15MIN
New outbound investment legislation and FAQs: Good for financial services providers; largely status quo for investors
There have been two significant developments in US outbound investment policy in recent weeks: (1) The Comprehensive Outbound Investment National Security Act of 2025 (“the COINS Act”) became law, largely codifying the August 2023 Outbound Investment Security Program (OISP) Executive Order but with some tweaks and (2) The Department of the Treasury (“Treasury”) issued new Frequently Asked Questions (FAQs) adding clarity on some points and potentially compounding ambiguity on others. The OISP seeks to restrict US investment support for certain sensitive technologies in countries of concern.
Key takeaways
- Current rules continue to govern for the time being. The existing OISP regime (“the Current Outbound Rules”) will remain in force until Treasury issues COINS Act implementing regulations, due no later than March 2027 (“the Future Outbound Rules”).
- No significant expansion of scope of outbound rules. In the main, the COINS Act codifies the Current Outbound rules and does not adopt the much more expansive alternative approaches reflected in some previously proposed legislation (e.g., it does not target offshoring of critical capabilities).
- Favorable for industry and investors; how much will depend on regulations. The COINS Act requires notification of transactions involving identified technologies, authorizing (but not requiring) Treasury to prohibit transactions as well.
- Changes over the Current Outbound Rules are largely favorable to investors and industry, though this will largely depend on how implementing regulations interpret the COINS Act.
- Investment in a company engaged in covered activities may not be enough if the investment is not for the covered activities themselves.
- Ancillary transactions, now including underwriter temporary ownership of shares, are expressly exempt, significantly benefiting financial services industry.
- De minimis transactions are exempt.
- It narrows the circumstances in which investment in activities outside of target countries are covered, even if owned by a national of a target country.
- It authorizes Treasury to create a public database of covered foreign persons engaged in prohibited or notifiable technologies.
- It mandates a process for advisory opinions.
- Expansions of transaction restrictions are likely limited in practical effect.
- The target countries will expand to cover Cuba, Iran, North Korea, Russia, and the Maduro regime (to the extent still relevant), in addition to China. Given existing sanctions regimes, this is likely not to have any impact.
- Expands technology list to cover high performance computers (already covered to a significant degree by the Current Outbound Rules) and hypersonics (likely already an insignificant area of US investment in China today).
- Authorizes entity-based sanctions. The COINS Act authorizes sanctions prohibiting debt and equity transactions with to-be-identified Chinese companies in the defense sector or surveillance technology sector.
- As such, it would not capture many companies engaged in critical technologies, unless there is a significant defense or surveillance component to the business.
- However, facilitation activities could be targeted, unlike the OISP, which excludes “ancillary” transactions even if they facilitate investments that a US person cannot make directly.
- In the meantime, new Treasury FAQs offer a mixed bag, with some helpful clarifications and some compounding of ambiguity.
- The FAQs focus on the publicly traded securities exception, confirming that many follow‑on offerings, certain convertible instruments and equity acquired via subscription agreements can qualify as excepted transactions so long as the US person does not obtain rights beyond standard minority shareholder protections.
- They confirm that underwriting an IPO for a covered foreign person is not a covered transaction if the underwriter does not acquire equity, but IPO underwriting that involves acquiring an equity interest remains subject to the Current Outbound Rules.
- They reverse Treasury’s prior position and now treat a shareholder’s right to nominate directors — where generally available to similarly situated minority shareholders — as a standard minority shareholder protection, bringing more publicly traded holdings within the publicly traded securities exception.
Detailed analysis of changes
1. No significant expansion of scope: codification over revolution
- Current: The Current Outbound Rules are established pursuant to an executive order issued by President Biden, which, in turn, was issued under the International Emergency Economic Powers Act (“IEEPA”). Given bipartisan consensus over the threat posed by China as a geostrategic competitor, Congress has been interested in specifically authorizing an outbound investment control regime.
- Future: The COINS Act largely formalizes the Current Outbound Rules, both giving the current regime a Congressional stamp of approval and making it more robust to judicial challenge. It falls in between two prior, failed bills: it is considerably narrower than the National Critical Capabilities Defense Act (“NCCDA”) (which would have addressed technology transfer, supply integrity and maintenance of US domestic critical capabilities) and, like the Outbound Investment Transparency Act (“OITA”), mandates only notification (without mandating prohibition or explaining why).
- Impact: Because the COINS Act codifies rather than radically expands scope, investors see more continuity than change in core coverage. It will lock-in many of the shortcomings of the current structure, limiting the ability of future administrations to overhaul the structure of the program to account for lessons learned. However, perhaps accounting for the possibility of lessons learned or changed circumstances, the COINS Act has an express sunset date of seven years from enactment.
