• Investors conduct diligence to assess companies’ covered activities, reviewing public and private information
• Regime may expand into new sectors and countries through COINS Act

The US outbound investment regime, often referred to as “Reverse CFIUS”, is moving from a compliance exercise into more of a practical consideration for cross-border capital markets activity.

CFIUS — the Committee on Foreign Investment in the US — screens inbound investment for national security implications. The Reverse CFIUS regime, which took effect in January 2025, restricts certain US investments into Chinese, Hong Kong and Macau-linked companies involved in advanced artificial intelligence, semiconductors and quantum technologies.

The Concern

Starting out as a niche national security regulation, the regime is increasingly finding its way into IPO diligence rooms and investor discussions surrounding China and Hong Kong-linked technology listings.

While the regime was not designed specifically with IPOs in mind, uncertainty around cornerstone investments, as well as underwriting activity and the scope of exceptions for publicly traded securities quickly became an area of focus for market participants.

“IPOs sat in a gray area,” said one corporate lawyer. Cornerstone investors sign subscription agreements before shares begin trading, while underwriters were also assessing whether their activities could potentially fall within the scope of covered transactions.

Some clarity emerges

This sense of uncertainty eased considerably in December 2025 when Treasury issued guidance clarifying that underwriters are broadly covered by an exception and that cornerstone investments can qualify for the publicly traded securities exception provided shares are publicly traded when investors receive them.

“As a result of that guidance, we saw a lot more US persons becoming comfortable participating in IPOs involving covered foreign person companies,” the corporate lawyer said.

Most investors now appear comfortable participating in such IPOs following the guidance, this lawyer said, although a minority remain more conservative pending additional clarification from Treasury on certain technical points.

A national security lawyer active in the area similarly described Treasury’s guidance as an important step in smoothing concerns that had emerged during the regime’s first year. This lawyer said early questions centered on whether certain rights commonly granted to investors in Hong Kong and Chinese offerings could inadvertently place investors outside the publicly traded securities exception.

Concern stemmed from the possibility that rights routinely granted to investors in certain Hong Kong and Chinese offerings could technically disqualify them from the exception, even though Treasury had not intended to capture that type of activity.

According to the national security lawyer, Treasury responded to industry concerns by clarifying that some of those rights would not necessarily disqualify investors from the exception, which helps preserve participation in cornerstone and similar IPO investments.

That lawyer said the clarification also eliminated the need for certain notifications that some investors had previously been prepared to submit to Treasury, because regulators ultimately concluded those transactions were not the type of activity the regime was intended to capture.

Proper diligence advised

While both the corporate lawyer and the national security lawyer agreed that the regime has not broadly disrupted issuance activity, they said it has created a new layer of diligence for investors, issuers and underwriters involved in China-linked technology offerings.

Overall, the framework is unlikely to become a major determinant of listing activity in its current form. One banker noted that restrictions on investing in certain jurisdictions have existed for years and said the outbound investment regime is unlikely to materially affect most foreign issuers seeking US listings, outside of some Chinese companies.

The banker added that strong conditions in Hong Kong’s capital markets are likely to play a larger role in listing venue decisions for many Chinese issuers than US outbound investment restrictions.

Some investors have also explored alternative structures, including derivatives that may benefit from separate exceptions under the rules, the corporate lawyer said.

Covered foreign person?

One visible consequence has been growing scrutiny around whether issuers qualify as so-called covered foreign persons under the rules.

The corporate lawyer said the Hong Kong Stock Exchange appears increasingly interested in whether issuers fall within the outbound investment framework, with some companies already making related disclosures in offering documents.

The other lawyer similarly argued that issuers are increasingly addressing the issue proactively in offering documents to help investors assess whether they may be captured by the regime, and to satisfy their own diligence obligations.

As a result, companies and advisers are conducting dedicated analyses during IPO preparation to determine whether businesses engage in covered activities and whether they may be subject to the regime.

Treasury expects investors to conduct meaningful diligence, the corporate lawyer explained, including inquiries with companies as well as reviews of public and private information sources, when assessing whether investments may be affected by the rules.

The process can be challenging in practice, requiring investors to determine whether a company’s activities fall within highly technical thresholds that may be difficult to assess from public information alone, the national security lawyer said.

Industry definitions key

The review extends beyond the obvious class of artificial intelligence companies. Because advanced AI capabilities are increasingly embedded across industries, companies involved in areas such as robotics, automobiles and other technology-enabled sectors may also need to assess whether they fall within the rules’ scope.

“There are companies that clearly are not implicated by these rules, but there are also others where the answer is less obvious and where detailed diligence becomes necessary,” the corporate lawyer said.

The effect is already visible in transaction processes. “I wouldn’t even say five years from now,” the corporate lawyer said when asked whether outbound investment analysis could become a standardized part of dealmaking. “Within the next year or two, I think this will already be relatively standard for certain sectors and investments.”

Outbound investment provisions are appearing more and more in LP side letters, investment agreements and financing documentation as institutions seek to manage geopolitical and regulatory risks. In some cases, non-US firms are adopting similar protections because of US investors, US personnel or broader concerns about future regulatory developments.

Some international investors are increasingly incorporating outbound investment considerations into broader geopolitical risk-management frameworks, even where transactions may not be directly captured by the rules, the lawyer noted.

Next steps

The next phase of the regime may be shaped by the Comprehensive Outbound Investment National Security Act (COINS Act), enacted as part of the FY26 National Defense Authorization Act in December 2025.

The legislation provides Treasury with additional resources and authority to expand the framework, including into areas such as advanced computing and hypersonics, while opening the door to future expansion into additional sectors and countries.

The market is closely watching how Treasury implements the law, how it approaches secondary market transactions and secondary LP interests, and whether areas such as biotechnology could eventually be brought within the scope of the regime.