Now in its third year of operation, the FSR’s impact on businesses has been significant and controversial. What stands out is the additional, resource-intensive administrative burden for businesses wishing to carry out material M&A and procurement transactions with an EU nexus. This burden applies regardless of whether any government subsidies are involved in a particular transaction.
The number of filings has soared far beyond the predicted level. In the first 12 months of the FSR’s transaction review mechanism, three times more notifications were filed than the EC estimated. Similarly, the EC has received many more notifications than expected under the tender review tool—reportedly over 1,300 submissions in the first year alone.
In addition, businesses have faced challenges when navigating key parts of the regime: determining whether an FSR filing is required, picking their way through the extensive worldwide disclosures needed for the filing process and considering the risk of potential intervention. In part, this is because they have been operating without comprehensive guidance on procedure or the substantive assessment and, with very few actual interventions, little decisional practice.
This is set to change. In the last couple of months, the EC has consulted on draft guidelines (Guidelines) and launched its first review of the FSR itself.
Draft guidelines shed (some) light on the EC's approach to enforcement
The draft Guidelines provide some limited clarification on the EC’s enforcement of the FSR, specifically:
- Assessment of distortions: How the EC determines when a foreign subsidy distorts competition in the internal market. The draft Guidelines: (i) clarify the determination of a distortion; and (ii) provide guidance on assessing whether a tender is unduly advantageous in relation to the subject of a procurement, and whether the advantage can be justified by factors other than the foreign subsidy.
- Balancing test: How the EC applies the balancing test (i.e., whether positive effects counterbalance the distortive effects of the foreign subsidy). The draft Guidelines clarify the types of positive effects (i.e., on the development of the relevant subsidized economic activity in the internal market and in relation to other relevant policy objectives). They also confirm that positive effects should be specific to the foreign subsidy considered and explain what the possible outcomes of the balancing test may be.
- “Call-in” powers: The EC’s power to request prior notification of M&A transactions or public procurements, in cases below the notification thresholds. The draft Guidelines address the conditions for the EC to request call ins and include a non-exhaustive list of the possible elements that would be taken into account in assessing any call-in.
While welcome, these Guidelines focus narrowly on FSR notifications involving a substantive issue of a potentially distortive subsidy. They do not address the many practical challenges faced by businesses considering the need to make a mandatory FSR notification for a transaction that does not involve any foreign subsidy at all. Even for those transactions involving subsidies, there is little clarity on, for example, the criteria used to determine foreign subsidies that are most likely to distort competition.
In terms of the balancing test, the draft Guidelines do not elaborate on how the various positive effects will be weighted. And the EC has not included a materiality threshold for the application of its call-in power or clarified which types of foreign financial contributions are likely to trigger such scrutiny.
Ultimately, the Guidelines still leave the EC with broad discretion to interpret and apply the rules on a case-by-case basis. This stems, in part, from the EC’s reluctance to commit to specific positions in the absence of established decisional practice. As a result, more concrete and predictable guidance is unlikely until the EC has built up sufficient case experience.
FSR review provide an opportunity to improve the regime
However, the EC’s FSR review—required under the regulation—is much more wide-ranging, covering all aspects of the implementation and enforcement of the FSR. The process has been launched with a public consultation and a call for evidence.
Competition Commissioner Teresa Ribera notes that it is an opportunity “to take stock” and “envisage possible improvements.” These will ultimately be set out in a “review report” to be published in July 2026.
To give a flavor, the EC is seeking views on:
- key “technical concepts” such as the determination of distortions in the internal market, the categorization of foreign subsidies most likely to distort the internal market, the application of the balancing test, and the enforcement of the ex officio review mechanism
- the transaction review mechanism, including the notification thresholds, impact on costs/timing of M&A, review periods, reporting of financial contributions, the notification form and Implementing Regulation, impact of the regime on non-EU participation in acquisitions involving the EU, and effectiveness of the regime at addressing possible distortions
- the public procurement mechanism, including the notification thresholds, impact on costs/timing of procurements, timelines, assessment framework, notification obligation, notification form, impact on non-EU participation in EU public procurement and the importance of the mechanism.
Significantly, the EC appears serious about the potential for changes to the regime—the call for evidence notes that the EC’s review report could be accompanied by legislative proposals, with the possibility of amendments to the notification thresholds or timelines for review.
As a reminder, companies must notify a transaction to the EC under the transaction review mechanism if the acquisition target or joint venture (or, if a merger, at least one of the merging parties) is established in the EU and has EU turnover of at least EUR500 million, and the parties received combined “financial contributions” from non-EU countries of more than EUR50m across the three-year period prior to the date of the transaction. “Financial contribution” is defined extremely broadly and those granted to the entire economic group need to be taken into account.
Given the EC has received substantially more notifications than initially anticipated and yet has so far only intervened in one deal (in the telecoms sector), it is arguable that the notification thresholds are set at a level that is simply too low.
In addition, unlike the EU merger control rules, the FSR lacks any fast-track or simplified procedure to reduce the administrative and financial burden for deals raising no concerns. The introduction of such a route would, in particular, assist investment fund/private equity-backed deals.
What happens now?
The EC’s consultation on the draft FSR Guidelines runs until September 12, 2025 and the text will be further discussed with the member states’ FSR Advisory Committee in Q4 2025. The final version must be published at the latest on January 12, 2026.
The deadline for feedback on the FSR Review is November 18, 2025. The EC will also carry out targeted consultations and commission an external firm to produce a study based on surveys with stakeholders. The responses will feed into the review report, which the EC is required to present to the European Parliament and the Council by July 2026. Any amendments to the FSR would need approval from both institutions.
In the meantime, we expect the EC to continue to prioritize enforcement of the FSR, and for the number of interventions to nudge upwards.