2. Generally favorable for industry and investors — subject to how Treasury writes the rules
As noted, in many respects, the COINS Act leaves aspects of the core mechanics of the Current Outbound Rules unchanged, such as a knowledge-dependent liability (as opposed to a strict liability), the type of corporate transactions covered (e.g., equity investments, equity-like debt, joint ventures, conversion of contingent equity and certain greenfield and brownfield transactions) and the bifurcation between “notifiable” and (if implemented) “prohibited” transactions.
Potential that investment is covered only if funding a covered technology
- Current: Under the Current Outbound Rules, a “covered transaction” is an investment in a Chinese company engaged in identified covered activities, without requiring a specific tie between the new capital and the covered activity itself.
- Future: The COINS Act defines any investment in a Chinese company as a “covered national security transaction,” and then subjects such transactions to notification or prohibition if the transaction is “in a prohibited technology… or a notifiable technology.” It is unclear why the COINS Act did not mirror the exact construct of the Current Outbound Rules or how Treasury will apply the statutory language. Treasury could:
- Narrow restrictions to situations where the investment will specifically support covered technology activities;
- Treat financial resources as fungible and effectively mimic the existing framework (i.e., any investment in a company that engages in covered activities is treated as an investment in such activities);
- Require affirmative evidence (e.g., binding commitments) that funds will not be used for covered activities; or
- Require only that the US person lack knowledge of intended use for covered activities, similar to Treasury’s FAQ treatment of “indirect” covered investments where the US person knows funds are intended for a downstream covered foreign person.
- Impact: If the COINS Act is read to require a nexus between the investment and covered activities, this would be a material narrowing versus the Current Outbound Rules. However, the ultimate impact on deal structuring, diligence and risk allocation will depend heavily on how Treasury interprets and applies the “in a prohibited/notifiable technology” language.
Financial services are the big winners under the COINS Act
- Current: The Current Outbound Rules do not formally except ancillary services. Guidance states that such services would not be covered if they do not involve the acquisition of an equity interest.
- Ancillary services, such as processing, settling, clearing, sending payments, underwriting, credit rating and similar financial services are excluded, but this is only reflected directly in guidance, not the text of the regulations.
- The guidance states that even temporary acquisition of an equity interest is covered.
- Future: The COINS Act:
- Creates an express exclusion for ancillary transactions undertaken by financial institutions, covering the same set of services addressed in the guidance under the Current Outbound Rules.
- Significantly, the COINS Act extends this exception to the temporary acquisition of equity for the purpose of facilitating underwriting services.
- Impact:
- Clearly refocuses the regime on investors in covered foreign persons rather than financial institutions that facilitate such investments.
- Provides meaningful clarity that ancillary financial services (including temporary equity acquisition as part of underwriting) are intended to be outside the outbound controls, even though “intangible” contribution (e.g., investment experience and credibility, which financial institutions clearly possess) had been cited as part of the rationale for the program.
- Still leaves exposure for US persons with decision making authority (e.g., officers, directors and investment committee members of non-US companies) from knowingly directing a notifiable or prohibited transaction.
De minimis transactions are exempt
- Current: Except for limited partner (“LP”) investments, the Current Outbound Rules do not exempt transactions merely by virtue of their small size. Only LP investments benefit from a $2m threshold.
- Future: The COINS Act requires the regulations to specify a de minimis
- Impact: Given that most seed stage (as opposed to series stage) investments are below $2m, Treasury may choose a lower threshold than for LP investments where there is more distance between the investor and the target.
Investments in companies outside target countries are less likely to be covered
- Current: Under the Current Outbound Rules, investments in companies outside of China can still be covered where:
- The non-Chinese company is engaged in a covered activity and its direct or ultimate parent is a Chinese person or entity.
- More than 50% of the company’s revenue, net income, capex, or opex is attributable to any company in China engaged in covered activities.
- The investment is an indirect covered investment (e.g., less than 100% investment and the US person knows its investment is intended for a downstream covered foreign person) or, though this is unclear, for any 100% acquisition of a company with a Chinese subsidiary engaged in a covered activity.
- Future: It is unclear how the COINS Act’s differing definitions may change the Current Outbound Rules. However,
- The parent ownership scenario appears covered only if the company is directly or indirectly 50% or more owned by a Chinese company or a member of the Central Committee of the Chinese Communist Party or a member of the political leadership of a target country; ownership by an individual national who is not a member of political leadership is not enough.
- The financial-metric scenario (50%+ revenue, income, capex, opex tied to covered Chinese entities) does not appear in the statute, so the acquisition of an entity organized outside China may not be covered, regardless of financial ties to Chinese entities engaged in covered activities.
