New EU Foreign Direct Investment Screening Regulation Falls Short Of

On June 8, 2026, a new EU regulation was adopted to replace the 2019 Foreign Direct Investment (FDI) Screening Regulation. The new regulation requires all Member States to establish a screening mechanism for inbound FDI. It also defines a mandatory minimum sectoral scope, expands coverage to investments by foreign investors’ EU subsidiaries, and improves coordination between Member States and the Commission.

The new regulation should result in more consistent scrutiny across the EU of investments in sensitive sectors, but foreign investors will still face material differences between national FDI screening regimes and timeline uncertainty. In this alert, we first briefly explain the background to this regulation, before looking at the key changes that it introduces and summarizing their likely impact.

I. Background

Over the years, an increasing number of EU countries have introduced mechanisms to screen inbound FDI for potential threats to security and public order, similar to the Committee on Foreign Investment in the United States (CFIUS) review process. In 2019, the EU adopted its first FDI Screening Regulation to bring about some degree of EU-wide harmonization in this area. This regulation established some minimum requirements for national screening regimes and introduced an EU-level coordination mechanism to address the cross-border effects of foreign investments. While the 2019 regulation did not require Member States to adopt a screening mechanism, the European Commission strongly encouraged them to do so.

In January 2024, the Commission published a legislative proposal to replace the 2019 FDI Screening Regulation. The proposal was part of the EU’s broader Economic Security Strategy and aimed to address the shortcomings of the 2019 framework, as identified by an evaluation carried out by the Commission. These shortcomings included the absence of any obligation for Member States to screen inbound FDI, significant discrepancies in the scope of existing national screening mechanisms, and an insufficiently structured EU-level cooperation mechanism (see our previous alert for more information).

On December 11, 2025, following several months of trilogue negotiations, the EU co-legislators – the European Parliament and the Council – reached a political agreement on a compromise text. The Parliament approved the text at its May 19, 2026, plenary meeting, and this was followed by the Council’s approval on June 8, 2026.

For the first time, the new regulation requires Member States to establish a screening mechanism for investments by investors from third countries. In practice, all 27 EU Member States have already enacted FDI screening legislation, with the laggards (Greece, Croatia, and Cyprus) adopting their frameworks in 2025-2026. Therefore, the regulation’s significance lies not in filling a coverage gap, but rather in reinforcing the common standards that national regimes must meet and in bringing greater consistency to the…