This summer, the European Union adopted a new Foreign Direct Investment (FDI) Screening Regulation, which is expected to significantly reshape the rules governing foreign investment oversight across Europe. In practice, the new rules may affect who can acquire strategic European companies, and even whether certain transactions can proceed at all. Why has Europe decided to strengthen protections for its market, and what does this change mean for businesses?
This is a very significant development. Although all 27 EU Member States now have foreign investment screening mechanisms in place, their criteria and enforcement systems remain fragmented and uneven.
Regulation (EU) 2026/1386 of 17 June 2026 on the screening of foreign investments in the Union, which repeals Regulation 2019/452, aims to change that. The new rules are transformative, although they will only apply to transactions that have not been completed before 17 January 2028, giving businesses time to prepare.
The key change is that all Member States will be required to screen investments in designated strategic sectors. The minimum list of protected sectors is substantial. Member States may expand it, but not narrow it. It covers, among others, the development, production, or commercialization of dual-use and defense-related products; the manufacturing, research, or development of semiconductors, quantum technologies, and artificial intelligence; as well as activities in transportation, energy, digital infrastructure, and strategic raw materials. Protection will also extend to certain entities operating in regulated and financial markets, as well as companies that own databases used for voter registration, voting systems and information systems.
The breadth of the protected sectors, combined with the detailed criteria for assessing when a foreign investment is likely to negatively affect security or public order, demonstrates how seriously the EU regulator views Europe's security and the risks it faces. It is worth remembering that these new rules were introduced at the initiative of the European Commission, which had been systematically monitoring the implementation of the previous Regulation 2019/452 and identifying legal and practical gaps that required action.
Another important aspect is the expansion of the regulation's personal scope.
Indeed. Screening will cover not only traditional foreign direct investments originating outside the EU, but also "intra-EU" transactions where the investor is ultimately controlled by an entity established in a third country.
The new regulation introduces an autonomous definition of a beneficial owner. While the concept is derived from anti-money laundering (AML) legislation, the criteria and approach to assessing ownership and control structures differ significantly between the two frameworks.
In the context of foreign investment screening, the primary objective is to identify the entity capable of influencing the EU economy or acting in the interests of a third country. Any level of actual control or benefit that could pose a security risk is relevant. Unlike AML regulations, which typically specify ownership, voting, or shareholding thresholds that trigger particular legal consequences, Regulation 2026/1386 does not establish such presumptions in its general definition. What matters is any degree of actual control or benefit that may present a risk to security or public order. This gives Member States' screening authorities considerable interpretative and decision-making discretion.
What impact will the new rules have on the M&A market?
According to annual reports published by the European Commission under Regulation 2019/452, the volume of foreign direct investment across all Member States has increased over the last decade, covering both M&A transactions and greenfield investments.
Although the overall value of these investments has declined in recent years, aggregated data continues to show that EU companies remain attractive investment targets, and that foreign investment screening regulations introduced several years ago have not created a significant obstacle. While an increasing number of transactions are subject to screening, EU-wide data shows that only a small percentage proceed to a second-phase review. The vast majority of cases (approximately 85%) result in unconditional approval, with only a limited number subject to conditions or mitigation measures. Historically, only around 1% of notified transactions have been blocked.
I would suggest that, under the new regime, the overall percentage outcomes for properly notified transactions will not differ significantly. However, investments in strategic sectors will undoubtedly require more careful analysis, preparation and structuring.
For Poland, this will be a major change. On the one hand, Poland already has a multi-layered screening framework. On the other hand, numerous exemptions have been introduced that relieve most investors from the obligation to obtain approval. The new framework is therefore likely to have a meaningful impact.
In addition, Regulation 2026/1386 encourages Member States to extend screening to greenfield investments and introduces the concept of retrospective review of completed transactions that either did not require approval or were not notified despite such an obligation. Depending on how individual Member States implement these guidelines, many transactions may ultimately be filed on a precautionary "better safe than sorry" basis, and that approach will not necessarily be the simplest one.
Should sellers also be concerned about these rules, or is this mainly a buyer's issue?
The question of whether a transaction is subject to FDI screening is undoubtedly crucial for all parties involved in the transaction process: the target company, the investor and the seller.
For the company itself, the identity of its shareholders matters. Completing a transaction with a non-EU investor may result in the loss of eligibility for certain tenders, programs, or public funding schemes. In some cases, it may even trigger repayment obligations for previously received grants or lead to the termination of existing contracts. Depending on the sector and circumstances, a detailed assessment of risks associated with a change in ownership can be critical to the viability of the business.
Investors view the issue from a similar perspective. They will assess not only the target's prospects after closing but also how to structure their bid. In some cases, a minority investment or a joint venture with a European partner may prove to be a more viable alternative.
For sellers, especially when the transaction does not involve a full exit, assessing an investor's credibility from an FDI perspective becomes an important component of evaluating competing offers. The highest price is not always the most attractive offer if regulatory risks are so significant that the transaction could be delayed for months or even fail altogether.
