A timely reminder: The new EU FDI screening rules apply from 11 October 2020

At a Glance…

The EU Foreign Direct Investment Screening Regulation (Regulation 2019/452) (FDI Screening Regulation), which entered into force in April 2019, applies from 11 October 2020. It introduces the first EU-wide foreign investment screening cooperation mechanism and allows the European Commission and Member States to comment on foreign investments taking place in other Member States. Since its adoption in April 2019, Member States have significantly tightened their FDI screening regimes and are continuing to do so, and the European Commission calls upon Member States without FDI regimes to follow suit. The new rules will increase scrutiny of foreign investments into the EU in strategic industry sectors, infrastructures and key future technologies, result in longer and more complex reviews and increase the number of investments that will be subject to investment screening. The new EU FDI screening framework complements the European Commission’s existing powers to review foreign investments under EU merger control rules and sector-specific regulation (including the EU’s Third Energy Package applicable to investments in EU energy infrastructure). EU FDI screening will be the responsibility of the new Chief Trade Enforcement Officer, in charge of the EU’s offensive and defensive trade tools. It is therefore to be expected that the FDI policy of the European Commission will be guided by the broader EU trade policy objectives, including the recently endorsed ‘open strategic autonomy’.

Authors:  Christian Filippitsch, Geert Goeteyn, Yves Melin, Isabelle Rahman, Max Seuster and Jin Woo Kim

Key impact for investors

Foreign investments in strategic sectors in the EU are subject to increasingly tighter foreign direct investment (FDI) screening. The new FDI Screening Regulation establishes a mandatory information sharing system between the European Commission (Commission) and EU Member States (Member States) and allows them to comment on foreign investments foreseen in other Member States.1 Since its adoption in April 2019, Member States have significantly tightened their FDI screening regimes and are continuing to do so.

While the FDI Screening Regulation does not allow the Commission to block investments or issue binding opinions to Member States and does not harmonise FDI screening across the EU, the new rules will have a significant impact on foreign investments going forward.

More scrutiny on foreign investments – the new cooperation mechanism will increase the exchange of information between the Commission and Member States, and the Commission and national authorities will become more aware of transactions and can ask for substantial information on a transaction being reviewed in another Member State. In practice, it is expected that businesses will increasingly lobby the Commission to actively engage (and ‘intervene’) in Member States’ review of foreign investments by competitors.

Longer review periods – national foreign investment screening mechanisms must take into account the period when other Member States provide their comments and the Commission issues a non-binding opinion to the Member State carrying out the investment screening. This means, in practice, that an additional minimum of 35-50 days needs to be factored into the review timetable and corporate documentation (long-stop dates, etc.). Investors are therefore advised to consider foreign investment issues early to mitigate any delays.

More investments subject to screening – Member States have been tightening their FDI regimes and continue to do so, and several Member States without an existing screening regime in place are likely to follow suit shortly.

Investors will therefore increasingly face a dual-track system of merger control and foreign investment review. Planned acquisitions by competitors (or competing bidders) can also be brought to the attention of the Commission and of the Member States’ authorities anytime these investments present risks to the EU’s interests and security or other Member States’ security or public order.

The new EU FDI screening framework is only one of the Commission’s tools to ensure that foreign investments do not run counter to the level playing field in the EU. It complements the Commission’s existing powers to review foreign investments under EU merger control rules and/or sector-specific legislation, such as the Third Energy Package applicable to foreign investments in EU energy infrastructure. Furthermore, in June 2020, the Commission published a White Paper on Foreign Subsidies in the Single Market proposing additional tools to control, amongst others, acquisitions of EU companies that have been facilitated by foreign subsidies (the Commission aims at publishing draft legislative proposals in the first half of 2021). (See our previous alert for a detailed analysis of the White Paper and its impact on future M&A transactions.)

The EU’s new FDI screening framework will be the responsibility of the Chief Trade Enforcement Officer (CTEO), a member of the Commission’s DG Trade. The CTEO is in charge of the main offensive and defensive tools of the EU’s trade policy. (See our previous alert for detailed analysis on the CTEO.) The CTEO’s assessment of foreign investments under the new scheme is likely to be impacted significantly by the EU’s trade negotiations and its trade disputes with third countries, as well as the EU’s broader trade policy objectives, including the open strategic autonomy proposed by the Commission and recently endorsed by the Member States. (See the conclusion of the Council meeting of 2 October 2020, where the Member States call on the Commission to “identify strategic dependencies … and to propose measures to reduce these dependencies, including by diversifying production and supply chains, ensuring strategic stockpiling, as well as fostering production and investment in Europe”.)

More than ever, foreign investors are advised to monitor developments closely and engage in early planning of investments to anticipate feasibility risks and develop an effective strategy for succeeding in bidding processes and securing the necessary foreign investment, merger control and other regulatory approvals for their investments.

See more at: https://communications.reedsmith.com/33/4288/october-2020/a-timely-reminder–the-new-eu-fdi-screening-rules-apply-from-11-october-2020.asp


  1. See also European Commission, EU foreign investment screening mechanism becomes fully operational, press release dated 9 October 2020.
  2. Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019 establishing a framework for the screening of foreign direct investments into the Union (OJ L 79I, 21.3.2019, pp. 1–14).
  3. See European Commission, Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation), C(2020) 1981 final, 25 March 2020.
  4. As of 7 October 2020, the following 14 EU Member States had national investment screening mechanisms (besides the UK): Austria, Denmark, Finland, France, Germany, Hungary, Italy, Latvia, Lithuania, the Netherlands, Poland, Portugal, Romania and Spain. See overview available at https://trade.ec.europa.eu/doclib/html/157946.htm
  5. European Commission, Guidance to the Member States concerning foreign direct investment and free movement of capital from third countries, and the protection of Europe’s strategic assets, ahead of the application of Regulation (EU) 2019/452 (FDI Screening Regulation), C(2020) 1981 final, 25 March 2020.
  6. Commission Delegated Regulation (EU) 2020/1298 of 13 July 2020 amending the Annex to Regulation (EU) 2019/452 of the European Parliament and of the Council establishing a framework for the screening of foreign direct investments into the Union (OJ L 304, 18.9.2020, p. 1–3).
  7. European Court of Auditors, The EU’s response to China’s state-driven investment strategy, Review No 03 (September 2020).
  8. European Commission, “White Paper on levelling the playing fields as regards foreign subsidies”, COM(2020) 253 final


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