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Authors: Jonathan Gafni, Michael Lamson, Simon Song
On October 22, the Office of Investment Security (OIS) of the U.S. Department of the Treasury published a Notice of Proposed Rulemaking (NPRM) presenting a draft of regulations (the Proposed Rule) that would implement changes to the U.S. Outbound Investment Security Program (OISP) mandated in December 2025 when the U.S. Congress enacted the Comprehensive Outbound Investment National Security Act (COINS Act). OIS is inviting public comments on the Proposed Rule until December 7, 2026, after which it will issue a final version of the regulations expected to take effect during the first quarter of 2027.
To simplify the rulemaking process, rather than amend the existing OISP regulations at 31 CFR Part 850 (the Part 850 Rules), OIS has housed the Proposed Rule in 31 CFR Part 851, with the Part 850 Rules remaining in effect for transactions between January 2, 2025, and the 2027 effective date of the new regulations (note that although the Public Fact Sheet for the Proposed Rule implies that Part 851 could be effective for transactions since the COINS Act was enacted in December 2025, the Proposed Rule itself is clear that the new regulations will not have retroactive effect). Most of the Proposed Rule tracks closely with the Part 850 Rules, except for changes in scope and terminology required by the COINS Act, an executive order, and OIS’s experience implementing the OISP to date.
When the OISP first took effect in January 2025, its scope was limited to direct and indirect investments undertaken or directed by U.S. persons in entities involved with development or production of semiconductors, artificial intelligence, and quantum computing systems developed with or under the direction of entities owned or controlled from the People’s Republic of China (including the Special Administrative Regions of Hong Kong and Macau). Depending on the details of the technology, an investment could require a notification to OIS or be prohibited entirely. For more on the OISP’s overall approach to outbound investment, see our 2024 blog post on the Part 850 Rules.
Key changes to the OISP under the Proposed Rule include the following:
“AI” is now “SI,” and it’s now all prohibited. By executive order, U.S. government agencies now refer to artificial intelligence as “super intelligence,” and that change has made its way into the OISP regulations. More importantly, OIS has taken an entirely new approach to outbound investments in the sector, arguing that the entire sector is moving so quickly that it is difficult to delineate, as in the Part 850 Rules, between investments in AI/SI development that are not in scope, those that are notifiable, and those that are prohibited. Accordingly, all investments in AI/SI development (with “development” including enhancement to third-party systems, but not merely acquiring third-party systems) that meet the other OISP conditions are now prohibited outright. This is a marked change from the existing OISP regulations.
New sectors, with particular focus on biotechnology. The Proposed Rule provides new and broad definitions for biotechnology and related equipment (made under the COINS Act’s discretionary authority) and as mandated by the COINS Act, also expands the scope of the OISP to investments in high-performance computing and supercomputing as well as hypersonic systems. Notably, while some investments in high-performance computing and hypersonic technologies are merely subject to notification, all in-scope investments in covered biotechnology are prohibited under the Proposed Rule.
More relevant countries. Where the Part 850 Rules focused on investments tied to China, the COINS Act, and by extension the Proposed Rule, adds entities from Russia, Cuba, Iran, North Korea, and Venezuela (under the rule of Maduro, which the NPRM acknowledges is no longer relevant and effectively takes Venezuela out of scope) to the OISP. Since direct U.S. investments in most of these jurisdictions are limited if not prohibited by other sanctions regimes, this geographic expansion is most likely to affect U.S. -directed investments by non-U.S. investors.
More sanctions-adjacent prohibited lists, and extension of related prohibitions to “affiliates” of restricted entities. The Part 850 Rules prohibited investments (even if they would otherwise be merely notifiable) in entities included on various U.S. government lists of sanctioned entities or entities similar to other restrictions on commercial relationships. The Proposed Rule adds to these the “Section 1260H” list of Chinese military companies as well as the pending list of biotechnology companies of concern to be issued later in 2026 pursuant to the BIOSECURE Act. Moreover, the prohibitions apply not only to listed companies engaged in in-scope activities, but to their “affiliates,” including other entities directly or indirectly controlling, controlled by, or under common control with the listed entities.
New exceptions. Under the Part 850 Rules, there was considerable uncertainty as to whether underwriters and other financial service providers could find their activities subject to the OISP. The Proposed Rule eliminates from the scope of the OISP transactions “secondary” to a “covered national security transaction” (the new term for “covered transaction”) and “ancillary” transactions undertaken by financial institutions; such secondary and ancillary transactions include underwriting, bank lending (though loans with equity-like characteristics are still covered national security transactions), payment processing and clearing, debt and credit rating, prime brokerage, custody, and equity research. In particular, the Proposed Rule expressly excepts temporary acquisition of an equity interest in connection with the provision of underwriting services, a position which is consistent with existing OIS FAQs. In addition, the Proposed Rule excepts the sale of raw materials (but not technology transfers) to a covered entity and secondary “ordinary or administrative” business transactions, though it is not clear how broadly the last exception could be. The exception for publicly traded securities remains largely the same, but the NPRM notes that guidance on this exception will be updated on the OISP webpage.
Diligence and nonbinding feedback. As we’ve previously noted in connection with the Part 850 Rules, conducting the required diligence to meet the OISP’s “knowledge standard” is challenging, especially given Chinese state security rules that can prohibit entities there from answering diligence questions. Now that the Proposed Rule will expand the OISP to more countries, diligence challenges may vary more from country to country. However, the Proposed Rule also adds a new diligence element to the knowledge standard: Whether the investor “appropriately considered” information provided by OIS on the investment target and its possible involvement in in-scope activities. Of course, the ability to consider such information demands a mechanism for OIS to provide it and for investors to receive it, so the Proposed Rule also allows investors to seek nonbinding feedback from OIS on whether a proposed investment is notifiable or prohibited under the OISP. Investors who do not have a clear sense of whether a transaction is in scope should consider this nonbinding feedback mechanism to be a mandatory step in the investment process; otherwise, they cannot credibly argue that they have performed the necessary diligence.
Interested parties can submit comments on the Proposed Rule to OIS (anonymously, if desired) via www.regulations.gov or by postal mail. Since the portions of the Proposed Rule derived from the Part 850 Rules have already been through a comment and revision process, we would expect any further revisions to the Proposed Rule to be limited to its new elements.
Keep watching this space for updates on the OISP rulemaking process.
26 October 2026