European Union: New EU Law On The Screening Of Foreign Direct Investments In Europe

Key Points

  • The European Commission has released a set of documents, including a proposal for an 'FDI Regulation,' which sets out an EU framework for screening foreign direct investments.
  • This proposal would grant the European Commission the power to review transactions that are likely to affect projects or programs of European Union interest on security or public order grounds.
  • The proposal would also subject EU Member States to notification and information requirements in relation to any foreign direct investments that they choose to review under their national mechanisms, and would impose certain minimum procedural requirements on those national review mechanisms.

On Wednesday, September 13, 2017, the European Commission (the EC) published its proposal for a Union-wide response to foreign direct investment screening (the "Proposal"). The Proposal includes a draft Regulation (the "Regulation") which seeks to introduce an EU-level framework for foreign direct investment (FDI) screening. The EU has no general supranational mechanism for controlling FDI, although there are several EU-level rules on specific industries (for instance, the gas and electricity Directives contain provisions requiring the assessment of security of supply implications where the gas or the electricity transmission system of a Member State is controlled by a third country operator) and national screening mechanisms are in place in nearly half of the Member States.1

Exceptionally, in light of the "rapidly changing economic reality, growing concerns of citizens and Member States," the Proposal comes with no impact assessment. However the EC has promised an in-depth review of investments flowing into the EU. The Proposal attempts to balance the EU interest in protecting strategic assets, against the diverse views held by the Member States (some of which do not want FDI screening, and others which do not want their national mechanisms to be subordinate to an EC mechanism). As a starting point, only the EU and not the Member States may legislate on FDI, as it is part of the Union's common commercial policy (Article 207 TFEU) and thus falls within the EU's exclusive competence (Article 3(1)(e) TFEU).

The proposed Regulation applies to "investments of any kind by a foreign investor aiming to establish or to maintain lasting and direct links" with the EU undertaking. This is an imprecise definition that leaves questions as to whether it includes small equity stakes or some forms of debt, although we know that it excludes portfolio investments. The Proposal explicitly allows Member States to retain, amend or adopt their own FDI screening mechanisms. The resulting system could therefore give rise to parallel reviews (by the Member State in which the investment is taking place, and by the EC) with differing outcomes. This and other potential issues will be debated by Members of the European Parliament (MEPs) and European Council ("Council") working groups over the coming year, as the precise drafting of the Regulation is finalized.    

EC power of review

The Proposal would introduce a new power for the EC to review FDI that is "likely to affect projects or programmes of Union interest" on the grounds of security or public order only. The EC clarified that these projects or programs include those involving either substantial EU funding, or critical infrastructure. The Regulation includes an indicative list of projects in Annex 1, which includes for instance, the Trans-European Networks for Energy. Even a limited list can result in a broad power to review, if the items listed include e.g., the entire supply chain for the project or program.

The bar for the EC's power to review investments is set at "likely to affect projects or programmes of Union interest." 'Likely to affect' could be interpreted as 'on a balance of probabilities,' or 'more than 50%.' Where the EC decides to intervene in an investment, it may address an opinion to the Member State in which the FDI is being made, and may request from the Member State any information it requires to do so, which is to be provided without undue delay. The EC will have 25 days from the receipt of information to issue its opinion (which can be extended by a further 25 days). While the EC's opinion is not strictly binding on the Member State, the Member State must take "utmost account of the Commission's opinion and provide an explanation to the Commission in case its opinion is not followed."

The Proposal attempts to provide further clarity to investors through a non-exhaustive list of factors that Member States and the EC may consider in their FDI reviews. These factors include the involvement of any critical infrastructure, technologies, inputs and sensitive information, as well as any third country government involvement or significant funding. None of them is defined. While the critical infrastructure factor echoes the U.S. foreign investment regime, CFIUS, unlike that U.S. regime, the EC would not have the power to veto investments.

Notification obligation and cooperation mechanism

Under the Proposal, Member States would be required to notify the EC of any existing screening mechanisms, and to report annually to the EC on the application of the mechanism. Even Member States with no screening mechanism in place must report to the EC annually on FDI that has taken place within their territory. Each Member State would also appoint a FDI screening contact point for all communications under the Regulation.

The broader cooperation mechanism obliges Member States to inform the EC and other Member States of its reviews within 5 days of opening any new FDI screening, indicating where possible, the likely outcome of the review. Member States will then have 25 days from the notice to comment on the review if they feel the investment may have an impact on their security or public order. The EC may address an opinion to the Member State undertaking the review within 25 days of receiving the notice or comments from other Member States. The Member State undertaking the review must give "due consideration" to the comments and/or opinions received, but is not bound by them.

Minimum procedural requirements

The Proposal has potential implications for current national FDI regimes as it lays down "essential elements of the procedural framework for the screening of foreign direct investment by Member States." The essential elements include transparency, non-discrimination, the possibility for redress and timelines for screening decisions. The Proposal thus includes a certain level of harmonization on FDI screening.

The Proposal will be submitted to the European Parliament and Council under the ordinary legislative procedure, so any definitive legislation is unlikely to be finalized before the end of 2018. We are tracking the Proposal's passage and will be engaging key MEPs and Council working group members. The extent to which FDI in the UK will be affected by any final Regulation depends upon the outcome of the UK-EU BREXIT negotiations. Prior to the Global Financial Crisis, the UK Government had been very open to FDI, with intervention being rare. Minister May has since resurrected UK Industrial Policy and has re-opened the debate on which strategic industries should be protected, as more countries around the world engage in various forms of economic nationalism.


1 Austria, Denmark, Germany, Finland, France, Latvia, Lithuania, Italy, Poland, Portugal, Spain, and the United Kingdom

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.