Introducing: The Foreign (Direct) Investment Screening Regulation – A blog series on the revision of FDI Screening Regulation 2019/452

Authors: Lena Hornkohl (University of Vienna)[1], Andrew Hill (AmCham EU, Brussels), Floor Doppen (University of Antwerp).

After years of preparations and negotiations, the European Commission, Council, and Parliament convened on Tuesday, 17 June 2026, in Strasbourg to hold the inaugural trilateral talks on the revision of the EU’s Foreign Direct Investment (FDI) screening framework (Regulation 2019/452) – the new Foreign (Direct) Investment Screening Regulation (henceforth ‘the Regulation’)

These negotiations signal a momentous step towards more effective foreign investment screening in the European Union (EU). While the substantial negotiations haven’t started yet – Tuesday’s trilogue was a “ceremonial” meeting, allowing the negotiators to introduce themselves and agree on a calendar – the new Regulation could stand to significantly alter the investment screening landscape. However, significant differences between the co-legislators could make finding a compromise challenging.

For this reason, CELIS is launching the Foreign (Direct) Investment Screening Regulation blog series to coincide with the trilogues and provide insights into the most important discussion points between the European Commission, the European Parliament, and the Council. To kick-off this series, we will briefly contextualise the negotiations in light of the 2019 FDI Screening Regulation, and introduce the different legislators and their key positions.

To recap

The 2019 FDI Screening Regulation was the first legal instrument at the EU level for FDI screening. Based on Art. 207 TFEU, its main innovation was the establishment of a Cooperation Mechanism for FDI screening between the European Commission and the Member States.

The Cooperation Mechanism allows for the exchange of information on cases screened among Member States by creating coordination cells (contact points) and created an expert group that brings together senior screening officials from the Member States to support the development of strong intra-EU networks. The framework further enabled Member States to comment on investments in other Member States that might impact their security or public order. The European Commission was also empowered to issue non-binding opinions when an investment threatens the security or public order of more than one Member State or when it could undermine a strategic project or programme of interest to the entire EU.

Under the 2019 Regulation, FDI screening remained the exclusive responsibility of the Member States (even if the Commission had originally proposed in 2017 that it would also get some screening competences). While the creation of a screening mechanism was voluntary, Member States were required to provide details about the features of their mechanisms and the cases they screen. Additionally, Member States were free to determine the scope, coverage, and procedural requirements of such mechanisms.

A 2022 OECD Report, a 2023 Special Report of the European Court of Auditors, and several annual reports as well as extensive evaluation identified shortcomings in the existing 2019 FDI Regulation. Criticism has centred on the lack of FDI screening mechanisms in some Member States. Greece, for example, only adopted one last month (May 2025), leaving just Cyprus and Croatia without an FDI screening system (with Bulgaria lacking an implementing system and thus being de facto without FDI screening). Also variation in the scope, procedures, and timelines at the Member State level started to become more problematic, and the Xella problem remained (see our blog here). This situation leaves the EU resembling a patchwork quilt – recall “A Chain Works Just as Well as its Weakest Link”.

Meet the Commission – The Diplomat

The European Commission proposed a revision of the FDI Screening Regulation on 24 January 2024, along with five initiatives “to strengthen the EU’s economic security at a time of growing geopolitical tensions and profound technological shifts.“ In an effort to further harmonize investment screening, the new Regulation is based on both the common commercial policy under Article 207 TFEU and the internal market under Article 114 TFEU.

