New EU Foreign Direct Investment Screening Regulation Falls Short Of Remedying Fragmentation Of National Screening Mechanisms

On June 8, 2026, a new EU regulation was adopted to replace the 2019 Foreign Direct Investment (FDI) Screening Regulation. The new regulation requires all Member States to establish a screening mechanism for inbound FDI. It also defines a mandatory minimum sectoral scope, expands coverage to investments by foreign investors’ EU subsidiaries, and improves coordination between Member States and the Commission.

The new regulation should result in more consistent scrutiny across the EU of investments in sensitive sectors, but foreign investors will still face material differences between national FDI screening regimes and timeline uncertainty. In this alert, we first briefly explain the background to this regulation, before looking at the key changes that it introduces and summarizing their likely impact.

I. Background

Over the years, an increasing number of EU countries have introduced mechanisms to screen inbound FDI for potential threats to security and public order, similar to the Committee on Foreign Investment in the United States (CFIUS) review process. In 2019, the EU adopted its first FDI Screening Regulation to bring about some degree of EU-wide harmonization in this area. This regulation established some minimum requirements for national screening regimes and introduced an EU-level coordination mechanism to address the cross-border effects of foreign investments. While the 2019 regulation did not require Member States to adopt a screening mechanism, the European Commission strongly encouraged them to do so.

In January 2024, the Commission published a legislative proposal to replace the 2019 FDI Screening Regulation. The proposal was part of the EU’s broader Economic Security Strategy and aimed to address the shortcomings of the 2019 framework, as identified by an evaluation carried out by the Commission. These shortcomings included the absence of any obligation for Member States to screen inbound FDI, significant discrepancies in the scope of existing national screening mechanisms, and an insufficiently structured EU-level cooperation mechanism (see our previous alert for more information).

On December 11, 2025, following several months of trilogue negotiations, the EU co-legislators – the European Parliament and the Council – reached a political agreement on a compromise text. The Parliament approved the text at its May 19, 2026, plenary meeting, and this was followed by the Council’s approval on June 8, 2026.

For the first time, the new regulation requires Member States to establish a screening mechanism for investments by investors from third countries. In practice, all 27 EU Member States have already enacted FDI screening legislation, with the laggards (Greece, Croatia, and Cyprus) adopting their frameworks in 2025-2026. Therefore, the regulation’s significance lies not in filling a coverage gap, but rather in reinforcing the common standards that national regimes must meet and in bringing greater consistency to the scrutiny of cross-border effects.

II. Key Changes 

The new regulation addresses the concerns identified in the evaluation through stronger harmonization and a more structured cooperation between Member State authorities and the Commission. Its main features are as follows:

• • All Member States are legally required to establish a national screening mechanism in accordance with the minimum requirements of the regulation.
  • For investments falling within a mandatory minimum sectoral scope, Member States must require prior authorization. The sectoral scope covers investments in targets active in:
    1. dual-use items (civilian products that can be repurposed for military use);
    2. defense-related products and technology;
    3. advanced technologies such as semiconductors, quantum technology and artificial intelligence (including research-only activities);
    4. transport, energy or digital infrastructures, but only to the extent they are assessed as critical following a risk-based assessment by the relevant Member State;
    5. Exploration, extraction, recycling, recovery, and stockpiling of critical raw materials (as defined by the Critical Raw Materials Act);
    6. financial market infrastructure and systemically important financial entities, including central counterparties, central securities depositories, operators of regulated markets, operators of payment systems other than central banks, other systemically important institutions and global providers of specialized financial messaging services; and
    7. electoral operations management.

Two important limitations apply:

• • • • First, while greenfield investments (i.e., investments through the establishment of new facilities or undertakings in the Union) fall within the regulation’s scope, they are excluded from the mandatory minimum scope for prior authorization. 
      • Second, the AI component is narrow: it is limited to general-purpose AI models (and AI systems based on those models) that are suitable for space or defense applications, or carry systemic risks under the EU AI Act.

Member States remain free to require prior authorization for foreign investments falling outside this minimum scope. It is also left to their discretion whether to expand the requirement to greenfield investments or not.

