Shaping investments into EU strategic sectors: The FDI Screening Reform and the Industrial Accelerator Act

The European Union’s approach to foreign direct investment (FDI) screening is undergoing a marked shift with potentially significant ramifications. What began as a coordination-focused FDI screening framework is evolving into an increasingly structured set of tools designed to protect the economic security of the European Union by reducing strategic dependencies and vulnerabilities and protecting critical technologies. Two very recent developments sit at the heart of this transition: the revision of the EU Foreign Direct Investment (FDI) Screening Regulation and the proposed Industrial Accelerator Act (IAA).

What changes under the revised FDI Screening Regulation: Increased coverage, deeper cooperation, and more transparency, at the cost of timing and deal certainty

On 11 December 2025, the Presidency of the Council of the EU and the European Parliament’s representatives reached a provisional agreement on the EU FDI Screening Regulation revisions. These revisions largely align with the European Commission’s proposals of January 2024 (the “2024 Proposal”) to reform the current FDI Screening Regulation in force since October 2020.¹  The Council of the EU published the provisional text for the revised Regulation on 10 February 2026. Below are the main changes proposed.

Definition of a minimum common list of critical sectors:  While the current FDI framework leaves the implementation of an FDI screening mechanism at the discretion of Member States, the revised Regulation requires all Member States to screen foreign investments in at least the following critical sectors:

• Dual-use items and military equipment;
• Technologies of “strategic importance;” e.g., artificial intelligence (focused on general-purpose artificial intelligence with relevance to space or defense), quantum technologies, semiconductors;
• Critical raw materials, as listed in the Critical Raw Materials Act, including bauxite, cobalt, copper, battery-grade lithium, nickel, titanium metal;
• Critical entities in energy, transport and digital infrastructure;
• Electoral infrastructure; and
• Certain financial system entities; e.g., central counterparties, central securities depositories, operators of regulated markets, operators of payment systems (excluding central banks), and large institutions.²

This uniform EU baseline aims to fill any enforcement gaps in the EU common market by making sure all investments into these sectors are scrutinized. Though limited in scope, it should also bring some welcome harmonization in how these sectors are defined at the national level across the European Union.

Screening of certain intra-EU transactions: The revised Regulation also extends the scope of screening to “indirect” foreign control; i.e., intra-EU investments where the EU-based investor is ultimately owned or controlled by individuals or entities from non-EU countries. While this proposal is also intended to avoid any enforcement gap, it should not bring major changes in practice, since Member States that have an FDI screening regime already screen indirect acquisitions by non-EU investors.

Retrospective screening powers: The revised Regulation also empowers Member States to retroactively screen notifiable foreign investments that:

• Were not subject to a prior authorization requirement, when the screening authority has grounds to consider that the foreign investment might affect security or public order, within a period of at least 15 months and up to a maximum of five years following completion of the investment; or
• Were subject to a prior authorization requirement but were not notified, or were closed without prior clearance, for at least 24 months following completion of the foreign investment.

This change is likely to have a material impact on deal certainty when investing in potentially sensitive businesses. In order to mitigate that risk, investors can be expected to make more precautionary filings where there is a credible jurisdictional ground to do so. Some Member States may also consider introducing voluntary filing mechanisms to allow companies to reach out to screening authorities on a voluntary basis to clear out any such risk pre-completion.

Two-phase review: The revised Regulation also introduces a baseline two-phase review process for all Member State screening regimes:

• Member States must carry out an initial review of the investment within 45 calendar days of the filing, and decide whether a reportable investment can be cleared, or an in-depth assessment should be initiated to determine whether the foreign investment is likely to negatively affect security or public order; and
• The precise duration of such in-depth assessment is left for each Member State to decide.

While this should allow for more consistent enforcement across the European Union, it is also likely to result in longer review periods, especially in case of activation of the EU cooperation mechanism.

