Treasury’s latest rulemaking would cut off a substantial share of venture and growth investment opportunities in China, raising urgent compliance questions for fund managers and limited partners alike.
The US Department of the Treasury issued a Notice of Proposed Rulemaking on 22 October 2026, designed to implement the Comprehensive Outbound Investment National Security Act of 2025, known as the COINS Act.
Congress passed the COINS Act on 18 December 2025 as part of the Fiscal Year 2026 National Defense Authorization Act, giving Treasury a statutory framework to police outbound capital flows.
The proposed rules expand the existing Outbound Investment Security Program and would restrict US persons from investing in China, Hong Kong, or Macau-connected businesses across several advanced technology sectors.
One of the most consequential moves in the proposal is Treasury’s decision to reclassify “AI systems” as “super intelligence systems,” or SI systems, a change driven by Executive Order 14434 rather than by the COINS Act itself.
Under current rules, AI investments are divided into notifiable and prohibited categories based on intended use and computing thresholds, but the new proposal would eliminate the notification tier for AI entirely.
Any investment touching an SI system developed by a covered foreign person would be flatly prohibited, a far broader standard than anything in the existing programme.
Treasury is also using its discretionary authority to designate biotechnology as a prohibited sector, even though the COINS Act does not specifically name it and would have permitted a notification-only approach.
Hypersonic technologies join the prohibited list under the proposal, covering systems capable of Mach 5 or above, whether military or civilian, along with related propulsion systems, enabling materials, and test facilities.
Quantum restrictions would stretch further than before, capturing software used to design, simulate, test, or control quantum computers, as well as algorithms and applications developed for quantum information science.
For fund managers, a critical new exposure arises from the extension of the “knowingly directing” prohibition to notifiable transactions, which directly implicates US advisers who sit on investment committees of non-US funds.
A $50,000 de minimis threshold would apply to otherwise notifiable transactions only, offering limited relief given that most institutional investments in the affected sectors far exceed that figure.
Managers of non-US regulated funds, including UCITS vehicles, will find no safe harbour in the proposal: Treasury has not included an exemption despite the COINS Act explicitly authorising one.
Industry participants have until 7 December 2026 to submit public comments, giving lawyers, fund managers, and investors a narrow window to push back on provisions that go beyond what the statute requires.