Key takeaways
EU FDI rules expand investment scrutiny
New regime increases screening of sensitive sector acquisitions.
UK-EU deals need early planning
Cross-border transactions may trigger multiple approval requirements.
Regulatory approvals risk delaying completions
FDI filings and standstill obligations affect transaction timetables.
What if you are taking over a UK company with operating subsidiaries in Portugal, Spain, Germany and Italy? The group delivers cognitive software code assisting in drone deployment for civil and military purposes. You are content that you need to submit a mandatory notification for NSIA in the UK. But what do you do for the UK company’s overseas subsidiaries who you are also (indirectly) taking over?
Well, there is an NSIA style regime (referred to as an FDI regime) in each of those jurisdictions. Each of these countries has its own rules on seeking approval but as they are all in the EU, there is a harmonisation of these rules through EU Regulation.
The new EU Foreign Direct Investment (FDI) Screening Regulation (EU) 2026/1386 creates a harmonised EU foreign investment screening regime, requiring all Member States to review investments that may affect security or public order. It expands scrutiny of investments in sensitive sectors and strengthens cooperation between national authorities and the European Commission. Investments posing security risks may be subject to conditions, blocked, or unwound.
What is EU Regulation 2026/1386?
The Regulation significantly strengthens the EU's approach to reviewing foreign investments that may affect security or public order. Replacing the weaker existing framework, the new regime introduces greater harmonisation across Member States, expands the types of transactions that may be reviewed, and enhances the European Commission's role in resolving concerns arising from cross-border investments. The Regulation entered into force on 16 July 2026 and Member States will need to adopt it into domestic law by 17 January 2028.
Key changes
A key change is the requirement for Member States to operate screening mechanisms and impose mandatory prior authorisation requirements for certain foreign investments involving businesses operating in designated sensitive sectors. These include defence and dual-use technologies, semiconductors, quantum technologies, critical transport, energy and digital infrastructure, strategic raw materials, certain financial market activities, and electoral systems. Member States may continue to apply broader national screening regimes, but the Regulation establishes a minimum common standard across the EU.
UK subsidiaries in the EU
The Regulation is particularly relevant to UK businesses that own subsidiaries, operations or assets within the EU. Although there is no single EU-wide filing requirement, an acquisition of a UK company may trigger one or more national FDI reviews where the target group has EU-based entities operating in sensitive sectors. Importantly, the new rules also capture certain indirect investments made through EU subsidiaries that are ultimately controlled by non-EU investors, increasing scrutiny of acquisition structures involving UK or other non-EU parent companies.
For investors and dealmakers, the Regulation introduces mandatory notifications, standstill obligations, and potential post-completion reviews. Transactions involving EU assets are therefore likely to require earlier regulatory assessment and more careful planning. Businesses acquiring UK groups with EU operations should consider FDI screening requirements alongside other regulatory approvals from the outset. The decision process should be charted as follows:
Map EU operations and assets. Businesses should identify which group companies, subsidiaries and assets are located within the EU and determine whether they operate in sectors likely to be subject to mandatory screening, such as defence, dual-use technologies, semiconductors, critical infrastructure, strategic raw materials or regulated financial services.
Review transaction planning and due diligence processes. Acquirers should assess at an early stage whether an acquisition of a UK group could result in a change of control over EU subsidiaries or assets that may trigger national FDI filings. This analysis should form part of the standard legal and regulatory due diligence process.
Build FDI approvals into transaction timetables. Transactions involving in-scope EU businesses may be subject to mandatory notifications and standstill obligations, preventing completion until approval is obtained. Parties should factor potential review periods and regulatory conditions into deal documentation, long-stop dates and completion mechanics.
Consider multi-jurisdictional filing requirements. As there remains no single EU-wide filing system, businesses may need to engage with several national screening authorities simultaneously. Early consideration of filing requirements across relevant Member States can help avoid delays and execution risk.
Monitor implementation of national regimes. Member States will need to ensure their domestic screening mechanisms comply with the new Regulation before January 2028. Businesses with significant EU exposure should monitor legislative developments in the jurisdictions where they operate, as filing thresholds and procedural requirements may evolve over the next 18 months.
Include details of overseas notification in the NSIA application for the parent. This is important as there are information sharing protocols entered into by the UK which would enable UK authorities to monitor how overseas approvals are progressing and ensure all information relating to the group is shared at an even level, particularly if intelligence services are involved.
Thinking about acquiring a business in the EU?
If a buyer (whether UK or overseas) is acquiring a business in the EU with a UK nexus in sensitive areas then of course NSIA will apply, regardless of whether the business being acquired is UK or EU. If the business is EU however then additional considerations would apply.
Assess whether the transaction falls within the scope of the Regulation. UK acquirers should assess at an early stage whether the investment could amount to a foreign investment under the Regulation. This includes investments that enable effective participation in the management or control of an EU undertaking and may therefore extend beyond acquisitions of majority ownership or decisive control. Factors such as voting rights, contractual rights, board representation and other governance arrangements may be relevant when determining whether effective participation exists.
Identify whether the target operates in a mandatory screening sector. The Regulation requires Member States to screen certain foreign investments involving activities in the designated sensitive sectors. Acquirers should assess whether any EU subsidiary or asset within the target group carries out activities in these sectors.
Instruct local EU counsel as soon as potential filing requirements are identified. While the Regulation introduces a common framework, screening will continue to be conducted by national authorities. Once relevant jurisdictions have been identified, local advice should be obtained to confirm filing requirements, procedural rules and likely review timelines. This is particularly important since any advice you give to an EU entity on an EU issue may not necessarily be privileged.
Consider the impact of regulatory conditions on the transaction. Where concerns relating to security or public order arise, approval may be subject to conditions designed to address those concerns. Businesses should consider the potential impact of any such measures on post-completion integration and the overall commercial rationale for the transaction.
Conclusion
The new EU FDI Screening Regulation will require UK businesses acquiring EU companies or assets to consider foreign investment screening much earlier in the transaction process. Acquirers should identify relevant EU operations, assess whether the target operates in a sensitive sector, determine whether filing obligations may arise and obtain local advice where necessary. As the Regulations start getting adopted into national domestic laws, businesses with EU exposure should begin preparing now to ensure future transactions can be completed efficiently and without unnecessary regulatory delay.
This article involves a broad discussion of complex legal issues and should not be taken as a substitute for legal advice.
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This article was co-authored by Trainee Solicitor Scarlett Steer and Apprentice Paralegal Owen Davies.