• • In response to the EU Court of Justice ruling in the Xella case, the regulation explicitly requires Member States to screen investments made through EU-based subsidiaries, i.e., investments made by any EU-based undertaking that is ultimately owned or controlled by individuals or entities from non-EU countries. A “foreign investment” is any investment enabling “effective participation” in the management or control of a Union target, capturing material influence through shareholding, voting rights, contracts, or board representation, rather than outright control alone.
  • Internal restructurings fall outside the regulation's scope, unless a new non-EU entity is introduced in the upstream ownership chain of the EU target.
  • Call-in powers for non-notifiable investments. Member States must empower their FDI screening authorities to review non-notifiable transactions for a period of at least 15 months and up to a maximum of five years after completion. Where authorization is required but not sought, the minimum window is 24 months. However, the Regulation does not require Member States to allow for voluntary filings that would help manage the deal uncertainty that such call-in powers entail.
  • National mechanisms must ensure that the preliminary (“phase I”) review of a notifiable foreign investment is completed within 45 calendar days from filing. If, on the basis of this preliminary review, the competent national authority concludes that the screened investment is likely to negatively affect public order or security, it must open an in-depth (“phase II”) investigation. However, phase II timelines remain a matter for each Member State, so overall review durations will continue to vary across jurisdictions.
  • Mandatory notification to the EU-level cooperation mechanism: The regulation aims to limit review under the cooperation mechanism to cases that really matter. Accordingly, the host Member State is required to notify foreign investments to the other Member States and the Commission only in the following cases:
    • Where the target’s activities fall within the minimum sectoral scope and the foreign investor is state-controlled, subject to EU sanctions, or was previously involved in an investment that was blocked or authorized subject to conditions that were not complied with; or
    • Irrespective of sector, where the host Member State either initiates an in-depth investigation or, in exceptional cases, intends to impose a mitigating measure or prohibit a transaction without opening an in-depth investigation – provided that the target is active in a project or program of Union interest, or has subsidiaries in at least one other Member State.
    • Whenever they consider that a foreign investment within their screening scope could negatively affect another Member State’s security or public order.
  • Coordination is improved in multi-jurisdictional cases, i.e., where a foreign investment is notifiable in more than one Member State:
    • Investors must endeavor to file simultaneously in all relevant Member States, with filings cross-referencing each other; and
    • Member States must endeavor to send their notifications through the EU-level cooperation mechanism on the same day and align their review timelines as closely as possible, including the timing of final decisions. Where appropriate, they must also consider whether their respective decisions are mutually consistent and together adequately address identified risks.
  • The Commission’s role is expanded. Its opinions are given greater weight, and it may even propose specific mitigating measures. If the Commission considers that two or more foreign investments taken together pose a risk to security or public order, it may issue opinions addressed to all Member States simultaneously flagging it as a “systemic” risk.

The regulation also strengthens the cooperation between Member States. A new meeting mechanism obliges the host Member State to convene a meeting at the request of a Member State or the Commission to discuss how best to address the risks identified. In multi-jurisdictional cases, all notifying Member States are invited to participate. A host Member State may also proactively request a Commission opinion or comments from other Member States.

However, ultimate decision-making authority remains with the host Member State. It must give due consideration to the other Member States’ comments and/or the Commission’s opinion. Within seven calendar days of its decision entering into force, the national screening authority must provide the other Member States/the Commission with the operative part of its decision and a summary of its reasons, including the extent to which it gave consideration to their comments/opinion and, where applicable, the reasons for any departure.

• • One of the issues identified in the evaluation of the 2019 regulation was that the deadlines to respond were the same for the Member States and the Commission, potentially leaving the Commission insufficient time to take the Member States’ comments into consideration. The new regulation addresses this by staggering the response deadlines for the other Member States and the Commission:
    • Member States must signal their intent to comment within 15 calendar days from receipt of the notification and the Commission its intent to issue an opinion within 20 calendar days. Additional information can be requested from the notifying Member State within the same deadlines.
    • Member States must submit their comments within 20 calendar days from receipt of the notification and the Commission within 30 calendar days. If the Member States or the Commission requested additional information from the notifying Member State, the deadline to respond is respectively 15 calendar days or 25 calendar days from receipt of that information.

These deadlines may be extended by up to 20 calendar days at the request of a Member State or the Commission. The notifying Member State cannot adopt its screening decision until those deadlines have passed, meaning that the 45-day phase I window could be exceeded in some cases, making a phase II review effectively unavoidable.

• • The regulation sets out a harmonized list of factors that both national authorities and the Commission must consider when assessing whether a foreign investment poses a risk to security or public order. These apply at every stage: national screening, inter-Member State comments, and Commission opinions.

