EU member states, acting through the EU Council, and the European Parliament have reached a provisional political agreement on the revision of the foreign direct investment (FDI) Screening Regulation

While the agreed text has not yet been published, the Council’s press release highlights the following changes to the current version of the Regulation:

• Member states will be required to have FDI screening regimes with mandatory filings for foreign investments in the following minimum scope of sectors: (i) dual-use items and military equipment; (ii) hyper-critical technologies, such as artificial intelligence (focused on general-purpose AI with relevance to space or defence), quantum technologies and semiconductors (iii) critical raw materials (iv) critical entities in energy, transport and digital infrastructure; (v) electoral infrastructures; and (vi) certain financial system entities (central counterparties, central securities depositories, operators of regulated markets, operators of payment systems and systemically important institutions). This is a compromise between the Parliament, which had been pushing for a much broader minimum scope, and member states, which wanted it limited to military and dual-use products.
• A stronger mechanism for cooperation between member states: if the screening host member state disagrees with comments or opinions on the transaction that are offered by other member states or the Commission, it will be required to explain its reasons for doing so. It is not entirely clear what the impact of this will be in practice. At present, member states’ obligations are typically limited to giving “due consideration” to such comments. The Parliament had wanted to go much further and give the European Commission powers to override to a host member state’s decision and issue its own decision to prohibit the transaction, or impose remedies, in cases of disagreement between member states. That proposal has not been implemented: screening decisions will remain the exclusive responsibility of the member state in which the investment is being made.
• New procedural tools, including a shared database among member states’ screening authorities to prevent circumvention and make exchange of relevant experience easier and an optional single portal for the electronic filing of foreign investments, to be set up if at least nine member states request it.
• Clarification of risk factors for assessing foreign investments. Based on the institutions’ negotiating positions, this is likely to include factors relating to the investor (e.g. whether subject to sanctions, linked to a foreign state, previously engaged in illegal activities or previously subject to an adverse FDI screening decision) and factors relating to the target’s activities (e.g. impacts on critical infrastructure, critical technologies, protection of sensitive information and media plurality/freedom). 

The provisional agreement will now be endorsed by the Council and the Parliament before being formally adopted. The new rules are likely to start applying in H2 2027, 18 months after they enter into force.

Various other changes were proposed that have potential to impact transactions, such as the timelines for screening and cooperation procedures and the inclusion of greenfield JVs within the scope of mandatory filing obligations (see our briefing here for the prior negotiating positions of the Council and Parliament). At this stage, there is no information on whether these changes have been agreed. We will issue a further update on those when the agreed text of the revised regulation is published.