In Brief
On 8 June 2026, the Council of the EU approved the European Parliament’s position adopted on 19 May 2026, clearing the path for a new Regulation on the screening of foreign investments in the Union (the “Screening Regulation 2026”). The Screening Regulation 2026 will repeal and replace Regulation (EU) 2019/452 (the “Former FDI Regulation”), marking a complete overhaul of the EU’s foreign investment control framework.
The Screening Regulation 2026 seeks to balance security concerns with investment openness. It also introduces several significant changes. In particular, it addresses regulatory fragmentation between Member States that emerged under the Former FDI Regulation. It does so by establishing binding minimum requirements for national screening mechanisms across the EU.
Below, we outline the key changes introduced by the Screening Regulation 2026 and their practical implications for investors and EU targets.
1.Mandatory Screening Mechanisms for All Member States
The single most consequential change is the move from a voluntary framework to a binding obligation. Under Article 3(1) of the Screening Regulation 2026, each Member State must establish a screening mechanism. This significantly limits Member States’ discretion to decide whether to screen foreign investments.
The single most consequential change is the move from a voluntary framework to a binding obligation. Under Article 3(1) of the Screening Regulation 2026, each Member State must establish a screening mechanism. This significantly limits Member States’ discretion to decide whether to screen foreign investments.
Viewed in isolation, the practical impact of this change is limited, although it is significant in principle. All EU Member States already have screening mechanisms in place, except Cyprus, where one is planned for 2026.
However, the main significance of the mandatory requirement is the harmonized minimum standards that accompany it, as described below.
2.Harmonised Minimum Scope: Prior Authorisation for Sensitive Sectors
While the mandatory establishment of screening mechanisms may not be transformative, the minimum requirements set out in Article 4 are highly consequential. Most notably, Article 4(15) of the Screening Regulation 2026 introduces a prior authorization requirement for foreign investments in defined sensitive areas, requiring a filing before completion.
Under the Former FDI Regulation, Member States could decide which sectors were strategic or critical to national security. The Screening Regulation 2026 now harmonizes these rules across the EU.
Specifically, Article 4(15) requires each Member State to impose a prior authorization requirement where the Union target meets the following criteria:
- Dual-use and defense-related goods: develops, produces, or commercializes dual-use items listed in Annex I to Regulation (EU) 2021/821, or defense-related goods or technology listed in the Annex to Directive 2009/43/EC;
- Key technologies: produces, researches, or develops semiconductor, quantum, or artificial intelligence technologies, as referred to in Annex I to the Screening Regulation 2026;
- Critical infrastructure: operates in the transport, energy, or digital infrastructure sectors and is considered critical pursuant to a risk-based targeted assessment by the Member State in which it is established;
- Strategic raw materials: engages in exploration, extraction, processing, recycling, recovery, or stockpiling of strategic raw materials listed in Section I of Annex I to Regulation (EU) 2024/1252;
- Financial market infrastructure: constitutes a central counterparty (CCP), central securities depository (CSD), operator of regulated markets, operator of payment systems (excluding central banks), other systemically important institution within the meaning of Article 131(3) of Directive 2013/36/EU, or a global provider of specialized financial messaging services;
- Electoral infrastructure: owns, develops, or operates voter registration databases, voting systems, or other systems designed to manage electoral operations and post-election reporting to certify and validate results.
By establishing this harmonized prior authorization requirement, the Screening Regulation 2026 addresses a key gap identified in the evaluation of the Former FDI Regulation: in some Member States, screening mechanisms could not review transactions before completion.
These harmonized measures create a level playing field among Member States, reduce compliance costs for foreign investors, and limit additional barriers in the internal market.
3.Expanded Risk Factors for Assessing Likely Negative Effects
The Screening Regulation 2026 not only defines the sensitive areas that may trigger a mandatory filing. It also expands the factors that Member States and the Commission must consider when assessing whether a foreign investment may harm security or public order. Article 19 identifies two categories of risk factors:
Transaction-effect factors: Under the Former FDI Regulation, the relevant considerations were limited to critical infrastructure, critical technologies, the supply of critical inputs, sensitive information, and media pluralism. Article 19(1) expands the list of factors to include:
- effects on projects or programmes of Union interest (as listed in Annex II);
- the availability of critical technologies and the protection and availability of intellectual property or other intangible assets;
- the security, integrity, resilience and functioning of critical entities or critical infrastructure;
- the continuity of supply of critical inputs, including services;
- the protection of sensitive information, including personal data;
- the freedom and pluralism of the media, including online and social media platforms;
- the protection of electoral processes;
- public health, including the provision and availability of critical medicines (listed in Annex IV);
- food security, including farming where the Union target possesses or operates more than 10,000 hectares of farmland; and
- the security of military facilities and other sensitive public facilities in the immediate geographical proximity of the Union target.
