Since Regulation (EU) 2019/452[1], the European Union has had a framework for the screening of foreign direct investment. Applicable since 11 October 2020, that framework did not require Member States to screen foreign investments. Rather, it primarily established a cooperation mechanism between Member States and the European Commission. Where a foreign direct investment was subject to national screening, the Member State concerned was required to notify the transaction to the Commission and the other Member States, which could submit comments, while the Commission could issue an opinion.
The new reform transforms the existing framework into a mandatory minimum baseline for all Member States. Regulation 2019/452 provided that Member States could “maintain, amend or adopt” screening mechanisms, whereas the new Regulation requires all Member States to operate a national mechanism that complies with harmonised minimum standards. Regulation (EU) 2026/1386 of 17 June 2026[2] now requires all Member States to have a national screening mechanism for foreign investments in sensitive or strategic sectors. The scope of those sectors, set out in Annex I, is broader than the areas currently covered by many national regimes. These newly covered areas include, for example, semiconductors, quantum technologies and artificial intelligence, as well as voting systems and electoral databases. Financial infrastructures, such as central securities depositories, payment system operators, regulated market operators and clearing houses, must also be subject to foreign investment screening where they are the target of an investment. Screening of companies involved in the production or development of dual-use goods and military equipment is now generalised, which was not previously the case.
The Regulation also harmonises the criteria for assessing risk. Without creating an entirely new assessment framework, Article 19 requires Member States and the Commission to take into account common criteria, relating in particular to the effects of the investment on critical technologies, critical infrastructure, critical inputs, sensitive data, the media, electoral processes, public health, food security and proximity to sensitive facilities, as well as to the profile of the investor, including its links with a third country, its track record, possible sanctions or the opacity of its ownership structure.
The new text also broadens the scope of transactions to be addressed at Union level. In particular, it covers certain transactions carried out by an investor established in the Union where that investor is ultimately controlled by a person or entity located in a third country. This scenario was already covered by certain national laws, including in France, where the concept of a foreign investor includes entities governed by French law that are controlled by one or more foreign persons or entities under Article R. 151-1, I, 4° of the French Monetary and Financial Code. The Regulation therefore harmonises this interpretation across Member States, in order to prevent foreign investors from circumventing screening mechanisms by interposing a company or investment vehicle established within the European Union.
In practice, operators will need to anticipate this new scope of review as early as the structuring stage of their transactions. Acquisitions, takeovers, threshold crossings and restructurings involving a non-EU investor will need to be assessed more systematically in light of foreign investment screening rules, particularly where they are likely to give the investor effective influence over the management or control of the target company. This analysis will also need to cover the investor’s ultimate chain of control[3], including where the direct acquirer is a company established in the European Union but controlled, directly or indirectly, from a third country.
Conversely, a purely financial transaction carried out without any change in the target’s ultimate beneficial owner and without granting the investor rights enabling it to exercise influence over the target’s management or control should, in principle, remain outside the scope of mandatory screening. The decisive criterion is therefore not merely the investor’s stated intention not to participate actively in management, but above all the absence of any change in the UBO and the absence of rights conferring influence over the target.
Finally, the text also strengthens the cooperation mechanism between Member States and the European Commission. Certain transactions will now have to be notified mandatorily under the European cooperation mechanism, in order to enable the other Member States and the Commission to assess their potential impact on the security or public order of the Union. For France, whose foreign investment control regime is already structured and subject to defined regulatory time limits, the main impact should therefore lie less in a complete overhaul of the national framework than in reinforced coordination with the European framework, in particular through the systematic transmission of information on the most sensitive transactions.
[1] https://eur-lex.europa.eu/legal-content/FR/TXT/PDF/?uri=CELEX:32019R0452
[2] https://eur-lex.europa.eu/legal-content/FR/ALL/?uri=CELEX:32026R1386
[3] Regulation 2026/1386 introduces an autonomous European definition of “beneficial owner”, in order to identify the person or entity that effectively controls the investor or ultimately benefits from the transaction. For France, the main contribution is not so much the creation of an entirely new concept, but rather the harmonisation, at Union level, of the analysis of the investor’s ultimate chain of control, particularly where the direct acquirer is a company established within the Union but controlled from a third country. This approach is close to the French concept of beneficial ownership for AML/CFT purposes, while being tailored to the specific objective of foreign investment screening: assessing the actual influence exercised over a transaction that may affect security or public order.