The Commission’s proposal laid out an ambitious effort to align and coordinate national investment screening regimes, building on the significant divergences that exist. Recognizing that foreign investment screening is a national responsibility by virtue of its relation to national security, the Commission’s proposal made several key innovations:

• Mandatory screening for all EU Member States,
• Minimum sectoral scope listed in Annex I and II, consisting of 1) Projects or programmes of Union interest (e.g. the Union Space Programme, Horizon 2020, IPCEIs, etc.), 2) a common list of dual-use items subject to export controls, 3) the common military list of the European Union, 4) critical technologies based on the 2023 Commission Recommendation on critical technology areas for the EU’s economic security for further risk assessment with Member States, 5) Critical medicines, and, 6) critical entities and activities in the Union’s financial system (eg central counterparties, payment systems and institutions, central securities depositories, etc.)
• Coverage of indirect intra-Union investments, i.e. intra-Union investments by investors ultimately controlled by third-country persons (addressing the Xella problem). For this reason the proposal was formally called the ‘Foreign Investment Screening Regulation’ as opposed to the ‘Foreign Direct Investment Screening Regulation’,
• Introduction of the obligation that all Member States should adopt legislation to allow them to screen investments after they have been completed,
• Minimum harmonisation of Member States procedures, such as timelines, standstill obligations, two-phase investigations, and judicial review of decisions,
• Enhanced information exchange and accountability via the cooperation mechanisms, including a duty to state reasons when not following a Commission opinion or Member State comment.
• An own initiative procedure for Member States (for investments in the territory of other Member States) and the European Commission for foreign investments not notified under the cooperation mechanism, if the investment may harm security or public order in that Member State or the EU.

Essentially, the Commission recognized that divergence between national FDI screening rules led to uncertainty and inefficiencies for investors and potential weaknesses in economic security. Yet, despite its ambition, the Commission had to remain realistic and anticipate the positions of the Council, in particular. The Commission’s proposal therefore treads a delicate line between increasing the efficiency and effectiveness of the FDI Screening Regulation while taking into account member states reluctance to transfer competences to the European level. The proposal seeks to strengthen the cooperation mechanism, as well as the Commission’s role in facilitating disagreements, without proposing any screening or decision-making powers for themselves on individual cases.

Specifically, the Commission pointed to fragmentation in scope, procedural requirements, and criteria applied for the likely negative effect for security or public order. Additionally, divergence between laws began to pose obstacles to the freedom of establishment. These were particularly acute in the case of the growing number of multi-jurisdictional transactions[2]. Industry reiterated these challenges and pointed to the fact that divergent rules led investors to over-notify out of caution, leading to a high number of pre-emptive notifications which prevented screening authorities to efficiently and predictably review transactions, or dedicate sufficient resources to high-risk cases.

Due to its role of overseeing economic security at the Union level, the Commission’s overall objective with its base-line proposal for a minimum sectoral scope was to align with EU strategic priorities. Annex I aligned the sectoral scope with many EU funding programs. Annex II aligned the sectoral scope with the items included in the Dual-Use Export Control and Common Military lists (paragraphs 1 and 2); critical lists of technologies in the pharmaceutical and financial services sector (paragraphs 4 and 5); as well as the technologies listed in the Commission’s Recommendation on critical technology areas for the EU’s economic security for further risk assessment with Member States (paragraph 3). The technologies in this Recommendation were seemingly not developed for FDI notification purposes and largely overlap with the dual-use list. Including them demonstrates a desire to align, broadly, with other Economic Security instruments and takes a relatively broad approach to investment screening.

Accordingly, the Commission’s proposal produced several harmonised measures that addressed three goals:

1. Creating a level playing field among Member States
2. Reducing existing compliance costs for foreign investors
3. Preventing the emergence of additional obstacles in the internal market for investments. It is for this reason that Art. 114 TFEU was introduced as an additional base to the Regulation.

In short, the Commission has taken on the role of a diplomat, pre-emptively advancing positions that already diffuse certain strands of contestation, while simultaneously pushing the limits of what Member States would be willing to accept or entertain.

The European Parliament – The Dreamer

The Parliament has a unique role in the negotiations, representing elected representatives within the European Union and, accordingly, a large number of lawmakers with myriad priorities shaped by personal and party preferences as well as electoral considerations. The European Parliament is also the only party in the trilogues that is not directly involved in the execution of the Regulation, and more concerned with defining and monitoring Europe’s overall strategic priorities

Accordingly, the Parliament is focused more on how the new Regulation could address broader issues and political priorities beyond those addressed by investment screening ‘pur sang’. Their position reflects fewer considerations with practical constraints and competitiveness or administrative concerns that are on the top of the Council and Commission’s minds. The European Parliament can ‘dream’, while the Commission and the Member States are anchored to ‘the harsh realities’ of FDI screening and varying Member States’ legislations.

