Third annual report on EU foreign investment reveals a significant increase in formal screenings

The European Commission (EC)’s third annual report on EU foreign direct investment (FDI) screening covers the operation of the screening mechanism in 2022. Together with a Commission Staff Working Document, it details statistics on the screening of FDI into the EU and its Member States, and related legislative developments at the EU and national level.  

The EU FDI Screening Regulation (FDI Regulation) established a cooperation framework for screening of foreign investments into the EU by national authorities for their impact on security and public order. A Member State receiving a filing under its FDI regime must immediately inform all other Member States and the EC of that filing and provide information as required by the other Member States and the EC. While the review of a particular FDI rests exclusively with the specific Member States in which the investment is notified, national authorities must give due consideration to any comments received from other Member States and any EC opinion (and in limited cases take “utmost account” of the EC’s opinion).

Screening remains (for most investments) efficient despite a rising proportion of formal reviews

The FDI Regulation has been in full operation for three years and the EC has racked up more than 1,100 foreign direct investment screenings. Looking back, the authority considers that the cooperation mechanism has “allowed for the prevention of investments posing security or public order risks without restricting the overall flow of foreign investment into the EU”.

The data show that in 2022 there was a significant increase in formal screening compared to 2021, but notably also a marked decrease in deals being subject to conditions (and prohibitions still very much an exception). Review timelines also remain on a par with 2021. However, the data also indicates that many non-sensitive investments are continuing to get caught up in national foreign investment control reviews and that timelines can be unpredictable for those investments that do raise concerns.


  • There were 1,444 requests for authorisation and ex officio cases in 2022, approximately 55% of which were formally screened – this is a significant uptick in cases considered sensitive, from 29% in 2021 and 20% in 2020.
  • However, 86% of formally screened cases were authorised unconditionally – up from 73% in 2021.
  • And only 9% of cases involved the negotiation or imposition of conditions from investors prior to approval – a substantial drop from 23% in 2021.
  • Frustration of transactions remains rare: as in 2021, just 1% of decided cases were blocked, while for a further 4% the transaction was withdrawn by the parties prior to a decision.
  • The EC gave an opinion in less than 3% of transactions.
  • Six Member States – Austria, Denmark, France, Germany, Italy and Spain – were responsible for more than 90% of notifications.

Foreign investors:

  • Of the 423 cases notified in 2022, the top six countries for the origin of the ultimate investor were (in order) the U.S., the UK, China, Japan, the Cayman Islands and Canada.
  • However, there has been a clear increase in diversification of origin of the ultimate investors – around 40% of notified cases originated from countries outside the top six (compared to 29% in 2021), and ultimate investors originated from 52 different countries (up from 43 in 2021).

Industries of concern:

  • Most cases requiring a detailed Phase 2 assessment concerned the diverse “manufacturing” sector (59%, rising from 44% in 2021), despite this sector only accounting for 27% of transactions. This sector notably covers energy, aerospace, defence, semiconductors, health, data processing and storage, communications, transport and cybersecurity and, compared to 2021, a greater diversity of these sub-sectors were targeted.


  • Of the 423 cases notified in 2022, the vast majority (87%) were closed in Phase 1, ie within 15 calendar days, with only 11% of the notified cases closed in Phase 2, and less than 3% of cases resulting in an opinion from the EC.
  • The duration of cases requiring a detailed Phase 2 assessment continued to vary significantly (from one to 126 calendar days), in part dependent on the provision of information by investors.

More EU Member States introduce and update national FDI rules

While the FDI Regulation does not require Member States to adopt FDI regimes, the EC “firmly expects that all Member States will have a comprehensive national FDI screening mechanism in place in the near future” and “encourages Member States to make effective use of their screening mechanism”. The authority considers the tool “indispensable” to safeguard the collective security of the Member States and the EU, as well as the security of the EU internal market.

Following continued EC encouragement during 2022, 21 of the 27 Member States now have an FDI regime in place, most recently Slovakia, Luxembourg and Estonia. Sweden and Ireland are set to follow in December 2023 and early 2024 respectively. In addition, several other national regimes have been recently updated, expanded and prolonged to deal with current geopolitical and technological developments, in part following Russia’s invasion of Ukraine.

The resulting proliferation of FDI regimes has led to significant variation in rules across the EU. For example, the regimes differentiate between relevant triggers such as thresholds, shares, voting rights or relevant assets. Similarly, the concept of foreign investors varies, with some Member States reserving the right to screen intra-EU investments. Sectoral coverage is also very different from one Member State to another. And, in practice, we have seen the duration of procedures vary markedly across the EU and some Member States imposing remedies on investors much more frequently than others.

Revisions to the EU FDI screening mechanism are imminent

The EC recognises and is keen to tackle the divergence in national FDI regimes across the EU. To facilitate alignment, it reports that it has assisted Member States with technical and policy guidance, meetings and information exchange, notably on best practices.

More significantly, the EC is currently completing an evaluation of the FDI Regulation. It launched a public consultation on a replacement FDI Regulation in June 2023 and stated that its experience with the current framework “shows that a number of issues could be improved”.

The EC articulated the risk that the definition of investments covered means that potentially problematic indirect non-EU investments are not caught. In July 2023, following a request for a preliminary ruling from a Hungarian court, the European Court of Justice confirmed that the FDI Regulation does not apply to investments in the EU made by companies registered in an EU Member State which are controlled by a third country investor. However, EU Member States deem themselves to be entitled to enact national FDI screening mechanisms covering indirect/intra-EU acquisitions, subject to compliance with EU fundamental freedoms.

The EC also identified problem areas in national screening systems: uneven sectoral and transaction coverage as well as a lack of homogeneity in procedural aspects including investigation and approval deadlines.

The EC expects to propose a revised version of the FDI Regulation before the end of this year.

Expanding EU concerns and toolkits

“Safeguarding European security and public order in times of increased geopolitical tensions” is clearly high on the EC’s agenda. In addition to FDI screening, the EC’s press release points to the work of Member States in reviewing export applications. It notes that Member States reviewed 38,500 export applications in 2021 for dual use goods worth EUR45.5 billion, and blocked exports on account of security risks in 560 cases, worth a total of EUR7bn.

Overall, investors will now need to be considering the application of multiple regimes in parallel. Notifications could be required under Member State FDI regimes, EU or Member State merger control regimes and/or the recently in force EU Foreign Subsidies Regulation (for further information on this regime see our publications on how the overall regime will work and the important procedural rules).

And another layer of regulation is set to join the mix. According to a June 2023 European economic security strategy, the EU plans to propose an initiative for an instrument controlling outbound investments – in relation to “a narrow set of advanced technologies that may enhance military and intelligence capacities of actors who may use these capabilities to threaten international peace and security” – by the end of 2023. The EU would be joining the U.S., where controls on certain outbound investments are being implemented, and the UK, where outbound investment controls are under consideration. Information on the U.S. and UK initiatives can be found in this alert.

We will continue to track developments closely and keep you informed as the various proposals are published and implemented.

Content Disclaimer
This content was originally published by Allen & Overy before the A&O Shearman merger