Deal certainty has value in itself. Contractual commitments to provide financial compensation in the event of a failed transaction may be of little value if there is a heightened risk that foreign investment screening authorities will determine that the investment could negatively affect security or public order.
What factors will be examined to determine whether a foreign investment could genuinely have a negative impact on EU security?
Under the new regulation, Member States and the European Commission will not be required to establish such an impact with certainty. To block a transaction or impose mitigation measures, it will be sufficient to determine that the investment is likely to have a negative effect.
The assessment must consider potential impacts on projects or programs of Union interest. Annex II to the Regulation currently lists more than twenty such programs, and the list may be expanded through delegated acts. The authorities will also evaluate a broad range of factors,
including the availability of critical technologies (both inside and outside the EU), the security and integrity of critical infrastructure, the continuity of supply of critical inputs, media freedom and pluralism, electoral processes, public health, food security, and the protection of sensitive facilities located near the target EU undertaking.
The circumstances surrounding the foreign investor will also be subject to scrutiny. The proposed information-sharing and cooperation framework between Member States and the European Commission is designed to enable a comprehensive assessment that takes into account not only the interests of the host country, but also those of other Member States potentially affected by the investment.
Is the EU economy now fragmenting into separate national economies, with the free movement of capital becoming a thing of the past?
I would not go that far. While strategic and sensitive sectors, such as defense and advanced technologies, undoubtedly involve elements of national interests, legislative developments are aimed at protecting the EU market as a whole and strengthening the EU's collective position in relation to the global economy. Increased scrutiny of foreign investments is a component of that broader strategy.
This does not mean the end of international investment. On the contrary, in a world increasingly divided into regions and economic blocs, carefully structured acquisitions remain an important tool for building local competitive advantages, acquiring technology, and securing supply chains.
How does Poland fit into this increasingly fragmented global landscape? Does it remain attractive to investors?
Poland remains a highly attractive market for international investors. I say this with full confidence and optimism, based on numerous discussions and projects.
Recent months have brought several strong indicators confirming the resilience of the Polish economy. In the second quarter, Poland's GDP grew by 3.9% year-on-year, significantly faster than in most major EU economies. In August, S&P Dow Jones Indices classified Poland as a developed market, which sends a clear signal to international investors regarding the maturity and accessibility of the Polish capital market. Participation in the G20 working framework and continued GDP growth further reinforce this positive message.
That said, challenges remain. A less optimistic perspective can also be supported by objective indicators. For example, the recent downgrade of Poland's sovereign credit rating by Moody's may raise concerns. The key is to seize opportunities boldly while approaching risks with due caution.
This is a very significant development. Although all 27 EU Member States now have foreign investment screening mechanisms in place, their criteria and enforcement systems remain fragmented and uneven.
Regulation (EU) 2026/1386 of 17 June 2026 on the screening of foreign investments in the Union, which repeals Regulation 2019/452, aims to change that. The new rules are transformative, although they will only apply to transactions that have not been completed before 17 January 2028, giving businesses time to prepare.
The key change is that all Member States will be required to screen investments in designated strategic sectors. The minimum list of protected sectors is substantial. Member States may expand it, but not narrow it. It covers, among others, the development, production, or commercialization of dual-use and defense-related products; the manufacturing, research, or development of semiconductors, quantum technologies, and artificial intelligence; as well as activities in transportation, energy, digital infrastructure, and strategic raw materials. Protection will also extend to certain entities operating in regulated and financial markets, as well as companies that own databases used for voter registration, voting systems and information systems.
The breadth of the protected sectors, combined with the detailed criteria for assessing when a foreign investment is likely to negatively affect security or public order, demonstrates how seriously the EU regulator views Europe's security and the risks it faces. It is worth remembering that these new rules were introduced at the initiative of the European Commission, which had been systematically monitoring the implementation of the previous Regulation 2019/452 and identifying legal and practical gaps that required action.
Another important aspect is the expansion of the regulation's personal scope.
Indeed. Screening will cover not only traditional foreign direct investments originating outside the EU, but also "intra-EU" transactions where the investor is ultimately controlled by an entity established in a third country.
The new regulation introduces an autonomous definition of a beneficial owner. While the concept is derived from anti-money laundering (AML) legislation, the criteria and approach to assessing ownership and control structures differ significantly between the two frameworks.
In the context of foreign investment screening, the primary objective is to identify the entity capable of influencing the EU economy or acting in the interests of a third country. Any level of actual control or benefit that could pose a security risk is relevant. Unlike AML regulations, which typically specify ownership, voting, or shareholding thresholds that trigger particular legal consequences, Regulation 2026/1386 does not establish such presumptions in its general definition. What matters is any degree of actual control or benefit that may present a risk to security or public order. This gives Member States' screening authorities considerable interpretative and decision-making discretion.
What impact will the new rules have on the M&A market?