Increased cooperation and interoperability:  While Member States retain full discretion in deciding whether to authorize, condition, or prohibit an investment, the revised Regulation seeks to deepen cooperation and coordination between national authorities and the European Commission. In particular:

• The EU cooperation mechanism will have to be activated:
  • for each investment in one of the above-mentioned sectors where such investment is made by an investor which is controlled by a foreign government (broadly understood), is subject to EU restrictive measures (i.e., sanctions), or had prior unfavorable FDI experiences (investment prohibitions or violations of mitigation measures); and
  • each time a screening Member State decides to initiate an in-depth investigation (phase 2), to impose mitigating measures or to prohibit or unwind the transaction without an in-depth investigation (if either the Union target is active in a project or program of Union interest listed in an Annex to the revised Regulation, or it has–or is part of a group that has–subsidiaries in at least one other EU Member State);
• The revised Regulation finally introduces several provisions upholding legal certainty, rights of defense, and transparency.
• The screening Member State will be required to “take due consideration” of any opinion from the Commission or of any comments from other Member States and to inform them of how these were considered, including reasons for any divergence;
• The Commission:
  • will establish an encrypted system to facilitate the exchange of information between all investment screening authorities;
  • will set up a shared database with information on the foreign investments notified to the cooperation mechanism and the outcome of these assessments, which will facilitate information exchange between authorities and enable the Commission to monitor serial investments in different targets in the same sector across various Member States;
  • may create, at the request of at least nine Member States, a portal for FDI e-filing to make multi-Member State filings easier—its use would be optional; and
• The Commission will also be empowered to assist a screening Member State in gathering information.

Increased transparency: The revised Regulation finally introduces several provisions upholding legal certainty, rights of defense, and transparency.

• This includes a requirement for Member States to publish guidance on the scope of their screening mechanisms, which will help parties assess whether they need prior authorization for a foreign investment.
• Perhaps most importantly, the revised Regulation requires that the authorities provide the screened parties an opportunity to “make their views known effectively” prior to adopting a decision to (i) authorize a foreign investment subject to mitigating measures; (ii) prohibit an investment; or (iii) unwind an investment. This provision should bring some welcome changes for companies, since some national regimes did not always provide for an effective ability to do so.

Next steps and timelines: The Council of the European Union and the European Parliament will need to endorse the revised Regulation before it can be formally adopted. The revised Regulation was endorsed at the first reading before the Council of the European Union on 10 February 2026 and adopted by the Committee on International Trade on 24 February 2026. It is now up to the European Parliament to formally adopt its position, following which the revised Regulation will be published in the European Union’s Official Journal. The new rules will start applying 18 months after the revised Regulation’s entry into force. The revised Regulation already requires Member States to publish guidance on their national screening mechanisms, including their scope and applicable thresholds. Commission guidelines on the consistent assessment of EU FDI provisions across Member States would further support harmonization and predictability.

That said, beyond the minimum baselines introduced by the revised Regulation, parties may expect large discrepancies to remain (on points such as sectors covered, types of transactions reviewed, categories of investors caught or procedures) across the screening regimes of different Member States. Foreign investment screening should thus remain fundamentally a prerogative at the national level, albeit with increased convergence and deeper cooperation.

The potential impact of IAA’s FDI provisions: Tighter controls on emerging strategic sectors

On 4 March 2026, the European Commission adopted the IAA proposal, which introduces new requirements such as public procurement, fast-tracking permits, along with a tighter FDI screening mechanism for emerging key strategic sectors, including greenfield and brownfield FDI.

While the reinforced FDI screening framework aims to ensure that investments in certain critical sectors are carefully assessed to protect the economic security of the European Union, the FDI-related components of the IAA proposal complement these efforts by promoting targeted EU industrial capacity, supporting key EU strategic sectors, and shaping investment conditions to strengthen the European Union’s economic resilience, competitiveness and long-term industrial autonomy.

Covered sectors and exempted investments:  The IAA applies to the following emerging strategic sectors, where more than 40 percent of the global manufacturing capacity is held by the third country of the foreign investors:

• Battery technologies and their value chain;
• Electric vehicles, hybrid vehicles, and components;
• Solar photovoltaic technology; and
• Extraction, processing and recycling of critical raw materials.

The FDI-related provisions under the IAA do not apply to the following investments:

• Covered by an EU free-trade agreement (provisionally concluded/applied or in force) if relevant commitments have been made under those agreements;
• Investments targeted at providing services (e.g., manufacturing sectors are covered); and
• Portfolio investments, which are defined as acquisitions of securities “that are intended purely for financial investment and without any intention to influence the management or control of the company.”

Prior notification requirements:  From twelve months after entry into force of the IAA, foreign investors must notify any planned FDI in each EU Member State concerned if their investment:

• Is covered within the scope of the four emerging strategic sectors and is above EUR 100 million; and
• Would result in the control of an EU target, including collective control with other foreign investors. Foreign investors would be considered to have “control” if they hold 30% or more of the share capital or voting rights in an EU target, or of ownership of an EU asset and leasehold or other rights conferring control over an EU asset.

