Filenews 12 December 2025 - by Theano Thiopoulou
A firewall is being promoted by the European Commission, with the aim of protecting strategic EU sectors from investment by third countries, including defence, semiconductors and financial services.
On Thursday, MEPs and the Council reached a provisional agreement to update EU rules on the screening of foreign investments, with a view to preventing security risks. The aim of the move is to put safeguards on investments from third countries, mainly China.
Under the new rules informally agreed by the EU co-legislators, foreign investments in sensitive sectors such as defence, semiconductors, artificial intelligence, critical raw materials and financial services will be subject to mandatory scrutiny by member states in order to identify and address potential risks to security or public order.
A few days ago, the Commission announced that it is considering a more aggressive policy towards foreign investment, forcing foreign companies that come to operate in the European market to use local workers and share their know-how, indirectly pointing to China.
The need to put a safety net on investments from third countries has also been of concern to the Cypriot Parliament, based on the provisions of a bill that was put up for discussion in the Parliamentary Committee on Finance and approved by the Plenary. Foreign direct investment concerns a company of strategic importance and it is clarified that foreign direct investment in land and real estate falls within the scope of the law only if the land and real estate in question are of key importance for the use of critical infrastructure, e.g. in the field of energy, defense, water supply, communications, etc.
The European Commission announced yesterday that the procedures applicable to national screening mechanisms will be simplified, thereby reducing complexity and making the EU a more attractive place to invest. Cooperation between national control authorities and with the Commission will be strengthened, facilitating coordination and joint action on cross-border security risks. The new law will also cover transactions within the EU where the investor is ultimately owned by individuals or entities from a non-EU country.
In a declaration adopted as part of the political agreement on the new regulation, the European Parliament and the Commission agree on the need for further action at Union level to address economic security risks arising from foreign investment. The Commission is also committed to taking an initiative to set conditions for foreign investment in specific strategic sectors.
The current regulation on the screening of foreign direct investment had entered into force on 11 October 2020. It aims to safeguard the EU's security and public order by providing a framework for identifying and addressing potential security or public order risks associated with foreign direct investment, while remaining open to foreign capital inflows.
It also established a cooperation mechanism between the Member States and the European Commission. Following an assessment of the functioning of the current regulation, the Commission presented its proposal to revise the Foreign Direct Investment Screening Regulation in January 2024. The legislative proposal aims to address the shortcomings identified and is a key part of the EU's economic security agenda.
