Since the EU’s foreign direct investment (FDI) screening regime became effective in 2020, the EU Commission has reviewed over 1,200 FDI transactions notified by EU Member States, although the Commission has expressed opinions in less than 3%. Under the current framework, EU Member States are encouraged but not required to implement FDI screening mechanisms. The current regime created a framework for sharing information and views on FDI transactions under review, but the host Member State retains ultimate decision-making authority and considerable flexibility over the scope, the information required, standard of review and other aspects of the process.  

The Commission now proposes a new FDI screening regulation to remedy shortcomings identified in a 2023 review of the current regime. These shortcomings, highlighted in the Commission’s 2023 report on the FDI regulation, include the uneven implementation of the current regime in certain Member States, design features that may lead Member States to undervalue the input they receive from other Member States and the Commission and the high proportion of notifications not raising security concerns.

The new regulation would require Member States to implement FDI screening regimes, require screening of transactions in sectors deemed to raise security concerns, and impose stricter requirements on Member State regimes. While host Member States, not the Commission, would continue to have final decision-making authority, the new regulation would tighten their obligations to take account of views expressed by the Commission and other Member States and create new and tighter consultation procedures. 

The Commission’s proposal addresses the shortcomings identified with the current regime and should lead to a more coherent, harmonized landscape for FDI screening in the EU. Some observers speculate that the new regulation will lead to more FDI notifications, because Member States will be required to implement FDI screening regimes. By the time Member States are required to comply with the new regulation, however, all Member States would likely have FDI regimes in place in any case. Indeed, one of the Commission’s objectives is to reduce the number of FDI notifications that are subject to EU-level screening by limiting this regime to specific EU projects and the most sensitive economic sectors.  

The Commission’s more harmonized, binding FDI proposal reflects a significant evolution of the Member States’ attitude to FDI screening, traditionally viewed as a national prerogative. Member States’ acceptance of the need for a stronger and more coherent EU approach to FDI screening likely reflects a more concerning geopolitical environment, including the pandemic and instabilities following the conflicts in Ukraine and the Middle East. While the Commission’s proposal will no doubt undergo changes in the legislative process, it is likely to be adopted in largely the current form in 2025 following the 2024 European Parliamentary elections. 

Meanwhile, the Commission will also work on four related proposals to strengthen the EU’s economic security. These include discussions and consultations relating to export controls, outbound investments, dual-use technologies and research security, but so far without proposals for binding EU legislation.