The report, which the EC needed to present in time for the third anniversary of the FSR taking effect, has followed wide-ranging concerns about how the FSR has been working in practice and the disproportionate compliance burden it has placed on M&A deals and procurement procedures that raise no plausible foreign subsidies concerns.
As the EC’s data identifies, the mandatory notification regimes have proven to be highly over-inclusive: only 1% of notified M&A deals raised subsidies concerns sufficient to warrant an in-depth review,2 and less than 0.1% of procurement declarations provided to the EC have led to an in-depth investigation, across a much higher volume than expected.3
Businesses need to undertake extensive group-wide data collection and disclosure for transactions that do not present any meaningful risk of distortive foreign subsidies.
The German government, and others, had pressed for “a fundamental redesign” and “a comprehensive reform and cutback of the FSR to slash the significant unnecessary burden on and uncertainty for companies” that must “go beyond merely proposing targeted amendments.”
We summarized many of the current issues with the FSR as part of our latest Global trends in merger control enforcement report and our September 2025 overview, and we contributed to last year’s consultation.
Fit for purpose?
Against that backdrop, the documents published in the review have a striking difference in focus.
The main EC report, and the accompanying detailed staff report, generally approve of how the FSR has been implemented.
The main report records some limited concerns but has as its headline point that “the instrument is fit for purpose.” It supports this view by saying that the regime has filled a “regulatory gap” and identified some problematic subsidies, has handled more cases than anticipated, and led to a rate of in-depth transaction reviews that is “consistent” with the rate of phase 2 reviews under the EU Merger Regulation (1–7% of notified cases per year).4
It limits reform suggestions to a reluctant-sounding statement that “the Commission may consider possible adjustments” to the procedural set-up (emphasis added) “to reduce the administrative burden on businesses and facilitate compliance.”
The even more detailed third-party study prepared for the EC, however, has a remarkably different focus.
It leads with a number of considerably more pointed comments about the operation of the FSR, for example noting that:
- “findings indicate that its implementation has introduced considerable administrative requirements”
- “the wide variety of measures covered [in notifications is] ... an 'extremely significant' challenge’ and is, in some cases, “out of balance with the risk of market distortion”
- “a significant majority of respondents (77%) report that the required information collection necessitates substantial ... resources”
- “interactions with contracting authorities in public procurement are often described as challenging”
- “there is a strong consensus that the value of the FFCs [threshold for notification] are set too low”
- there is “widespread support among stakeholders for procedural simplification”.
Faced with this, the EC’s press release and accompanying Q&A have set out a more specific program to reform the FSR that, rather surprisingly, is not part of the conclusions of the EC’s own underlying reports.
Reforms to the requirements for M&A notifications
For the transaction review tool, which applies to M&A deals, the EC proposes:
- increasing the turnover threshold for notification—EC officials have indicated this could rise from the current EUR500 million to EUR600m (the maximum possible increase without amending the FSR itself)
- allowing certain types of cases to be subject to simplified notification
- increasing “moderately” the thresholds for what ‘foreign financial contributions’ (FFCs) need to be reported in the notification form (from the current EUR1m per FFC, and EUR45m per country)
- new exemptions from the need to report FFCs unlikely to be distortive subsidies.
The EC does not consider it needs to amend the FSR itself to implement these reforms, so it expects to make them comparatively quickly. It proposes to publish draft changes for comment in autumn 2026, and to implement them in 2027.
Even less on offer for procurement
For the public procurement review limb of the regime, despite the number of notifications made having vastly exceeded initial estimates, the EC proposes much more modest changes.
It does not currently plan to change the thresholds, but suggests a revised framework for requesting waivers, simplifications to the forms5 and more limited reporting of FFCs not considered likely to be distortive, and some ‘access to file’ reforms.
It is not clear if these changes will align to the transaction review tool, or if firms will have to gather more information to make filings under one regime than the other. Expected timing for the amendments is similar to the transaction review changes.
Transparency and guidance: a waiting game
Another ongoing concern across the FSR processes is the lack of clarity on how to interpret and apply key concepts in the regulation in practice. In the public procurement regime, there is also a concern about low awareness of the regime by some authorities who run procurements.6
In the report, the EC repeatedly sets out its “initiatives” to date and says these will continue: updating the Q&A, publishing new briefs (and maybe some targeted guidance), engaging in outreach activities, and publishing versions of final decisions.
But the comprehensive guidance requested by many stakeholders is set to remain elusive—the EC is clear that it first needs to build sufficient experience in applying the concepts across cases.
A more risk-based enforcement strategy?
The review also leaves a broader strategic question largely unanswered: is the EC directing sufficient resources towards targeting own-initiative investigations towards sectors and conduct where there is a credible risk of distortion? Or are those resources tied up in reviewing, filtering and approving the much higher-than-expected volume of unproblematic mandatory notifications?
The future balance between the own-initiative and mandatory notification tools will be an important test of whether the regime becomes more risk-based.
Modest improvement, but must do better?
The prospect of reform and simplification is somewhat encouraging. The changes should result in slightly fewer M&A notifications and reduce to an extent the administrative burden for notifying parties. The tangible impact will depend on the detail of the amendments.
However, there has been an important opportunity missed here.
The changes proposed appear to be exactly the kind of limited targeted amendments that Germany, and others, had said would not be sufficient.
More fundamental changes to the regime that would have greatly reduced the burden on non-subsidized businesses7 appear to be off the table for now, at least until the currently proposed reforms are given a chance to take effect and their impact can be further assessed.
Any further adjustments that would require the EC to seek changes to the FSR itself are likely to be a number of years away, at best.
This all means that the changes that the EC will table in the autumn need to have an outsized impact. Expect an update once we know more.
Footnotes
1. Regulation (EU) 2022/2560 of the European Parliament and of the Council of 14 December 2022 on foreign subsidies distorting the internal market.
2. Out of 250 cases for which the preliminary review is complete, 247 (98.8%) were approved during the EC’s initial review, while only three cases (1.2%) required an in-depth investigation. In addition, four notifications were withdrawn before a final decision was adopted.
3. Of 4,293 initial declarations (and 733 notifications), the EC opened 4 (0.1%) in-depth investigations.
4. The EC report does not address the fact that the average EUMR phase 2 referral rate of c.3% is around three times the rate of FSR in-depth review, or that the majority of EUMR notifications are made on a simplified procedure, because they are extraterritorial JVs or similar, and therefore have very limited disclosure and timing requirements compared to a typical FSR procedure.
5. One suggestion in the staff report is that, for the 40 most frequent Form FS-PP filers, moving to a single submission updated twice a year, or making more systematic use of waivers, could have reduced 672 submissions to 160—around a 76% decrease. This would not, however, reduce the disclosure burden for bidders who participate less frequently in in-scope procurements.
6. The staff report indicates that contracting authorities sometimes fail to require FSR submissions or transmit them late—in exceptional cases only after award. This may reduce predictability for stakeholders and puts bidders in a difficult position when they identify a notification requirement that is inconsistent with the contracting authority’s planned timetable.
7. For example, replacement of the notifications regime with greater use of call-in powers (as proposed by Germany), or major adjustments to the thresholds and filing requirements.