Notification requirements separate from FDI Screening Regulation:  The proposal notes that the IAA would operate alongside the FDI Screening Regulation but it remains unclear how such alignment would be operationalized in practice. At this stage, it appears that the IAA’s FDI notification requirements and approval mechanisms would operate in parallel with the FDI Screening Regulation.

Conditions for approval:  FDI approval by investment authorities would be conditioned on strict ownership limits and structural safeguards, based on criteria concerning (i) ownership of the EU target (49% investment cap), (ii) ownership of joint ventures (same cap), (iii) IP rights, (iv) research and development contributions, (v) employment of EU workers, and (vi) strategy for enhancing EU value chains and sourcing of EU inputs. At least four out of the six conditions must be fulfilled, the details of which were explored in our Legal Update, European Commission Proposes Industrial Accelerator Act

If enacted along these lines, transactions in emerging strategic sectors may require early structuring choices, including minority positions, EU‑anchored joint ventures, and IP governance frameworks that protect core technology while meeting localization expectations.

Review process and timeline:  Investment authorities review the admissibility and provide a reasoned decision approving/declining the FDI. The European Commission issues a written opinion. The investment authority may diverge from the European Commission’s opinions, but must provide justifications. For notifications concerning more than one EU Member State, the European Commission will have the final say in case there is no agreement between the investment authorities of different EU Member States.

The European Commission may also review the notified FDI in high-impact or very large cases, for example, where the FDI value exceeds EUR 1 billion.

The review process can take up to two months, extendable up to five-and-a-half months.

Penalties for non-compliance with prior notification obligations:  Investment authorities are vested with powers to establish a penalty of at least 5% of the daily aggregate turnover of the foreign investor undertaking, or of the investment if the foreign investor is a private person.

Next steps and timelines:  The European Commission will now submit the proposal to the European Parliament and the Council of the European Union under the ordinary legislative procedure, and the European Parliament and the Council of the European Union will deliberate the proposal and can still be expected to make amendments.

Such amendments seem all the more likely now that there are disagreements among the EU Member States on how the EU should conduct its industrial policy and specifically on local content rules and EU preferences. Some EU Member States (e.g., France and Germany) have advocated for “made in Europe” criteria, and several other EU Member States prefer a market-oriented approach over EU-made preferences.

It may therefore still take several months to over a year for the IAA to enter into force.

Way forward

As a recent trend, the European Commission appears to be working towards deepening its scrutiny over several key sectors for its economic security and expanding its FDI screening mechanism. Apart from the FDI Screening Regulation and the IAA, and on the same day as the European Commission released the IAA proposal, it also released its strategy on ports that aims to designate EU ports as critical infrastructure that would need protection against emerging security threats, including FDI risks.

All these steps are in addition to the Recommendation adopted by the European Commission on 15 January 2025, which called on EU Member States to assess the opportunity to start filtering outbound investments (i.e., EU investments into non-EU countries) in certain sectors: semiconductors, artificial intelligence, and quantum technologies, which the European Commission considers to be technology areas of strategic importance and the highest risk. More clarity is expected by the Summer 2026 on whether the Commission and EU Member States consider that further action is needed in this respect.

In sum, the revisions to the EU FDI Screening Regulation and the IAA together point to a more consistent screening across the European Union. They are likely to result in extended screening, increased cooperation between screening authorities and more transparency, but also in lengthened and less predictable deal timelines, requiring earlier regulatory planning.

The EU FDI-related developments were one of the key topics in the roundtable discussions held at Mayer Brown’s Paris office in December 2025, focusing on the fast-evolving landscape of FDI screening and adjacent investment control regimes across the European Union, France, and the United States.

The Mayer Brown team offers a distinctive combination of in-depth and global experience in FDI matters. The team assists clients with FDI filings across several EU Member States and a wide range of sectors, actively tracking relevant developments to ensure timely adaptation. With the benefit of our established relationships with key stakeholders at EU and Member State levels, we are well placed to assist companies in navigating the field of ever-increasing EU regulations. More broadly, Mayer Brown also offers significant experience in advising on and managing FDI filings globally, including the US CFIUS process. We also publish relevant insights regularly to keep our clients up to date. These insights can be found on our Foreign Direct Investment page.