Navigating the EU Foreign Subsidies Regulation: Strategic considerations for financial institutions

Just two years into the implementation of the EU Foreign Subsidies Regulation (FSR), financial institutions are already experiencing its significant impact. The Regulation’s broad scope, extensive data collection requirements and lack of sector-specific guidance present considerable challenges. Drawing on our experience in the financial sector, we highlight key considerations for financial institutions navigating the complexities of the FSR process. 

1. Financial institutions frequently face FSR notification requirement involving extensive data collection

Under the FSR, M&A transactions with an EU nexus must be notified to the European Commission (EC) prior to their implementation if the following thresholds are met:

• The EU turnover of either the target, one of the merging parties, or the joint venture itself amounts to at least EUR 500 million in the financial year preceding the transaction, and
• The combined foreign financial contributions (FFCs) received by the parties involved from non-EU countries amount to at least EUR 50 million over the three years prior to signing the agreement leading to a change of control.

Financial institutions usually meet both thresholds, in particular the EUR 50 million threshold relating to FFCs due to:

• The FSR’s broad definition of FFCs, which includes virtually any economic interaction with a non-EU country and applies at the global group level, and
• The numerous interactions conducted by financial institutions notably with non-EU governments, state-owned enterprises and sovereign wealth funds.

As a result, M&A transactions involving financial institutions are frequently caught within the scope of the FSR, making FFC data collection necessary. 

This process is especially burdensome due to the so-called financial services exception set out in Annexes I and II of the Implementing Regulation of the FSR. 

Unlike non-financial transactions, financial institutions must report even ordinary-course financial services provided or received at market terms. Given that such transactions constitute the core of daily business for financial institutions, this requirement dramatically increases the scope and complexity of the data collection exercise. That said, as discussed below, the EC’s practice has evolved and there is a possibility to obtain waivers for certain types of financial transactions concluded at market terms.

To manage the high volume of reportable FFCs, financial institutions must implement a structured, well-defined approach that keeps data collection focused and efficient.

2. The FFC data collection by financial institutions requires the implementation of a structured system and methodological interpretations 

In practice, financial institutions are often required to report thousands of transactions under the FSR, resulting in a significant compliance burden, even where the declared FFCs are unlikely to distort competition. 

Preparing a comprehensive mapping of all FFCs received over the past three years presents major challenges due to (i) the broad and complex scope of the FSR, (ii) the vast volume of data involved, (iii) the fact that the notion of FFC does not align with any standard reporting metrics typically monitored within the highly regulated financial sector, and (iv) the potential limitations of existing data extraction and reporting tools. To meet these challenges, financial institutions must allocate sufficient resources, establish a robust internal framework, and ensure strong governance and oversight throughout the FFC data collection process.

Key recommendations for managing this complexity include:

• Establishing a cross-functional FSR task force that brings together business units, including the legal & compliance teams, to manage questions and interpretive issues and streamline decision-making;
• Developing internal FSR guidelines to standardise scoping decisions and ensure consistency once the data collection methodology is defined; and
• Providing regular training for staff involved in identifying, categorising and reporting FFCs.

Implementing a clear and structured methodology is critical. Financial institutions should begin the data collection by identifying all relevant entities within the data reporting perimeter, defining both the temporal scope (the three years preceding the signing of the transaction agreement), and the geographical scope (all FFCs involving non-EU countries¹).

Next, financial institutions should identify a list of FFCs to be reported, based on Articles 3 and 5 of the FSR along with the guidance of the EC in its Questions and Answers. In particular, the focus should be on (i) transfers of funds or liabilities, (ii) tax exemptions, (iii) non-market transactions involving goods or services, and (iv) all financial services transactions, even when conducted at market terms.

Given the volume and complexity of transactions handled by financial institutions (combined with the absence of sector-specific guidance from the EC), financial institutions are often left with no choice but to rely on well-reasoned methodological interpretations. These are necessary to ensure that the FFC data collection is conducted in the most complete and accurate manner whilst being aligned with the spirit of the FSR.