Investor-based criteria: The Former FDI Regulation considered state control, prior security issues, and criminal activity. Article 19(2) of the Screening Regulation 2026 expands these considerations to include:
- whether the foreign investor or related parties are likely to pursue a third country’s policy objectives, including through economic coercion;
- whether the foreign investor is likely to facilitate the development of a third country’s military capabilities;
- whether the foreign investment could support serious violations of human rights or international humanitarian law;
- prior screening decisions (including prohibitions or non-compliance with mitigating measures);
- prior involvement in activities negatively affecting security or public order;
- engagement in illegal or criminal activities, including the circumvention of EU restrictive measures;
- establishment in a third country identified as having significant strategic deficiencies in its anti-money laundering and counter-terrorism financing regime;
- being subject to a third country’s laws requiring the sharing of information for intelligence purposes without due process; and
- an opaque ownership structure.
4.Practical Guidance: Mitigation Measures
The Screening Regulation 2026 provides practical guidance for economic actors and screening authorities alike.
Mitigation measures. Article 20(4) sets out a non-exhaustive list of mitigating measures that Member States may impose to address a likely negative effect on security or public order. These include:
- changes to the proposed governance structure of the Union target;
- modifications to the voting rights conferred on the foreign investor;
- conditions on access to sensitive technologies or information;
- commitments to ensure specific supply arrangements;
- measures to ensure the continuation of business activities;
- requirements to source critical components from secure and reliable suppliers;
- implementation of cybersecurity protocols; and
- an obligation to store and process specific data within the Union.
Prohibition as a last resort: Under Article 20(3), a Member State may only prohibit a foreign investment or require it to be unwound where risks to security or public order cannot be addressed through other measures. This reflects the principle of proportionality.
5.Scope of the Regulation: Intra-Union Investments, Greenfield Investments and Internal Restructurings
The Screening Regulation 2026 significantly recalibrates the scope of EU foreign investment screening by expanding coverage in some areas while introducing targeted exclusions. Three key aspects stand out:
Inclusion of intra-Union investments: The Former FDI Regulation only covered foreign direct investments made directly by non-EU investors. The Screening Regulation 2026 extends its scope to intra-Union investments, meaning investments carried out by a foreign investor through a subsidiary established in a Member State. Article 2(1) defines “foreign investment” to include any investment made either directly by a foreign investor or through its EU subsidiary. A “foreign investor’s subsidiary in the Union” is defined in Article 2(7) as an undertaking established under the laws of a Member State and directly or indirectly controlled by a foreign investor.
As Recital 18 explains, these investments pose the same risks to security or public order as direct investments from third countries because the foreign investor retains control and influence over the Union target through an EU-based subsidiary. This measure closes a regulatory loophole and ensures consistent coverage of investments that create a lasting link between the foreign investor and the Union target.
Exclusion of greenfield investments: The Screening Regulation 2026 excludes greenfield investments from the mandatory prior authorization regime. Article 2(2) defines a “greenfield investment” as a foreign investment involving the establishment of new facilities or an undertaking for economic activity in the Union. While greenfield investments fall within the broader scope of the Regulation, Article 4(17) provides that the prior authorization requirement under Article 4(15) does not apply to them. Member States therefore retain full discretion to decide whether to include greenfield investments in their national screening mechanisms.
Exclusion of internal restructurings: The Regulation introduces an important practical exclusion for group-internal reorganizations. Under Article 1(5)(b), it does not apply to internal restructurings unless a new third-country entity not already in the ownership chain of the Union target is introduced. Article 2(3) defines an “internal restructuring” as a reorganization of a corporate group that does not result in a change in the beneficial owner of the Union target.
This exclusion provides certainty for Member States and investors regarding routine internal transactions such as mergers, divisions, and other restructuring steps that do not alter ultimate beneficial ownership or introduce new third-country elements into the corporate structure.
Outlook
The Screening Regulation 2026 marks a turning point in European foreign investment control. Under Article 31, Member States and investors have 18 months from entry into force to prepare.
Importantly, the Regulation does not establish a centralized EU screening regime. Foreign investment control continues to operate through national systems. Articles 3(1) and 4(16) permit Member States to adopt additional or more specific measures. They may also extend screening beyond the harmonized minimum.
It is not yet clear whether this flexibility will weaken consistency and predictability, particularly for investors operating in multiple jurisdictions.
Foreign investors planning transactions involving EU targets should seek regulatory advice early. Managing regulatory risk will require a robust FDI strategy that accounts for both harmonized EU rules and continued national divergence.
Baker McKenzie’s FDI teams will track developments and offer practical insights on the evolving EU FDI landscape on the Foreign Investment and National Security Blog
