Brussels Recalibrates: FSR Guidelines Bed In While Omnibus I Shrinks the ESG Diligence Perimeter
bIAnk AI Research · September 2026 · 7 min
The Commission published its first Foreign Subsidies Regulation Guidelines in January 2026 and signalled in July that enforcement may refocus on larger deals. In parallel, Omnibus I — in force since 18 March 2026 — raises CSRD scope to €450m turnover and 1,000 employees. Filing burden and ESG diligence are moving in opposite directions.
In January 2026 the European Commission issued its first-ever Guidelines under the Foreign Subsidies Regulation, covering the distortion test for concentrations and public procurement, the balancing test, and the call-in mechanism that allows the Commission to review deals below the notification thresholds. Since the FSR began applying in mid-2023, only two in-depth merger reviews had produced remedies — e&/PPF and ADNOC/Covestro — a ratio that made the compliance cost of universal filing hard to defend.
On 14 July 2026 Reuters reported the Commission signalling that the rules could be revised so regulators focus on larger transactions, following stakeholder feedback on excessive administrative burden. For deal timetables that is a meaningful prospective change: FSR information requests have routinely added weeks to European processes involving any non-EU financial backer, including sovereign wealth and Gulf capital that is now central to large-cap take-privates.
The sustainability perimeter moved the other way. The Omnibus I Directive (EU) 2026/470 entered into force on 18 March 2026 after Parliament adopted the agreed text on 16 December 2025 and the Council on 24 February 2026. It lifts CSRD scope thresholds to more than €450m of net worldwide turnover and more than 1,000 average employees, with reporting from financial year 2027 filed in 2028. Member States must transpose the CSRD amendments by 19 March 2027 and the CS3D amendments by mid-2028, with CS3D applying to companies from July 2029. Dechert confirmed in September 2026 that the package's core mechanics stand as adopted, with ESRS data points materially simplified from the original 1,000-plus.
The combined effect on a European mid-market process is concrete. Fewer targets will be in scope for mandatory sustainability reporting, so buyers can no longer assume an audited ESG dataset exists and will increasingly commission bespoke diligence instead — which is slower and noisier than reading a filed report. At the same time, any deal with non-EU capital in the structure should still budget for FSR analysis until a legislative amendment actually lands.
Our practical guidance to companies preparing for a process in the next twelve months: document the foreign financial contributions of your existing shareholders now, because reconstructing three years of them under time pressure is the single most common cause of FSR delay; and treat sustainability data as a commercial asset rather than a compliance obligation, because with fewer mandatory reporters the companies that can evidence it will stand out rather than blend in.
Key takeaways
- First FSR Guidelines published January 2026: distortion test, balancing test and below-threshold call-in mechanism
- Only two in-depth FSR merger reviews have produced remedies since mid-2023 (e&/PPF and ADNOC/Covestro)
- Commission signalled on 14 July 2026 that FSR enforcement may refocus on larger deals to cut administrative burden
- Omnibus I in force 18 March 2026: CSRD scope raised to >€450m turnover and >1,000 employees, reporting from FY2027