- Indirect acquisitions of equity interests remain covered and the existing ambiguities around indirect and downstream investments could continue. Treasury could attempt to capture some of today’s financial-metric scenarios as indirect investments.
- Impact: On its face, the COINS Act tends to narrow coverage of non‑Chinese companies with Chinese ties, particularly where ownership is by non‑political individuals or where exposure is primarily financial or operational rather than ownership‑based. However, the practical impact will depend on how Treasury defines and enforces “indirect” acquisitions and downstream exposure in the Future Outbound Rules.
The “Blacklist” (public database):
- Current: Treasury has declined to establish a public list of covered entities, despite prior commenter proposals, citing concerns that such a list would change frequently and be underinclusive. As a result, US investors currently bear the full burden of determining whether a target is engaged in covered activities.
- Future: The COINS Act authorizes (but does not require) Treasury to create a public database of Covered Foreign Persons engaged in prohibited or notifiable technologies. Theoretically, it might base the inclusion of entities in the database on its independent sources of information or assessments that it makes based on information submitted by parties (without disclosure of any confidential information).
- Impact: If implemented, it would be a benefit to industry, potentially lowering the diligence burden and legal risk for US investors in some circumstances by conclusively identifying such entities as being engaged in covered activities. The benefit may be limited, however, with respect to companies included due to notifiable activities, as Treasury may still expect US persons to undertake diligence to ensure that the entity has not since commenced prohibited activities. Parties would also still be obligated to complete full diligence on any companies not listed in the database.
Advisory opinions
- Current: Under the Current Outbound Rules, investors operate under a “self-determination” model:
- There is no process to seek advisory opinions or case specific determinations from Treasury on whether a transaction, target, or technology is “covered.”
- Investors must make their own legal determinations based on diligence and interpretation of regulations, supported only by limited public guidance and face potential penalties if they are wrong, despite significant ambiguity in the rules.
- Future: The COINS Act requires regulations to include a non-binding mechanism for investors to request confidential guidance on whether a potential transaction would be a “covered national security transaction in a prohibited technology.”
- Impact: A formal advisory mechanism:
- Addresses a major industry concern by effectively creating a non-binding consultation channel with Treasury.
- Can provide clarity on edge cases, such as when an acquisition of a non-Chinese company constitutes an indirect covered transaction due to its Chinese subsidiary, an issue not clearly addressed today.
- Will still require robust factual diligence, as any opinion will be limited to the facts presented; Treasury may be willing to opine on whether described diligence steps meet the “reasonable and diligent inquiry” standard, but cannot substitute for the investor’s underlying fact gathering.
3. Expansions of transaction restrictions are likely limited in practical effect
The COINS Act makes certain changes to the overall scope of the OISP, but these are unlikely to have significant practical impact.
Expansion of targeted countries
- Current: Focus is strictly on the PRC (including Hong Kong and Macau).
- Future: Expands to six countries of concern: PRC, Russia, Iran, North Korea, Cuba and the Maduro regime in Venezuela (although recent events in Venezuela may render its inclusion moot).
- Impact: For most US investors, Russia, Iran, North Korea, Cuba and Venezuela are already effectively off‑limits due to existing sanctions. The main effect is a “belt‑and‑suspenders” investment ban for these jurisdictions, while the PRC remains the core jurisdiction of relevance for actual deal flow and compliance focus.
Expansion of covered technologies
- Current: Semiconductors (including super computers), quantum and AI systems.
- Future: Adds hypersonics and high-performance computing (HPC).
- Impact: This expansion may mostly be for show and to capture national security buzzword technologies. Key HPC components were already partially covered under semiconductor thresholds, as were supercomputers. Expanding it to include HPCs may bring in system-level design, architecture and assembly. Adding hypersonics makes sense in theory, but query how many US person investors have been knowingly investing in such technologies.
4. Authorization of entity-based sanctions
- Current: As noted, the Current Outbound Regulations trace their statutory authority back IEEPA, which underpins most sanctions regimes. However, in practice the Current Outbound Regulations are implemented by the side of Treasury that also administers the CFIUS process, which is authorized by the Defense Production Act (“DPA”).
- Future: The COINS Act formally places the outbound transaction regulations under the DPA but also specifically authorizes the use of IEEPA to prohibit US persons from purchasing significant amounts of equity or debt instruments of an entity that is (1) organized or with principal place of business in China (including Hong Kong and Macau) or 50% or more owned by such an entity or by a government entity or a person that is a member of the Chinese Communist Party or political leadership of China and such entity is (2) engaged in defense or surveillance sectors.
- Impact:
- While the current rules cover debt only if it is convertible or has equity-like features, the COINS Act will cover significant issuance of debt regardless of such features.
