The latest European rules for FDI Screening

Published on 2 April 2024

As part of the emergency measures taken in the pandemic, Spanish legislature considerably restricted the original principle of liberal investment politics in Spain, as explained here. Further restrictions came into force in Spain and Europe these past years and, in response to evolving global economic dynamics and geopolitical challenges, the European Commission, through Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the screening of foreign investments in the Union and repealing Regulation (EU) 2019/452 of the European Parliament and of the Council (COM/2024/23) has recently yet again proposed significant revisions to the Foreign Direct Investment (FDI) Screening Regulation as part of its broader European Economic Security Package.[1] This regulatory overhaul aims to enhance Europe’s ability to safeguard its strategic interests while navigating the complexities of a rapidly changing international landscape.

Nadja Vietz Abogada / Rechtsanwältin / Attorney (WA) +34 93 487 58 94

The proposed changes seek to address perceived shortcomings in the existing framework, particularly regarding the scope of the acquisition of foreign control over strategic EU assets, Regulation 2019/452, commonly known as the FDI Screening Regulation.

FDI Screening today

Initially viewed with scepticism by the Commission due to concerns over restricting EU’s fundamental freedoms, these mechanisms have gained traction since the 2010s. The Commission eventually supported this trend while balancing member states’ national security prerogatives.

This led to the introduction of the FDI Screening Regulation in October 2020, which implemented light-touch rules for member states to notify and coordinate with each other and the Commission during FDI screenings. However, national mechanisms still vary widely in scope and implementation, with some member states lacking screening mechanisms altogether.

This fragmentation poses a regulatory gap exploited by potentially problematic foreign investors, exacerbated by the regulation’s non-applicability to indirect FDIs. The Commission now aims to address these perceived shortcomings in light of increasing geopolitical instability, including the COVID-19 pandemic and Russia’s invasion of Ukraine.

New features of the proposal

  • Greenfield and indirect investments

The FDI Screening Regulation is set to encompass EU-based entities controlled by foreign shareholders, marking a notable shift from previous regulations. Additionally, the Commission underscores that greenfield investments are within the purview of the FDI Screening Regulation, urging Member States to integrate them into their screening mechanisms.

  • Prescriptive FDI screening in certain sectors

Member States are no longer allowed to opt-out of implementing FDI screening mechanisms. The proposal mandates screening for specific types of FDIs:

  • Investments in one of the projects or programmes of Union interest listed in Annex I, or
  • Investment target is economically active in one of the areas listed in Annex II.

Annex II includes investments in EU-funded projects and companies operating in designated sectors outlined. These sectors encompass a range of sensitive industries such as military goods, semiconductors, AI, quantum technologies, biotechnologies, and more. Additionally, investments in energy-related technologies, robotics, advanced manufacturing, resource extraction technologies, critical medicines, and the financial sector are subject to mandatory screening.

  • Notification of transactions

The proposal adopts a targeted approach requiring notification only for transactions subject to mandatory screening and meeting specific criteria. These criteria include investors controlled by third-country governments, linked to sanctioned entities, or previously subject to prohibition or remedy decisions. Additionally, all in-depth investigations must be notified.

  • Procedural requirements

The proposal outlines stricter procedural requirements for Member State screening mechanisms. The proposal introduces several new provisions:

  • Adoption of a Phase I (initial review) – Phase II (in depth review) model, similar to merger control proceedings.
  • Empowerment of competent Member State authorities to initiate ex post-investigations into non-notifiable transactions for up to 15 months after completion.
  • Requirement for mandatory screening decisions to be issued before the completion of the transaction.
  • Measures to combat gun-jumping of must-screen transactions effectively.
  • Establishment of a right for investors facing prohibition or mitigating measures to be heard.


  • FDI screening across jurisdictions

In M&A transactions involving subsidiaries established across multiple Member States, where several parallel FDI screening filings may be necessary, multi-jurisdictional notifications shall be made simultaneously to all concerned Member States.

In cases where parallel notifications by several Member States are necessary according to the cooperation mechanism the member states must be notified on the same day. The respective member states coordinate the decisions, including conditional clearances, and  comments-deadlines.

Conclusions and Outlook

While the consequences will be significant, they should not be overstated. For investors, national legislations will remain crucial, with some national screening mechanisms needing minimal adaptation to the new proposal. The greatest impact will be felt in member states with limited or no existing screening mechanisms. However, in jurisdictions like Germany, Spain, Italy, or France, where robust screening rules are already in place, the changes will be less substantial.

Furthermore, the increased harmonization and coordination among member states will be beneficial for investors dealing with multi-jurisdictional filings. However, significant divergences may still exist as member states retain the freedom to expand screening requirements beyond the proposed regulation’s minimum standards.

One notable aspect of the proposal is the suggested power to intervene in transactions for up to 15 months after completion, even without prior filing requirements. This could lead to investors filing precautionary measures or seeking reassurance for seemingly innocuous deals, potentially undermining the intended goal of providing legal certainty.

Overall, while the proposal presents significant changes, it remains a proposal subject to legislative negotiations with the European Parliament and the Council. Its final form and impact are yet to be determined.

[1] Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the screening of foreign investments in the Union and repealing Regulation (EU) 2019/452 of the European Parliament and of the Council (COM/2024/23 final).