CELIS Update on Investment Screening and Economic Security – June 2026
Authors: Helene Schramm with the assistance of intern Pavel Kvashnin
INVESTMENT SCREENING MECHANISMS
European Union – Revised FDI Screening Regulation Reaches the Finish Line
On 19 May 2026, the European Parliament approved the provisional agreement on the revised Foreign Direct Investment (“FDI”) Screening Regulation. The legislative procedure was completed on 8 June 2026, when the Council of the European Union formally adopted the new Regulation. The Regulation will repeal and replace Regulation (EU) 2019/452, which has governed the EU cooperation framework for FDI screening since 2020.
The new regulation defines a minimum scope for mandatory screening by the EU Member States, strengthens cooperation and accountability, and streamlines processes and interoperability, thus providing for a common minimum level of harmonisation. It requires all Member States to operate national screening mechanisms, defines a minimum scope of investments subject to mandatory screening, strengthens cooperation between Member States and the Commission, and streamlines screening procedures and information exchange.
The revised Regulation broadens the categories of investments subject to mandatory screening. These include dual-use items, military equipment, critical technologies such as artificial intelligence, quantum technologies and semiconductors, critical raw materials, critical entities in energy, transport and digital infrastructure, financial system entities and electoral infrastructure. It also covers intra-EU investments where the direct investor is established in the EU but is ultimately owned or controlled by a third-country investor.
The Regulation further introduces more harmonised procedural rules, including a two-phase review process, a 45-calendar-day limit for the initial screening phase, a reinforced cooperation mechanism, a secure system and shared database for information exchange, and the possible creation of a single electronic filing portal if requested by at least nine Member States.
The final text remains materially awith the compromise text agreed earlier in the legislative process. However, several drafting refinements were introduced, including clarifications relating to farmland, sensitive public facilities, critical infrastructure and third-country intelligence-law risk factors. Once published in the Official Journal, the Regulation will enter into force 20 days after publication and will apply 18 months after its entry into force. During this transition period, Member States will need to adapt their national regimes to the new minimum EU standards.
The revision of the regulation was one of the initiatives announced in the Commission’s 2024 package on strengthening the EU’s economic security and reflects a shift from a largely coordination-based framework towards a more harmonised and security-oriented model of foreign investment screening. It is also likely to affect transaction planning, particularly for investments in sensitive sectors, transactions involving EU subsidiaries of non-EU investors, and multi-jurisdictional filings across several Member States.
Japan – FEFTA Amendments Expand Foreign Investment Screening Regime
On 29 May 2026, Japan’s Diet passed amendments to the Foreign Exchange and Foreign Trade Act (“FEFTA”), strengthening Japan’s FDI screening regime. The reform broadens the scope of covered transactions and reflects Japan’s increasing focus on national security, economic security and geopolitical risk in its review of inward foreign investment.
The amendments introduce screening for certain indirect acquisitions, including cases where a foreign investor acquires control over a foreign company holding shares or voting rights in a Japanese company. They also codify the use of risk mitigation measures, expand anti-circumvention rules, and introduce post-closing intervention powers for certain investments that were not subject to prior notification but may later raise national security concerns. The reform further establishes a more formal inter-agency consultation framework involving the Ministry of Finance, sectoral ministries and, where necessary, the Prime Minister, the Minister for Foreign Affairs and other relevant authorities. The changes are particularly relevant for cross-border M&A, private equity transactions, internal restructurings and acquisitions of foreign companies with Japanese connections.
Australia – Government Announces Reforms to Streamline and Strengthen Foreign Investment Review
In May 2026, the Australian Government announced a new package of reforms to its foreign investment framework. The reforms aim to make the system faster and less burdensome for low-risk investors, while strengthening scrutiny of higher-risk investments involving national security, sensitive sectors and potential non-compliance. The reform is expected to be particularly helpful for low-risk foreign government investors and managed funds, which may currently fall within Australia’s screening regime because of broad tracing rules or their classification as foreign government investors.
A central element of the reform package is the creation of a clearer distinction between low-risk and high-risk investment proposals. From 1 January 2027, Treasury will target decisions on low-risk applications within 30 days. Low-risk treatment will generally be available where the investor has a positive compliance record, the transaction has a transparent structure, and the proposed investment does not involve sensitive sectors or broader national interest concerns.
