Looking Into the Crystal Ball: What Does 2024 Have in Store for Investment Screening?

By Sophie Bohnert, Vienna University of Economics and Business/College of Europe

A 2024 Kick-Off Message from the Editors

The CELIS Blog is back after its winter break! The Editorial Team wishes all readers, supporters, and partners a Happy New Year! The Editors would like to thank the CELIS Institute and its Board of Directors for making this blog project possible. The Editorial Team is grateful to all readers and partners for their interest, support, and welcoming attitude during the launch phase in 2023. The Editors are committed to continually improving the CELIS Blog’s content and delivering on its promise to provide insightful analysis in the field of investment screening and beyond. The Editorial Team hopes that you continue to enjoy the CELIS Blog’s content. The Editors look forward to seeing this community continue to grow in 2024!

Taking a Look at the Past to Understand the Future

To start the year off right, this blog post takes the opportunity to look into the crystal ball to see what 2024 holds in store for investment screening. Developments over the past year have set the scene for an exciting start to the new year. In its Work Programme for 2023, the European Commission (hereinafter “EC”) announced its commitment to consider a revision of the Foreign Direct Investment Screening Regulation(hereinafter the “FDI Screening Regulation” or the “Regulation”). On 20 June 2023, the EC and the High Representative for Foreign Affairs/Vice-President of the EC released a joint communication on a European economic security strategy, stating that the “Commission (…) will propose [the FDI Screening Regulation’s] revision before the end of 2023”. In October 2023, the EC published its Third Annual Report on the screening of foreign investments into the Union, confirming the EC’s commitment to overhaul the EU’s investment control regime. On 28 November 2024, the Commission published the results of a Stakeholder Consultation, which is an essential element of its ongoing evaluation of the FDI Screening Regulation. The EC’s College of Commissioners is scheduled to consider the economic security package, which is likely to include a formal proposal for a revision of the FDI Screening Regulation, between 10 January and 27 February 2024.

Legal Framework

The FDI Screening Regulation provides a legal framework for the screening by the Member States of foreign direct investments (hereinafter “FDIs”) into the Union on the grounds of security or public order and for a cooperation mechanism between Member States, and between Member States and the Commission, as regards FDI likely to affect security or public order. Article 15(1) of the FDI Screening Regulation requires the EC to evaluate the functioning and effectiveness of the Regulation and to submit a report to the European Parliament and the Council by 12 October 2023. If the EC’s report suggests amendments, the EC may make an appropriate legislative proposal under Article 15(2). The incorporation of an evaluation and review mechanism into the Regulation suggests that the EU legislator had an incremental development of the legal framework in mind, or at least a certain need for improvement.

Results of the Stakeholder Consultation

Commentators anticipate that the results of the Stakeholder Consultation will provide crucial guidance for the upcoming revision of the Regulation. For this reason, it is useful to outline the survey’s main findings. In total, 47 contributions were received, with 18 coming from Member State authorities involved in the EU cooperation mechanism and, where applicable, the enforcement of national screening legislation.

Relevance and Added Value

The aim of protecting security and public order in the context of inward FDI continues to be highly relevant, as indicated by 83% of all respondents and 95% of all responding Member State public authorities. This general consensus can probably be explained by the persistence of contemporary geopolitical tensions. In addition, 74% of all respondents agreed that the FDI Screening Regulation offers an added value, for example, by providing Member States with security-relevant information that they would not have been aware of without the cooperation mechanism, by promoting substantive convergence among national screening legislation, and by encouraging the adoption or modernisation of national screening legislation. However, most respondents noted that the Regulation has so far failed to enhance procedural convergence of national screening mechanisms, in particular as regards deadlines, information requirements, and user-friendliness.


A majority of respondents agreed that the FDI Screening Regulation has allowed Member States and the EC to filter out risky FDI transactions without having an undue chilling effect on the overall level of FDI.

