European Commission Signals Targeted Procedural Simplification of the Foreign Subsidies Regulation – Without Weakening Enforcement

On July 14, 2026, three years after the Foreign Subsidies Regulation (FSR) began applying and following approximately 272 concentration notifications, 5,150 public procurement submissions across 863 public procurement procedures, and two ex officio in-depth investigations, the European Commission (EC) published its first report on the implementation and enforcement of FSR (Report) and an accompanying Staff Working Document. FSR grants the EC broad powers to investigate and, where appropriate, remedy distortive foreign subsidies, ex officio or following mandatory notification and approval requirements for certain mergers and acquisitions (M&A) and public procurement procedures (for additional background, see Sidley Update December 2022 and Sidley Update July 2023).

The Report concludes that the FSR is achieving its objective of safeguarding a level playing field in the EU. While the EC does not consider a structural reform necessary, it acknowledges the need for targeted procedural simplifications aimed at reducing compliance costs and improving legal certainty.

What the Report tells us

The message is clear: The FSR has established itself as a permanent feature of the EU regulatory landscape. The EC considers the regime “fit for purpose” and confirms that its core enforcement tools — including ex officio investigations and call-in powers — should remain unchanged. At the same time, it acknowledges widespread concerns among companies and economic operators about the administrative burden associated with identifying, collecting, and reporting foreign financial contributions (FFCs) across corporate groups and multiple jurisdictions and intends to streamline the procedural framework without weakening enforcement.

For businesses, the practical takeaway is to expect lighter reporting obligations — but not less scrutiny. The EC’s willingness to simplify notification forms and adjust reporting thresholds reflects a recognition that compliance costs have been higher than originally anticipated. At the same time, the Report leaves little doubt that the FSR will remain a central pillar of the EU’s broader economic security framework.

Companies contemplating significant acquisitions, participation in major public tenders, or other expansions of their EU operations should therefore continue to integrate FSR considerations into transaction planning and business strategy from an early stage.

Enforcement has become routine

The Report provides the first comprehensive picture of FSR enforcement and confirms that since it became applicable in mid-2023, the EC has steadily increased enforcement across all three pillars of the regime.

• M&A notifications. By May 31, 2026, the EC had received 272 concentration notifications, of which only three progressed to in-depth investigations. Two have already resulted in commitments, while one remains ongoing. The remedies accepted to date illustrate the breadth of the EC’s remedial powers under the FSR. They include the removal of unlimited state guarantees, hold-separate obligations protecting EU operations following completion, and compulsory licensing of intellectual property. Importantly, in-depth investigations have already extended to a broad variety of sectors including telecommunications, chemicals, and consumer electronics.

• Public procurement. Enforcement has been even more active in public procurement. By May 2026, the EC had received more than 5,150 submissions, including over 4,290 declarations, 733 notifications, and 124 prenotifications. Only four in-depth investigations have been opened: Three ended after the economic operators withdrew from the procurement procedure, while one resulted in commitments requiring the replacement of a subsidized subcontractor. The EC has also exercised, for the first time, its call-in powers in a below-threshold procurement matter. While enforcement has so far focused on infrastructure projects — including rail, photovoltaic parks, metro systems, and motorways — the notification regime has affected procurements across a broad range of sectors.

• Ex officio investigations. Two formal ex officio investigations are currently ongoing, one concerning security screening equipment and the other wind turbines. Both have already generated litigation before the EU Courts, challenging aspects of the EC’s investigative powers. The resulting judgments are expected to provide important guidance on the scope of inspections, requests for information, and other investigative tools available under the FSR.

Have stakeholders’ complaints been heard?

In preparing the Report, the EC drew on a broad evidence base, including a public consultation and a call for evidence as well as an external review study. Four principal concerns emerged, largely reflecting the issues practitioners have encountered since the FSR entered into force.

• The broad definition of FFCs, which requires extensive global data collection across jurisdictions and large corporate groups, creating a significant administrative burden when preparing notifications or responding to information requests.

• The limited predictability of the EC’s substantive assessment, including how the concept of “distortion” of the internal market under Article 4 FSR will be applied in individual cases, which subsidies may be considered to “directly facilitate a concentration” or enable the submission of “unduly advantageous tenders” under Article 5, or how the balancing test under Article 6 FSR will operate in practice.

• Lengthy and resource-intensive ex officio investigations, with the ongoing investigations having lasted already more than two years and involved extensive information requests and inspections.

• Uncertainty surrounding the EC’s ability to call in below-threshold M&A transactions and public procurement procedures, creating execution risk even where no mandatory notification obligation exists.

The Report acknowledges that many of these concerns are justified, particularly those relating to reporting obligations, and accepts that simplification is warranted. The EC also reiterates its commitment to increasing transparency and legal certainty through additional FSR briefs on key topics and the timely publication of case-related information and recalls the FSR Guidelines published in January 2026 (see Sidley Update January 2026). At the same time, the EC firmly defends both the substantive FSR framework and the breadth of its investigative powers, including its ex officio powers.

Targeted Simplification, Not Structural Overhaul

The EC proposes targeted procedural simplifications rather than substantive reform.

For M&A notifications, the EC is considering:

• Increasing the current €500 million EU turnover threshold. While no concrete figure has yet been proposed by the EC, the accompanying Staff Working Document and external study assess that if the threshold were increased to €600 million, a reduction of 16% in cases notified to the EC would have occurred.

• Introducing simplified notification procedures for specific cases or FFCs.

• Moderately increasing the reporting thresholds for FFCs (other than certain categories of high-risk FFCs), including the current thresholds of €1 million per individual FFC and €45 million in the aggregate by country.

• Introducing additional reporting exemptions for FFCs not categorized as foreign subsidies most likely to distort the internal market, including certain investment fund structures.

For public procurement, possible changes include:

• Simplifying and clarifying the notification and declaration forms.

• Improving the waiver mechanism.

• Clarifying and limiting the reporting of FFCs other than certain high-risk categories, while confirming that the €250 million procurement threshold will remain unchanged.

• Clarifying procedural rights and confidentiality rules for both companies and contracting authorities.

Equally significant is what the EC does not propose to change. The Report rules out any immediate reform of the substantive assessment framework, the EC’s ex officio investigative powers, or its call-in powers.

What now?

After three years focused primarily on building a new enforcement regime, the EC appears ready to enter a new phase: making the FSR operationally workable without reducing its effectiveness.

The EC is expected to publish draft procedural amendments in autumn 2026, followed by a stakeholder consultation, with formal adoption anticipated in 2027. Until then, the current notification thresholds, reporting requirements, and procedural framework remain fully applicable.

Sidley has been closely involved in advising on FSR compliance and enforcement since the regime was introduced. We regularly assist clients across sectors with FSR investigations and notifications in relation to both transactions and public procurement. Our FSR capabilities build on Sidley’s market-recognized leadership in EU antisubsidy investigations, EU state aid, merger control, investment screening, and World Trade Organization antisubsidy law, making us highly qualified to assist businesses in managing the burden and risk of FSR.