- Potentially could prohibit facilitation of investments in sanctioned entities, creating a material distinction from DPA based outbound controls, which do not generally prohibit facilitation (beyond knowing direction by US persons in roles such as officers, directors, or investment committee members).
- Introduces a sanctions style overlay that investors will need to integrate with outbound investment compliance for Chinese defense and surveillance entities.
5. Treasury FAQ update
On December 23, 2025, Treasury published additional FAQs that sought to clarify certain aspects of the Current Outbound Rules related to publicly traded securities exception (the “PTSE”).
- Follow-on offerings: Treasury clarified that for follow-on offerings, where the issuer’s securities are already publicly traded and the shares to be offered will be fungible with such publicly traded securities, then the acquisition of those shares would benefit from the PTSE, provided that the US person does not acquire rights beyond standard minority shareholder protections with respect to the covered foreign person as described in section 850.501(a)(2). This would extend to financial institutions providing underwriting services. This clarifies that a US person’s acquisition of shares would be covered by the PTSE so long as the particular type of share can currently be traded on the market, even if the US person is purchasing the shares through an off-market transaction.
- Convertible interests: The FAQs clarify that a contingent equity interest that is convertible into a publicly traded security would be covered by the PTSE, provided that the US person does not acquire rights beyond standard minority shareholder protections with respect to the covered foreign person as described in section 850.501(a)(2).
- Underwriting for IPOs: Treasury confirmed that underwriting of an IPO for a “covered foreign person” would not be a “covered transaction” provided that the underwriting does not include the acquisition of an equity interest. However, pending implementation of the COINS Act, this maintains the current status quo in the Current Outbound Rules that the underwriting of an IPO that involves even temporary acquisition of an equity interest would be subject to the Current Outbound Rules.
- Subscription agreements: Treasury confirmed that if an equity interest (that does not involve rights beyond standard minority investor protections) is acquired at a time when the shares are publicly traded, it would qualify for the PTSE even if the agreement to purchase the shares was entered prior to the commencement of public trading. However, the FAQ does not specify when, during an IPO, the PTSE becomes available to IPO investors (e.g., at allocation, pricing, settlement, or another point in the process). Given variations in IPO mechanics across exchanges and the expectation that the Future Outbound Rules remain more than a year away, Treasury clarification on this point in a subsequent FAQ would be helpful.
- Shareholder board nomination right: Treasury reversed its position in the Current Outbound Rules and has now confirmed that the right for a shareholder to nominate (that is, propose for election) an entity’s directors is a standard minority shareholder protection as described in section 850.501(a)(2) if that right is generally available to similarly situated shareholders of that entity solely by virtue of their minority shareholding. This is a notable change because even de minimis holdings in certain publicly traded Chinese companies may afford shareholders the right to propose nominees to be an entity’s director and such investments will now be “excepted transactions” pursuant to the PTSE.
Conclusion: Meet the new boss, same as the old boss
The COINS Act doesn’t reinvent OISP, it entrenches it. Investors should expect the same core compliance workflow, but some additional screening requirements (more countries and more tech categories), plus a few meaningful upgrades: clearer safe harbors for routine financial activity and, eventually, better government-generated signal (a Covered Foreign Person database and a non-binding feedback channel) that should reduce gray-area risk.
The following are practical near-term steps investors can take to prepare for the Future Outbound Rules…that will likely look a great deal like the Current Outbound Rules.
- Expand the front-end screen now to include the six covered geographies (not just PRC/HK/Macau).
- Refresh your “covered activity” questionnaire for targets and funds to capture HPC and hypersonics indicators (products, end users, customers, export classifications, defense/surveillance touchpoints).
- Update contractual protections in term sheets and definitive docs: reps/covenants on (i) covered foreign person status, (ii) covered activities and (iii) change-notice obligations if facts evolve pre-close.
- For LPs: bake in (or tighten) binding contractual assurance language that restricts use of LP capital for covered national security transactions and ensure side letters are operationally enforceable.
- Re-check exemptions for financial services teams (underwriting, prime brokerage, custody, payment processing) and document why activities fall within statutory “ancillary/secondary” exclusions.
- Build an “evidence file” playbook for the “reasonable and diligent inquiry” standard (what you checked, who signed off and why conclusions were reasonable), so you can show diligence even if facts later change.
- Stand up an escalation lane for edge cases (e.g., contingent commitments, underwriting mop-up mechanics, hybrid tech stacks) so legal/compliance can quickly triage and, when available, use Treasury’s non-binding feedback process.
- Train deal teams with a one-page red-flag sheet (geography + tech + defense/surveillance ties) so issues surface before diligence is already underway.
- Map your portfolio exposure to newly covered categories (especially HPC adjacencies) to identify where enhanced monitoring, covenant refreshes, or exit optionality might be prudent.