Regarding the division of competences between Member States and the EU, the lion’s share of respondents concluded that the Member State where the transaction is proposed or has been implemented, in close cooperation with the other Member States and the EC, should be responsible for investigating, authorising, conditioning (and monitoring), prohibiting, or unwinding FDI that is likely to affect security or public order in more than one Member State. The bulk of public authority respondents was in favour of giving the host Member State alone the power to take final decisions (i.e., authorise, condition [and monitor], prohibit, or unwind transactions). Similar results are reported for FDIs in EU critical assets. However, a larger number of respondents were in favour of giving sole responsibility to the EC. For FDI that is likely to affect the security or public order of more than one Member State, three respondents were in support of giving the EC sole responsibility for investigation and four respondents were in favour of granting the EC decision-making powers.

In addition, most respondents (including 11 public authority respondents) agreed that the scope of the FDI Screening Regulation should be extended to cover transactions where the direct investor is established in the EU but is ultimately owned by a natural person or an undertaking from a non-EU country. This would fill the gap exposed by the ECJ’s judgement in C-106/22 Xella, which has recently been discussed on the CELIS Blog.

Finally, there was strong support for identifying a number of sectors in which all Member States would be required to screen proposed transactions.


The consultation highlighted some shortcomings in terms of efficiency. Overall, the respondents concluded that the cooperation mechanism imposed a reasonable administrative burden on the parties to the transaction. Unsurprisingly, the responses provided by business organisations, companies/businesses, and trade associations were less enthusiastic. The public authority respondents were divided as to the reasonableness of the administrative burden for Member States in reviewing all transactions. By contrast, almost all public authority respondents agreed that the administrative burden for transactions presenting a serious threat to security or public order was reasonable.

Many respondents criticised the absence of harmonisation of the screening timelines. In order to make the cooperation mechanism more effective, respondents argued in favour of abandoning the current obligation to notify all FDIs undergoing screening. Instead, there should be an obligation to notify only those FDIs that meet certain criteria. However, the proposal to allow Member States to filter out certain FDIs and to notify only certain pre-selected FDIs has been met with more scepticism.

Lastly, all respondents were in support of requiring Member States and the EC to provide more information in their annual FDI screening reports by subjecting the content and reporting methodology to minimum requirements. According to a recent report by the European Court of Auditors, the EU legislator should also clarify key concepts such as “portfolio investments” to ensure consistent interpretation and a level playing field. Additionally, the EU legislator should offer direction on whether the likelihood of an FDI affecting security or public order is equivalent to the notion of a “genuine and sufficiently serious threat to a fundamental interest of society”, as required by established case law on permissible restrictions on the fundamental freedoms.


The Stakeholder Consultation also addressed the question of whether the FDI Screening Regulation is consistent with the procedures required under other authorisation regimes such as the European Merger Control Regulation. The number of responses was limited to 18. Opinions on the consistency of the FDI Screening Regulation with other authorisation regimes were almost evenly divided. The respondents mainly criticised the lack of substantive coherence in relation to key concepts, including the notions of “control” and “ownership”.

Status Quo of Legal Approximation

The FDI Screening Regulation is an “enabling framework” rather than a harmonisation instrument. Its implementation and application leave a great deal of flexibility to the Member States. This is reflected in a number of legislative choices. For example, the Regulation does not require Member States to review FDI or to establish review mechanisms, and it does not create an independent EU-wide review regime. Furthermore, the standard of review is not specified either. Additionally, the legal requirements are of a basic nature, with only an indicative list of screening factors being provided. Member States and the EC may consider these factors when assessing whether an FDI is likely to endanger security or public order. Moreover, the Regulation does not limit Member States’ options in institutional and procedural terms. It only outlines general procedural principles, such as non-discrimination and transparency. Therefore, the level of legal approximation achieved so far is modest.

Potential for Future Legal Approximation

The potential for legal convergence in the field of investment control towards EU law standards has been the subject of intense debate. The elimination of legal differences concerns two distinct areas: substantive investment control law, in particular the standard of review, and procedural investment control law. Legislative design options range from mere cooperation to an obligation to take due account of the interests of other Member States and the Union to a complete transfer of investigation and decision-making powers to the EU level. However, the permissible intensity of legal approximation is circumscribed by the scope of EU competences, the fundamental freedoms, and international economic law. This blog post will only touch upon the division of competences and cannot provide an exhaustive discussion. For in-depth analyses, see hereand here.

