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Foreign investment monitor Q2

Nine months on, what does the EU’s FDI screening regulation mean for business?

In October 2020 the EU’s foreign investment screening regulation came into force. Here, we explain the background to the new regime, look at how it’s being applied on the ground – and explore the key takeaways for business.


In March 2019, the EU adopted a regulation establishing a framework for screening foreign direct investments (FDI) into the union. It aims to preserve Europe’s strategic interests while keeping the EU market open to investment, and became fully operational on 11 October 2020.

Given the high degree of integration between the markets of EU member states – which results in (for instance) businesses having interconnected supply chains and common infrastructure – there was concern in Brussels that a foreign investment could pose a security risk beyond the specific member state in which it is made.

The regulation obliges EU countries to notify other member states and the European Commission of FDIs they are screening under their national regimes. Once notified, the member states can provide comments and the Commission can issue an opinion on the proposed investment, usually within 35 calendar days. Although these comments and opinions aren’t binding on the authority carrying out the review (which remains solely competent to review and approve/veto the notified transaction) it should take them into account in the spirit of cooperation.

Soaring number of mandatory FDI filings

In the wake of the COVID-19 pandemic and as a result of a general push towards tighter (and harmonised) foreign investment controls stemming from the new regulation, several member states have either introduced new FDI regimes or updated/tightened their existing rules. In particular, the number and types of sectors that national laws consider to be sensitive have increased markedly and now include most areas of the healthcare sector and advanced technologies such as artificial intelligence, robotics and nanotechnology, as well as critical inputs and raw materials.

Alongside this widened scope, FDI regulators in a number of countries (including Austria, Italy and Spain) have taken a broad interpretative approach, generally considering transactions that touch on a sensitive sector to trigger mandatory FDI filings, even where there is only a limited nexus to the jurisdiction in question.

Today, 18 EU countries have an FDI screening mechanism in place and a senior EU trade official declared that ‘…dozens of foreign-investment vetting requests have been notified to the European Commission through the new EU screening mechanism since it came into force last October. The number of vetting requests is comparable to the number of merger notifications.’

surgeon touching a screen

COVID-19 has seen several member states bring healthcare into their ‘sensitive sector’ list.

Practical impact of the new EU regulation: some initial impressions

One consequence of the new regulation is that formal requirements for the notification of FDI have increased considerably. In some cases, notification forms have been changed almost overnight, and to facilitate information-sharing between countries, national authorities now require either bilingual notifications and/or specific forms that can be shared with other member states and the Commission.

On top of this, regulators have de facto increased the number of post-notification questions they are asking of applicants, and in general reviews are even more thorough than previously.

In many cases, the cooperation mechanism has led to longer review timelines, despite the European Commission stressing that the new regulation has not been a delaying factor, and the fact that most cases have been resolved within 15 days. In reality, since the regulation came into force we have seen some member states issue requests for information (or indicate they are minded to issue an opinion) not because of substantive concerns but with a view to extending the deadline as they feel they are in a time-squeeze compared to other EU countries.

In addition, while member states are expected to reply to requests from other countries and the Commission without undue delay, we have seen individual cases where authorities have taken weeks or even months to respond where the questions related to factual information that was not in the possession of the parties. This may result in a protracted suspension of the deadline for clearance, and as a result it is essential for the notifying parties to plan ahead and be alert to the practical implications of the new rules.

Our team

Please get in touch with us or your usual Freshfields contact if you would like to discuss these or any other regulatory issues in more detail.