At the same time, the reforms would remove mandatory notification and approval requirements for selected low-risk acquisitions that are unlikely to raise national interest concerns. This would mainly apply to minor or incremental increases in existing holdings where there is no change in control, as well as certain increases in securities interests that do not alter the investor’s percentage ownership or control position. The package would also increase the monetary threshold for some investments by non-FTA, non-foreign government investors in non-sensitive sectors, and expand exemptions available to professional trustees. These changes are intended to reduce unnecessary regulatory burden for transactions with limited control or security implications.
The reforms would strengthen Australia’s ability to address higher-risk transactions. The proposed changes include broader and more flexible exemption certificate powers, reforms to tracing rules to focus on material interests and control, longer validity periods for no-objection notifications, reduced registration requirements for certain assets, stronger enforcement powers, expanded screening in sensitive sectors, and enhanced tools to address avoidance and non-ownership forms of control. The package reflects a dual-track approach to foreign investment screening: facilitating predictable and timely approval for low-risk capital inflows, while preserving and expanding regulatory tools to manage national security and economic security risks in sensitive areas such as critical infrastructure, critical technologies, critical minerals and defence.
China – New Outbound Investment Regulation Strengthens Security-Oriented Supervision
On 1 June 2026, China’s State Council published the Regulation on Outbound Investment (State Council Order No. 837), which will enter into force on 1 July 2026. The Regulation is important because it gives China’s outbound investment rules a higher legal status and makes them easier to enforce. Unlike previous departmental rules, this State Council-level regulation has stronger legal authority and can directly impose administrative penalties for non-compliance. It also brings together the previously separate NDRC and MOFCOM regimes into one regulatory framework. As a result, China’s outbound investment control system becomes more consolidated, coherent and enforceable.
The new framework introduces several important changes for Chinese and foreign dealmakers. It creates a broad outbound investment security review regime, extends scrutiny to indirect transfers such as licensing and employee secondment, and applies restrictions not only to companies but also to individuals. It also gives Chinese authorities tools to respond to discriminatory foreign measures against Chinese investment. Non-compliance may lead to liability for companies, directors and officers, and in serious cases may involve criminal consequences.
The regulation is particularly relevant for investments involving sensitive technologies, data, critical resources and strategic supply chains. It may also capture indirect structures, offshore restructurings, technology licensing, personnel secondment and other arrangements that transfer technology, data or control abroad without a straightforward equity investment.
In practice, this Regulation marks a shift in China’s approach to outbound investment, moving it from capital-flow management towards a more security-oriented and strategically coordinated framework. Chinese companies and their advisors will need to review existing overseas investments, strengthen reporting and monitoring processes, and assess technology transfer, data-sharing and country-risk exposure. For foreign counterparties and regulators, the Regulation signals that Chinese outbound investment will increasingly be shaped not only by commercial considerations, but also by a legally codified national interest framework.
Netherlands – FDI Screening Regime to Expand to Six Additional Sensitive Technology Categories
On 8 June 2026, the Dutch government announced that the scope of the Netherlands’ foreign investment screening regime would be expanded with effect from 1 January 2027 through an amendment to the Decree on the Scope of Application of Sensitive Technology. The Decree is part of the legal framework of the Investments, Mergers, and Acquisitions (Security Screening) Act (“Vifo Act”). The Decree further specifies which sensitive technologies trigger mandatory notification obligations.
The Dutch FDI regime already covers transactions involving vital providers, business campus operators and companies active in sensitive technologies, including defence-related activities, dual-use items, quantum technology, photonics, semiconductors and high-assurance products. The expansion reflects the Dutch government’s intention to bring additional emerging and strategically relevant technologies within the scope of national security screening.
The reform will add six new categories of highly sensitive technology to the Vifo Act (The Act has been in force since 2023 and gives the Dutch government the power to assess investments, mergers and acquisitions that could raise national security concerns): biotechnology, artificial intelligence, advanced materials, nanotechnology, sensor and navigation technology, and nuclear technology for medical use. Because the new categories will be classified as highly sensitive, notification may be required at a lower threshold than ordinary control acquisitions, including where an investor obtains or increases significant influence, generally from 10% of the voting rights. The reform is therefore likely to increase filing obligations for transactions involving Dutch high-tech, life sciences and advanced industrial companies.
FDI screening has become an increasingly important part of transaction planning in the Netherlands. The planned expansion would considerably widen the scope of the Dutch regime and may bring around 1,000 to 1,700 additional companies within its reach.
Netherlands – Government blocks Kyndryl’s Acquisition of Solvinity
On 25 May 2026, the Dutch government prohibited the proposed acquisition of Solvinity, a Dutch IT services and cloud infrastructure provider, by the US-based company Kyndryl. The decision, published on 26 May 2026, marks the first prohibition under the Dutch telecommunications investment screening regime.
