As the US-underwritten European security order is less certain, defence and security are in the spotlight across Europe. Capital is not the constraint: what the European defence industry lacks is production capacity, skilled people and faster contracting. Sovereignty is fast becoming a hard requirement embedded in law and contracts, and the Nordic countries, with Finland leading the way, are emerging as central players in this fast-moving, security-critical market.
Europe’s defence industry is currently fragmented. EU NATO-countries field over 170 different major military assets, compared with approximately 40 in the United States – for example, 14 main battle tank types in the EU versus one in the United States. Consolidation can help close that gap by unlocking economies of scale, reducing duplicative R&D spend and improving operational cooperation on the battlefield.
There is thus a clear need to foster cross-border cooperation between European defence companies, but closing that gap will not happen on its own. It calls for determined action from European governments, authorities and companies alike – from scaling up industrial capacity and accelerating procurement, to creating the regulatory conditions that allow innovation and investment to flow to where they are needed most.
Innovation, consolidation and the EU’s incoming FDI screening reform
Innovation is reshaping the defence and security landscape at a pace few other sectors can match. Dual-use technologies – spanning space, drones, cyber and advanced sensing – are attracting record levels of capital, and Finnish companies are increasingly at the centre of that story. As a member of NATO’s DIANA Legal Connect Network, a select group of law firms across the Alliance providing tailored legal support to innovators developing dual-use technologies, Dittmar & Indrenius is well placed to support companies navigating this fast-moving space. Through the Network, we contribute our expertise to help the next generation of innovators – and the investors backing them – bring their solutions to market and scale their impact.
This surge in innovation and investor interest is also driving consolidation. As capital flows into the sector and governments prioritise scale, resilience and sovereign capability, we expect to see continued M&A activity and strategic partnerships among both established defence primes and emerging dual-use technology companies. That dynamic makes the evolving regulatory landscape for foreign investment all the more relevant for dealmakers and their advisers.
While Finnish defence sector companies scale up and attract growing attention, the regulatory framework for foreign investments is being strengthened both at the EU level and in Finland.
EU level: the new Foreign Investment Screening Regulation
In the EU, the new Foreign Investment Screening Regulation (EU) 2026/1386 (“FISR”) entered into force on 16 July 2026 and will fully apply as of 17 January 2028. The FISR updates the framework for EU Member States and the Commission to cooperate in screening foreign investments on security and public order grounds. The FISR introduces a common baseline of harmonisation across the EU while still permitting more extensive national requirements, meaning that significant differences in national regimes may persist.
Finland: an expanding national FDI screening regime
At the national level, Finland is also expanding its FDI screening regime. The government proposal for the new Finnish FDI regime, published on 22 October 2026, significantly expands the scope of mandatory FDI screening by widening sectoral coverage, treating all non-Finnish investors as “foreign investors” and introducing new notification triggers. The new regime is intended to enter into force on 1 April 2027. The number of cases subject to review under the new Finnish FDI regime is expected to roughly triple. Early engagement with Finland’s new FDI requirements will be essential for international investors and strategic buyers exploring opportunities in Finnish defence and other security-critical companies.
Defence and security procurement reforms in the EU and Finland
On 9 October 2026, the Council gave final approval to a new directive simplifying intra-EU transfers of defence-related products and defence and security procurement, as part of the wider Defence Readiness Omnibus. This is only the first step: the Commission is expected to come forward in December 2026 with a further legislative proposal for a more fundamental revision of the Defence and Sensitive Security Procurement Directive (2009/81/EC), building on the impact assessment announced in its October 2025 Defence Readiness Roadmap, with the aim of further cutting the complexity, length and cost of defence procurement procedures and encouraging joint and cross-border procurement.
Joint procurement is also taking shape in practice: on 28 September 2026, the Council approved the first five European Defence Projects of Common Interest under the European Defence Industry Programme (EDIP), spanning drones and counter-drone systems, maritime and seabed defence, space, air and missile defence, and protection of Europe’s eastern flank.
On the Finnish side, a government-appointed working group has proposed a government-to-government (G2G) model to support the export of Finnish defence industry products, a move that would give Finnish companies a further channel to grow their international sales.
Staying ahead in a fast-moving market
The task is to stay ahead of a fast-moving market in a sector where law and policy decisions matter more than ever. The pace of change is relentless, and staying ahead of it increasingly depends on how quickly law, policy and business decisions can keep up with one another. Cross-border dialogue is set to continue.
Dittmar & Indrenius continues to monitor developments in Europe’s defence and security sector and their potential implications for businesses, and we are happy to advise you if you have any questions.
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