024 update). The effectiveness and necessity of an enhanced cooperation mechanism remains open to debate.

Although the text is not final, several key challenges for Member States are already clear:

• Harmonisation of some key concepts: defining terms like "foreign investor" to mean only non-EU investors could be contentious, as some Member States currently screen domestic investments as well.
• Scope of exclusions: excluding minority shareholdings, internal restructurings and portfolio investments from the cooperation mechanism raises questions about whether Member States will also exclude these from their own regimes.
• Complex coordination: achieving consistent assessments across multiple jurisdictions is difficult, given differing national security concerns, legal traditions and administrative practices.
• Information burden: the risk-assessment process may require applicants to provide extensive information, including in relation to the target, increasing the administrative burden.
• Procedural differences: National screening procedures vary widely, with different deadlines and phases, making harmonisation challenging.
• Cooperation mechanism: the new, more prescriptive cooperation process introduces strict deadlines and more opportunities for requests for information and objections, which could slow down complex or sensitive transactions.

Other Authors: Fiona Garside, Senior Expertise Lawyer; Cecilia Ghinassi Carini, Associate