According to annual reports published by the European Commission under Regulation 2019/452, the volume of foreign direct investment across all Member States has increased over the last decade, covering both M&A transactions and greenfield investments.
Although the overall value of these investments has declined in recent years, aggregated data continues to show that EU companies remain attractive investment targets, and that foreign investment screening regulations introduced several years ago have not created a significant obstacle. While an increasing number of transactions are subject to screening, EU-wide data shows that only a small percentage proceed to a second-phase review. The vast majority of cases (approximately 85%) result in unconditional approval, with only a limited number subject to conditions or mitigation measures. Historically, only around 1% of notified transactions have been blocked.
I would suggest that, under the new regime, the overall percentage outcomes for properly notified transactions will not differ significantly. However, investments in strategic sectors will undoubtedly require more careful analysis, preparation and structuring.
For Poland, this will be a major change. On the one hand, Poland already has a multi-layered screening framework. On the other hand, numerous exemptions have been introduced that relieve most investors from the obligation to obtain approval. The new framework is therefore likely to have a meaningful impact.
In addition, Regulation 2026/1386 encourages Member States to extend screening to greenfield investments and introduces the concept of retrospective review of completed transactions that either did not require approval or were not notified despite such an obligation. Depending on how individual Member States implement these guidelines, many transactions may ultimately be filed on a precautionary "better safe than sorry" basis, and that approach will not necessarily be the simplest one.
Should sellers also be concerned about these rules, or is this mainly a buyer's issue?
The question of whether a transaction is subject to FDI screening is undoubtedly crucial for all parties involved in the transaction process: the target company, the investor and the seller.
For the company itself, the identity of its shareholders matters. Completing a transaction with a non-EU investor may result in the loss of eligibility for certain tenders, programs, or public funding schemes. In some cases, it may even trigger repayment obligations for previously received grants or lead to the termination of existing contracts. Depending on the sector and circumstances, a detailed assessment of risks associated with a change in ownership can be critical to the viability of the business.
Investors view the issue from a similar perspective. They will assess not only the target's prospects after closing but also how to structure their bid. In some cases, a minority investment or a joint venture with a European partner may prove to be a more viable alternative.
For sellers, especially when the transaction does not involve a full exit, assessing an investor's credibility from an FDI perspective becomes an important component of evaluating competing offers. The highest price is not always the most attractive offer if regulatory risks are so significant that the transaction could be delayed for months or even fail altogether.
Deal certainty has value in itself. Contractual commitments to provide financial compensation in the event of a failed transaction may be of little value if there is a heightened risk that foreign investment screening authorities will determine that the investment could negatively affect security or public order.
What factors will be examined to determine whether a foreign investment could genuinely have a negative impact on EU security?
Under the new regulation, Member States and the European Commission will not be required to establish such an impact with certainty. To block a transaction or impose mitigation measures, it will be sufficient to determine that the investment is likely to have a negative effect.
The assessment must consider potential impacts on projects or programs of Union interest. Annex II to the Regulation currently lists more than twenty such programs, and the list may be expanded through delegated acts. The authorities will also evaluate a broad range of factors,
including the availability of critical technologies (both inside and outside the EU), the security and integrity of critical infrastructure, the continuity of supply of critical inputs, media freedom and pluralism, electoral processes, public health, food security, and the protection of sensitive facilities located near the target EU undertaking.
The circumstances surrounding the foreign investor will also be subject to scrutiny. The proposed information-sharing and cooperation framework between Member States and the European Commission is designed to enable a comprehensive assessment that takes into account not only the interests of the host country, but also those of other Member States potentially affected by the investment.
Is the EU economy now fragmenting into separate national economies, with the free movement of capital becoming a thing of the past?
I would not go that far. While strategic and sensitive sectors, such as defense and advanced technologies, undoubtedly involve elements of national interests, legislative developments are aimed at protecting the EU market as a whole and strengthening the EU's collective position in relation to the global economy. Increased scrutiny of foreign investments is a component of that broader strategy.
This does not mean the end of international investment. On the contrary, in a world increasingly divided into regions and economic blocs, carefully structured acquisitions remain an important tool for building local competitive advantages, acquiring technology, and securing supply chains.
How does Poland fit into this increasingly fragmented global landscape? Does it remain attractive to investors?
Poland remains a highly attractive market for international investors. I say this with full confidence and optimism, based on numerous discussions and projects.
Recent months have brought several strong indicators confirming the resilience of the Polish economy. In the second quarter, Poland's GDP grew by 3.9% year-on-year, significantly faster than in most major EU economies. In August, S&P Dow Jones Indices classified Poland as a developed market, which sends a clear signal to international investors regarding the maturity and accessibility of the Polish capital market. Participation in the G20 working framework and continued GDP growth further reinforce this positive message.
That said, challenges remain. A less optimistic perspective can also be supported by objective indicators. For example, the recent downgrade of Poland's sovereign credit rating by Moody's may raise concerns. The key is to seize opportunities boldly while approaching risks with due caution.
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