In this context, financial institutions could consider the following methodological interpretations: 

• Financial instruments provided by international financial institutions: Direct FFCs from international organisations (e.g. the World Bank) are not attributable to a third country and therefore should be excluded from reporting.
• Collateral arrangements: A collateral provided by a third country that is the borrower in a loan qualifies as an FFC if that collateral is transferred to the lending financial institution for the duration of the loan. In such case, it should be considered as an FFC.
• Third party management activities: Transactions conducted on behalf of clients may be excluded; however, revenues earned from clients that qualify as third countries under the FSR must be reported.
• Transactions with central banks: Due to the high volume of daily transactions with central banks, often numbering in the thousands annually, financial institutions may opt to report these in aggregated form, i.e. summarising total remuneration and interest received from each central bank within a single reporting line for the reporting period.

Regarding the calculation of FFCs, financial institutions should consider the following elements in the context of the FFC data collection exercise: 

• Net banking income vs gross banking income: Whilst financial institutions typically report revenues on a net banking income basis, the FSR requires FFCs to be reported based on gross income figures. Financial institutions must therefore adapt their reporting approach accordingly.
• Provision of financial products or services: When a financial institution provides a product or service, the FFC amount to be reported should reflect the total remuneration received in return.
• Purchase of financial products or services: In cases where a financial institution acquires a financial product or service, the FFC amount should reflect the notional value of the product or service, along with any related remuneration—such as dividends, interest or coupons—received during the reporting period.

3. Proactive engagement and an open dialogue with the EC is essential to ensure an efficient notification process 

Proactive engagement with the EC is critical to ensure a smooth FSR notification process. The parties should adopt a transparent approach in the FSR filing form clearly describing the internal methodology and rationale for data scoping as well as highlighting the operational challenges encountered during the data collection process. 

If the EC deems that certain FFCs may have been omitted due to reasonable methodological interpretations, the parties may request a waiver from submitting this information, provided that the omitted FFCs are not relevant to the competitive assessment of the transaction.

Importantly, the EC explicitly acknowledges the possibility of such waivers in its official Questions and Answers, particularly in relation to FFCs involving financial services provided or received at market terms.

Based on our experience, when financial institutions submit well-reasoned and transparently documented waiver requests (supported by detailed justifications) the EC often responds favourably, recognising the inherent complexity of FSR compliance in the financial sector.

4. The Way Forward: Adapting the FSR Framework to Financial Sector Realities

In the absence of sector-specific guidance from the EC, financial institutions are forced to undertake a highly burdensome data collection exercise, relying heavily on methodological interpretations, to fulfil their FSR filing obligations.

One of the most significant pain points lies in the financial services exception: under the current framework, the provision or purchase of financial services at market terms in the ordinary course of business must be reported as FFCs. In contrast, similar market-based transactions involving goods or non-financial services are exempt from reporting. This inconsistency places a disproportionate compliance burden on financial institutions, particularly as such FFCs do not confer any meaningful competitive advantage.

As we pass the second anniversary of the FSR’s implementation, there is a pressing need for the EC to formally acknowledge the unique structure and operating realities of the financial sector. The EC should ensure that FSR compliance remains manageable and proportionate for affected stakeholders, particularly in cross-border M&A scenarios where transaction timelines are tight and data volumes are immense.

The public consultation launched by the EC on 5 March 2025, in anticipation of its forthcoming FSR guidelines, presents a timely and important opportunity for stakeholders in the financial sector to advocate for greater clarity, consistency and proportionality. In particular, the forthcoming guidance should aim to:

• Provide a clearer definition of reportable financial transactions and explicitly distinguish routine, market-based operations from those potentially distortive in nature;
• Recognise the inherent complexity of financial sector structures and allow for practical, risk-based reporting thresholds; and
• Clarify the scope and application of waivers for FFCs that are unlikely to impact the competitive assessment.

Looking ahead, active and coordinated engagement with the EC will be essential. Financial institutions and industry bodies should seize this consultation process to advocate for practical reforms that ensure the FSR operates effectively, without imposing disproportionate burdens on a sector that plays a vital role in the EU’s economic system.

 _{1 Including non-EU companies that, according to publicly available information, can be deemed under the control of a non-EU country (i.e. where a non-EU country owns more than 50% of the shares or capital of such company).}

_{White & Case means the international legal practice comprising White & Case LLP, a New York State registered limited liability partnership, White & Case LLP, a limited liability partnership incorporated under English law and all other affiliated partnerships, companies and entities.}

_{This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice.}

_{© 2025 White & Case LLP}