The Parliament adopted its position for the trilogues by largely relying on the Committee on International Trade’s (INTA) report and amendments. The position – drafted and negotiated by Rapporteur MEP Raphael Glucksmann (France, S&D) – was additionally shaped by opinions given by four other committees (Economic and Monetary Affairs (ECON); Industry, Research and Energy (ITRE); Internal Market and Consumer Protection (IMCO); Transport and Tourism (TRAN)).

Unsurprisingly the Parliament chose to go beyond the Commission’s proposal by:

• Widening the sectoral scope to include media services, critical raw materials, the transport industry and infrastructure, electoral infrastructure, and very large farms (>10.000 hectares), as well as expanding the definition of some sectors mentioned in the Commission draft and aligning certain definitions with the Commission’s Outbound Investment Screening definitions,
• Increasing the harmonisation of national procedures, including mandatory screening of certain greenfield investments,
• Granting the Commission investigation and decision-making powers on its own initiative in cases where an investment is suspected of affecting the security or public order of more than one Member State or in cases of disagreement between Member States,

Members of Parliament (MEPs) on balance took a maximalist approach to foreign investment screening – seeing the prevention of any potentially risky investments as the key priority, instead of the overall balance between efficiency and effectiveness. Likewise, they also sought to address political priorities beyond foreign investment screening.

The Parliament addressed several political priorities ranging from increasing investment screening’s alignment with rule of law to other ‘more niche’ political priorities, including by increasing access to judicial recourse, having stricter requirements for Member States to provide adequate resources for the expeditious review of Phase 1 investigations (not just Phase 2 investigations), etc. Earlier amendments to the committee opinions also asked screening teams to analyse issues typically addressed by merger control or export controls during risk assessments, going beyond the scope of ‘typical’ investment screening.

Additionally, Amendment 48 of the final Position ties investment screening to the political term ‘Economic Security’, again signalling an increase in scope of the previous FDI Screening Regulation. Addressing a similar priority of certain members of the Parliament, Amendment 81 of the final Position requires member states to set up consultation procedures to receive input from civil society organisations and social partners.

In response to stakeholder consultations, the Parliament did attempt to limit the impact on investors, including by having a concise 35-day Phase 1 screening window and closer rules for multi-jurisdictional transactions, for example by introducing a single EU e-portal for all filings at the national level.

Overall, the Parliament’s proposal is the most expansive in its approach to investment screening when it comes to the breadth of the sectoral scope but has simultaneously incorporated provisions in its proposal that echo the concerns of investors when it comes to the bureaucratic efficiency of the screening process. Ideally, the Parliament wants it all: competitiveness, efficiency and effectiveness, even if some of these positions might be a bit paradoxical.

The Council – The Operator

The Council plays a distinct role in the negotiations by being both a negotiating party and responsible for the implementation and execution of the new regime at the national level. They were the last to adopt their negotiating mandate on 11 June 2025.

Naturally, an instrument dealing with economic and national security is quite close to the hearts of the Member States. Due to the differing systems and experiences at the Member State level, the Council pulled back to some extent from the European Commission’s draft, maintaining its spirit, but pushing back against the far-reaching position taken by the European Parliament and to some extent against that of the Commission. The Council largely focuses on establishing a robust minimum standard while encouraging Member States to go further within their national systems, taking a more risk-based approach.

Accordingly, the Council approach focuses explicitly on setting a level-playing field across the Union and ensuring a coordinated approach to economic threats, while paying attention to fostering growth by being responsive to investors’ needs, and remaining flexible enough to accommodate different national security and practical idiosyncrasies and political economy needs of the different national regimes.