The decision was taken under the sector-specific Dutch telecommunications screening regime, not under the general Vifo Act framework, although both regimes are handled by the Dutch Investment Screening Bureau. The review was conducted under the Telecommunications Sector (Undesirable Control) Act, which allows the Dutch authorities to assess acquisitions of telecommunications and IT infrastructure companies where they may create public interest risks.
Solvinity is particularly sensitive because it provides hosting infrastructure for DigiD, the Dutch digital identity platform used by citizens to access public services, including medical, pension, insurance and tax-related information, as well as the MijnOverheid government services portal. The Dutch authorities considered that the proposed acquisition could create risks for the public interest, especially in relation to data security, digital sovereignty and the continuity of critical digital infrastructure.
More specifically, concerns were raised that US ownership could expose sensitive data to access requests from US authorities under extraterritorial legislation, including the Clarifying Lawful Overseas Use of Data Act (“CLOUD Act”) and disclosure obligations linked to US law. Although the Dutch government did not publish detailed reasoning, the case shows how foreign investment screening can be used to address risks linked not only to ownership, but also to control over data, cloud infrastructure and critical digital services.
The case is significant because the investor was a US company, showing that Dutch investment screening is not limited to investors from traditionally high-risk jurisdictions. The Dutch authorities emphasised that the review was country-neutral, risk-based and proportionate, and that the Netherlands continues to value foreign, including American, technology companies. Nevertheless, the decision confirms that digital infrastructure, cloud services, government-facing technology and access to sensitive public-sector data may attract close scrutiny where issues of data control, operational resilience or strategic dependence arise.
The Solvinity prohibition may therefore become an important precedent for future technology transactions in the Netherlands and more broadly in Europe. It illustrates the growing relevance of digital sovereignty in investment screening practice and suggests that transaction planning for cloud, AI, cybersecurity and data infrastructure deals may increasingly need to take into account public interest and strategic autonomy considerations.
ECONOMIC SECURITY STRATEGIES
European Union – Commission presents European Technological Sovereignty Package
On 3 June 2026, the European Commission presented the European Technological Sovereignty Package, a set of measures aimed at strengthening the EU’s capacity in semiconductors, artificial intelligence, cloud infrastructure and open source technologies. The package reflects a shift in the EU’s digital policy from a primarily regulatory approach towards a more industrial and capacity-building strategy.
The package is structured around four main initiatives: the Chips Act 2.0, the Cloud and AI Development Act, an EU Open Source Strategy, and a Strategic Roadmap for Digitalisation and AI in the energy sector. Together, these measures seek to reinforce Europe’s technological base, reduce strategic dependencies, and support the EU’s ambition to become a global leader in AI.
The initiative reflects Europe’s concern about its dependence on non-EU suppliers for critical digital technologies, especially as AI increases demand for computing power. It seeks to reduce structural dependencies and strengthen Europe’s ability to develop and secure key technologies, marking a shift towards a more sovereignty-oriented EU technology policy.
At the same time, commentators have warned that European technological sovereignty should not be pursued through simple protectionism or by copying the approaches of the United States and China. The effectiveness of the package will therefore depend on whether the EU can combine strategic autonomy with openness, investment, innovation and cooperation with trusted partners.
United Kingdom – Government Response Highlights UK-EU Economic Security and Defence Cooperation Agenda
On 21 May 2026, the House of Commons Foreign Affairs Committee published the UK Government’s response to the Committee’s report on building a renewed UK-EU Strategic Partnership. The response forms part of the UK Government’s post-Brexit ‘reset’ with the EU, following the May 2025 UK-EU Summit, the Common Understanding and the UK-EU Security and Defence Partnership.
Although the document does not introduce changes to the UK’s investment screening regime, it is relevant from an economic security perspective. The Committee emphasised that the UK and EU face shared national and economic security challenges and called for clearer structures to coordinate policy responses in areas of strategic significance. In particular, it pointed to the need for closer cooperation on economic security risks, industrial policy, steel, defence, cyber and hybrid threats.
The Government confirmed that it is pursuing closer cooperation with the EU under the Security and Defence Partnership, including support for Ukraine, countering hybrid and cyber threats, protecting critical infrastructure, and strengthening defence industrial resilience. The document therefore reflects the UK’s broader effort to rebuild structured cooperation with the EU on economic security and strategic resilience, while preserving the UK’s independent decision-making after Brexit.
