On 11 December 2025, discussions between the European Parliament, Council of the EU and European Commission resulted in a provisional political agreement to update the EU’s Foreign Direct Investment screening regulation.
Background
The current FDI Screening Regulation, fully applicable since October 2020, established an EU-wide cooperation mechanism enabling EU member states and the Commission to exchange information and cooperate when screening foreign direct investment (FDI) that may affect security or public order. It does not require member states to introduce a screening system at the national level and, should they do so, leaves member states considerable leeway in designing their national regimes.
Since 2020, differences in national screening practices and other shortcomings of the current system have become increasingly apparent, prompting the Commission to take action. As part of its broader European Economic Security Strategy, the Commission put forward a proposal to revise the existing framework in order to strengthen coordination, achieve greater harmonisation, enhance procedural clarity and address identified gaps. In summer 2025, the European Parliament and the Council followed up with their own distinct proposals, leading to interinstitutional negotiations with the Commission.
Main features of the future FDI Regulation
Although the exact wording of the future FDI Regulation is not clear, the institutions have agreed on the following main features:
Mandatory national screening mechanisms
As a major departure from the current system, under the future FDI Regulation, all EU member states must establish national screening mechanisms for specified foreign investment in the following sectors:
- dual-use items and military equipment;
- hyper-critical technologies, such as artificial intelligence, quantum technologies and semiconductors;
- critical raw materials;
- critical entities in energy, transport and digital infrastructure, based on a risk-based assessment by the member state where the EU target is established;
- electoral infrastructures such as voter databases or voting systems;
- a limited list of financial system entities.
The catalogue of sensitive sectors was particularly controversial in the negotiations and discussions continued until the last minute. The agreement reached is a compromise in that the future FDI Regulation only harmonises the minimum scope of sectors in which member states must control investments. Member states remain free to add further sectors, which will trigger a mandatory filing obligation under their national regimes.
The FDI Regulation will extend screening to intra-EU transactions where the ultimate controlling investor is a non-EU person or entity, in order to avoid circumvention by indirect investments.
Closer intra-EU cooperation and increased interoperability of national screening procedures
The member states succeeded in their desire to continue to decide independently on investments in their territory. Screening decisions will remain the responsibility of the member state in which the investment is made and national authorities will retain discretion on authorising, imposing conditions on, or prohibiting transactions based on their assessment of security and public order risks.
The FDI Regulation seeks to enhance transparency and cooperation by requiring member states to explain how comments from other member states or the Commission have been considered in their final decisions, while respecting sensitive national security considerations. The Commission may also assist in information gathering where necessary. The agreement now reached obviously aimed to strike a balance between the desire for sovereignty and the need for accountability within the cooperation mechanism.
The FDI Regulation will provide for rules supporting interoperability between domestic screening regimes. Key minimum requirements are expected to include:
- two-phase screening processes;
- the power to retroactively screen transactions that were not notified for certain sectors;
- harmonised deadlines for national screening procedures, including 45 calendar days for initial screening (Phase I);
- Obligations on parties whose transaction needs to be filed in various member states to submit these filings on the same day.
Other notable elements to enhance cooperation include the creation of a shared EU-level database, accessible to national FDI screening authorities, containing information on previously notified investments and the outcome of screening procedures. This is intended to facilitate information exchanges and help prevent circumvention. In addition, a single portal for electronic filing of investment notifications may be introduced if requested by at least nine member states.
Lastly, the future FDI Regulation is expected to provide a framework for the substantive assessment by clarifying risk factors that member states must consider in their assessment.
Implications for investors
The revised framework aims at strengthening the EU’s ability to identify, assess and respond to potential risks associated with certain foreign investments while maintaining the Union’s openness to investment. Whether the future FDI Regulation will live up to these goals remains to be seen.
The attempt to promote a more harmonised and predictable screening environment across the EU, potentially reducing fragmentation and uncertainty for investors operating across multiple member states, will certainly be welcomed by investors.
Establishing a common minimum scope, however, may have little effect on harmonisation in practice, particularly if – as may be expected – many member states add various sectors to their domestic regimes. The creation of a joint minimum scope also bears the risk that sectors not yet controlled by some member states will be subject to screening in the future, creating more red tape for investors in such countries.
Ultimately, the actual impact of the new regime on transactions can only be fully judged once the wording of the future FDI Regulation is clear and EU member states have adapted their laws to the new requirements.
What is already clear now is that member states will have to adapt their domestic regimes. Seeing that almost all EU member states either enacted or amended their regimes in 2024 and 2025, the legal FDI landscape will likely remain turbulent.
Next steps
The agreement now reached must be formally adopted by both the Council and the European Parliament, which is expected in the first quarter of 2026.
Once the actual FDI regulation is formally adopted and published in the Official Journal, member states will have 18 months to adapt their national regimes to the revised FDI regulation.
Some member states have already announced that they will not only adapt but fundamentally revise their current legal framework on this occasion. Hence, national changes may go well beyond the requirements of the new FDI regulation.
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