In its mandate, the Council includes:

• Continued mandatory screening, including the screening of indirect intra-Union investments,
• Consolidating the scope to align the broad, regularly-updated and well-defined lists of critical technologies under the export control framework and EU Common Military List, while creating stronger risk assessment criteria linked to the critical technology areas and projects of Union interests listed in Annexes I and II.
• Limitation of the minimum requirement in the Commission proposal that requires states to empower screening authorities to screen foreign investments by its own initiative for at least 15 months, even if the transaction was not subject to an authorisation requirement,
• An emphasis on the exclusive and final decision-making power of the respective Member States, cancelling any own-initiative procedure by other Member States or the Commission,
• Taking steps towards aligning the concept of control under FDI screening with ‘decisive influence’ – a concept which is well understood by investors, rooted in FDI case law, and directly applicable to FDI screening,[3]
• A proposal for a database maintained by the Commission, containing the outcomes of assessments under national screening mechanisms.

The Council’s position took a different approach to many strategic issues, coming from a national perspective. Specifically, it sought to minimise divergences which threatened the level-playing-field within the single market and reflects the realities of screening authorities’ and investors’ needs.

An example of the Council’s commitment to creating a level playing-field was its focus on preventing FDI arbitrage, their commitment to mandatory screening, and their alignment of the minimum mandatory scope with well-understood and regularly-updated lists. The Council elaborated this in an amendment to Recital 8, which clarified that “increasing the convergence of national rules applicable [to FDI screening], including intra-EU investments [...] creat[es] a level-playing field, increasing certainty for foreign investors”. The Council’s approach also looped in intra-EU investments, likely because many Member States already control for Ultimate Beneficial Owners in their risk assessments, and already screen intra-EU FDI (e.g., The Netherlands and Italy).

The Council, at the same time, seems concerned with efficiency of screening. Given that many member states receive a disproportionate number of pre-emptive notifications cleared in Phase 1, the Council focused on bureaucratic efficiency, aligning with EU strategic priorities while ensuring that investors and lawyers have enough clarity to not over-notify transactions. To accomplish this, the Council maintained alignment with the export control framework (dual use and common military lists) as  basis for mandatory notification. These lists are expansive, well-understood by investors, regularly updated to reflect evolving threats, and by-and-large cover the technologies suggested by the Commission and Parliament’s annex II paragraph 3 lists. Overall, the Council’s proposal sees a practical and efficient FDI Screening Regulation, within the bounds of screening realities, as making the largest contribution to EU strategic priorities.

Conclusion

The trilogues will address some major questions that will set the stage for foreign investment screening in the coming years. All three co-legislators recognise the underlying principle of open strategic autonomy that guided the original FDI Screening Regulation: while Europe needs foreign investment and seeks to remain a reliable destination for it, protecting vital security interests, both of the Member States and of the EU as a whole, is essential.

The urgency is clear, and the lessons of history are well understood, especially given the recent loss of reliable partners and the wars both within Europe and on its doorstep. Still, the investors whom the EU continues to consider reliable need predictability – and they need it sooner rather than later. Even with an agreement by year’s end, a new FDI Screening Regulation is unlikely to be fully operational before 2027, more likely 2028. The variation in positions between the different legislators ultimately derives from their varying positions in screening process, the different constituencies they represent and the priorities they derive from them.

This blog post introduced in brushstrokes some of the different priorities and positions that will lay at the heart of the trilogues in the upcoming semester. The rest of this blog series will follow the negotiations closely and cover key areas of negotiation expected during the trilogues, as lawmakers work through them summer and fall. It will cover different key technical and political areas of contention in the negotiations, including answering some of the questions pertaining to the mandatory scope of the new Regulation, definitions, and subsidiarity & the role of the Commission. Stay tuned!

[1] Parts of this introduction were published previously as part of the Kluwer Competition Law Blog, see here.

[2] Page 10 of the Regulation

[3] This will be developed in a future blog post