On the target’s side, authorities must assess the investment’s potential impact on:

• • 1. projects or programs of Union interest (listed in an annex);
    2. the availability of critical technologies and the protection of intellectual property and other intangible assets;
    3. the security, integrity, resilience and functioning of critical entities or critical infrastructure;
    4. continuity of supply of critical inputs, including services;
    5. the protection of sensitive information and personal data;
    6. media freedom and pluralism;
    7. the protection of electoral processes;
    8. the protection of public health, including access to critical medicines (listed in an annex);
    9. the protection of food security (including farming where the target controls more than 10,000 hectares of farmland); and
    10. the physical security of military facilities and sensitive installations near the target.

On the investor’s side, risk factors include whether the investor:

• • 1. is likely to pursue a third country’s policy objectives;
    2. has previously had an investment blocked or authorized subject to conditions that were not complied with;
    3. has been involved in activities negatively affecting security or public order;
    4. has engaged in illegal or criminal activities, including evasion of EU sanctions;
    5. is established in a jurisdiction with significant anti-money laundering or counter-terrorism financing deficiencies;
    6. is subject to third-country legislation requiring information-sharing for intelligence purposes without due process; and
    7. has an opaque ownership structure (defined as an arrangement in which the ownership or control is unclear, concealed or difficult to ascertain due complex legal structures, multiple layers of ownership, nominee shareholders, or any other mechanism that obscures the identity of the beneficial owner).

The regulation also includes an illustrative list of mitigating measures that authorities may impose as conditions of authorization, including:

1. • 1. governance changes;
     2. modifications to voting rights;
     3. restrictions on access to sensitive information and technologies;
     4. continuity of supply commitments;
     5. sourcing requirements;
     6. cybersecurity protocols; and
     7. obligations to store and process specific data within the Union.
   • The regulation improves transparency by requiring Member States to publish clear and regularly updated guidance on the scope of their screening mechanism, notification thresholds, and timelines. Parties must be given a genuine opportunity to be heard before a prohibition or conditional authorization.
   • The Commission will maintain a secure database of national screening decisions (including company names and outcomes, but not individual case details) accessible to all Member States, covering decisions since October 2020. Within 12 months of entry into force, it will also establish a secure digital communications system for cooperation mechanism exchanges and, at the request of at least nine Member States, an online portal for electronic FDI filings. A new common EU notification form will also be introduced for cases notified to the cooperation mechanism.
   • A novel feature allows stakeholders to confidentially submit information on investments under review – relevant both for transaction targets and third parties wishing to flag concerns.

III. Likely Impact

The new FDI Regulation advances harmonization through a common minimum sectoral scope, standardized substantive criteria, and more structured coordination rules. The reinforced cooperation mechanism represents a step towards a more coherent EU-level approach to FDI screening.

At the same time, the final text reflects a deliberate compromise. The exclusion of greenfield investments from the mandatory scope and, most significantly, the preservation of host Member State decision-making authority means that the regulation stops short of a centralized EU screening regime. Phase II timelines are not harmonized by the regulation, and Member States retain wide discretion beyond the minimum requirements. The Commission’s expanded role remains advisory in nature.

The regulation is without prejudice to other instruments under the EU’s economic security strategy, including the Foreign Subsidies Regulation and the Anti-Coercion Instrument. Where a foreign investment also constitutes a concentration within the scope of EU merger control, the two regimes will continue to operate in parallel. The Industrial Accelerator Act’s review mechanism for large foreign investments in certain strategic sectors would add yet another layer of complexity.

From a practical standpoint, the key implications are:

• • Multi-jurisdictional filings must be prepared and submitted simultaneously across all relevant Member States;
  • Phase II deadlines remain fragmented while a potential mismatch between the maximum 45-day deadline for phase I reviews and the timeline for the EU-level cooperation procedure could push some deals automatically into phase II;
  • Call-in powers create uncertainty for transactions below screening thresholds, in the absence of a requirement for a voluntary filing option; and
  • Mitigating measures will increasingly be shaped by the Commission’s new power to propose such measures as part of its opinion, adding a supranational dimension to what was previously a purely bilateral negotiation between the investor and the host Member State authority.

IV. Next Steps and Timing

The new FDI Screening Regulation will enter into force 20 days after publication in the Official Journal. The Member States will then have 18 months to adapt their national frameworks to the new minimum requirements. In the meantime, the 2019 regulation continues to apply to all investments filed or completed before the end of the 18-month transitional period, and the new call-in powers will not apply retroactively, providing certainty for parties currently considering or completing transactions.

The authors would like to thank Ella D’Armancourt for her assistance in preparing this alert.