According to Opinion 2/15, the EU has exclusive competence to regulate FDI under Article 207(2) in conjunction with Article 3(1)(e) TFEU. It is true that the EU may in principle not enter into international commitments relating to public policy, public security, or other public interests. However, proportionate restrictions on the Member States’ discretion are permissible in order to ensure the practical effectiveness of the EU’s commitments where this is inherent in the conduct of international trade (paras. 97-103).

Union measures must also comply with the principle of proportionality pursuant to Article 5(1) and (4) TEU. Under Article 4(2) TEU, the EU legislator must strike a balance between the requirements of a common policy, EU competences, and national autonomy. The EU may not interfere with Member States’ essential State functions, including maintaining law and order, and safeguarding national security. National security remains a key prerogative of the Member States. Therefore, Member States must retain a minimum degree of decision-making power when it comes to authorising or prohibiting FDI in their territory.

In addition, one could reasonably argue that Article 346(1)(b) TFEU allows Member States to maintain sector-specific review mechanisms for both third country and EU investments within the scope of application of the Common Commercial Policy. It is an exception to liberalisation and undistorted competition for the benefit of essential national security interests as far as the production of and trade in military equipment included in the list of 15 April 1958 under Article 346(2) TFEU is concerned. This would seem to amount to a continuing primary law guarantee of residual national competence that exists alongside the competences of the Union.

What guidelines can be derived from this for the revision of the FDI Screening Regulation? It would seem legally feasible to require all Member States to establish cross-sectoral screening mechanisms. It would also seem possible to identify certain sectors in which all Member States must screen proposed transactions, as proposed in the Stakeholder Consultation report.

Regarding substance, residual Member State competence would seem to disqualify total harmonisation. However, the EU can establish certain minimum requirements for the scope of application of the FDI Screening Regulation. Specifically, the EU legislator can set common minimum criteria for identifying the transactions that pose a risk to public order and security among those screened by the Member States. Furthermore, the EU legislator should consider clarifying key concepts such as the notion of an FDI being “likely to affect security or public order” to ensure alignment with the conditions for permissible restrictions on the fundamental freedoms as established by the CJEU’s case law.

The most far-reaching requirements could be formulated for the screening procedures of the Member States. Amongst other things, the EU legislator could harmonise the timelines at national level for screening FDI transactions subject to the cooperation mechanism, as well as the timelines for requesting additional information from the parties and submitting such information.

The final aspect to consider is the allocation of responsibilities for investigating, authorising, conditioning (and monitoring), prohibiting, or unwinding FDI between the Member States and the EC. Under Art 4(2) TEU, the EU must not encroach on Member States’ essential State functions. Therefore, the Member States must have a minimum level of decision-making authority. This fact supports maintaining the existing division of competences, which assigns the responsibility for scrutinising, authorising, conditioning, or prohibiting FDI transactions to the Member State where the FDI is planned or has been completed. For FDIs involving EU critical assets and cases where the FDI is likely to affect the security and public order in more than one Member State, it may be legally permissible to confer the Commission the sole responsibility for investigating, authorising, conditioning (and monitoring), prohibiting, or unwinding the FDI.


The FDI Screening Regulation currently focuses on institutionalised cooperation, which is a compromise aimed at preventing a completely uncoordinated approach due to the inhomogeneous legal situation in the 27 Member States. Cooperation has an initial awareness-raising effect, as noted in the EC’s Second Annual Report on the screening of foreign direct investments into the Union. In fact, most Member States have introduced, are planning to introduce, or have at least taken some initial steps towards adopting national review mechanisms. Furthermore, cooperation can enhance the decision-making process of Member State authorities. A forum is established to enable the Member State in which an FDI is screened to take account of EU interests and the interests of other Member States. Additionally, a partially non-binding fundamental agreement can also propel gradual convergence from within. In fact, some Member States have already voluntarily implemented the Regulation’s screening factors into national law. Compared to a radical “top-down” approach, this method promotes political acceptance and is more respectful of national sovereignty.

The remaining divergence results in the FDI Screening Regulation falling short of the requirement of “uniform principles” for the Common Commercial Policy as mandated by Article 207(1) TFEU and the integration imperative of the internal market. The EC’s legislative proposal is expected to address the issues raised in the Stakeholder Consultation as well as the EC’s Annual Reports and to pave the way for more far-reaching convergence in terms of process and substance.

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