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Expanding FDI regulations are reshaping asset servicing
08 Jul 2026
As governments move to increase supervision of foreign capital, in the second part of this two part series, Tahlia Kraefft explores how custodians are becoming key conjoining tissue in a less unified global financial ecosystem with stricter oversight
Image: jfl_photography/stock.adobe.com
New drivers of global capital
Tighter foreign direct investment (FDI) screening and economic security reviews have developed from a deal risk consideration to a major strategic factor for investors and boards. The FDI ecosystem is being moulded by drivers such as tariff volatility and industrial policy, causing capital to re-price supply chain, inputs, and market access. Global capital has moved away from pure cost-efficiency to geopolitical resilience, supply chain nearshoring, and strategic autonomy. Furthermore, multinational firms are prioritising resilience over efficiency, opting to pay more to guarantee availability, and scalability in supply chains. Capital is circumventing conventional hubs to move largely into markets emerging as hotspots including India and Brazil. The US and China have seen a reversal in roles with China changing from being a significant FDI recipient to a large capital exporter, while in the US, inbound FDI has surged to 41 per cent of entire cross-border investment projects.
Regulations such as the US Committee on Foreign Investment in the United States (CFIUS) and the UK National Security and Investment Act 2021 (NSIA) are expanding in scope to incorporate early-stage technology, critical mineral, and data governance. Europe and related jurisdictions are subject to a more rigorous economic lens where strategic autonomy, resilience, and defence readiness progressively impact how transactions are evaluated and conditioned. The EU has moved to strengthen its guidelines through revised regulations and Cyprus has shifted to enforce stringent new national FDI laws to scrutinise transactions. Major jurisdictions are no longer focused on inbound controls, they are increasingly regulating outbound investments to avert core technology leaks. Despite regulation converging around national security concerns, implementation is continuing to be very fragmented. While global capital is being met with substantially greater regulatory friction it remains mobile.
Operational challenges of expanded regimes
FDI screening has majorly transitioned in the last five years. From a relatively peripheral closing formality, it is now a real deal-risk factor that is remodeling how cross-border capital is structured and deployed, according to Christine Graham, partner at Bryan Cave Leighton Paisner in the global Antitrust and International Trade Team.
“Many regimes now capture not only outright acquisitions but also minority investments — in some jurisdictions at thresholds as low as 10 per cent. Consequently, we are seeing far greater emphasis on early-stage FDI risk mapping, more careful calibration of stake sizes, and in some cases the deliberate exclusion of investors from sensitive jurisdictions at the fund formation stage. On timelines, these are absolutely affecting investment decisions.”
Graham explains that formal review periods can appear manageable on paper: “30 days here, 45 days there — but in practice, a complex transaction requiring parallel clearances across the US, UK, Germany, and Australia can realistically take anywhere from 6 to 18 months from signing to close, depending on the sensitivity of the target’s activities and the level of control being acquired by the investor.
The timeline pressure is compounded by authorities often pausing their review clock while pending written responses to information requests, Graham notes. This can put additional weeks or months on an already extended process.
Tom Platts, partner at Stephenson Harwood explains that the screening timelines and crucially the uncertainty as to both timing and outcomes, can be very off-putting for investors. He notes: “The need to factor in FDI clearance timelines alongside antitrust and other regulatory approvals is now a standard feature of transaction planning and can materially affect deal structuring and execution.
“Where screening outcomes are genuinely uncertain, particularly for investors from or affiliated with countries deemed to pose higher risk or in strategically sensitive sectors, such as defence or critical infrastructure, we have seen a reluctance to pursue certain cross-border transactions — and in some cases a dampening effect on cross-border fund flows more generally.”
Investors may also try to structure investments to fall below mandatory notification thresholds, Platts comments.
“However, certain FDI authorities have very broad notification thresholds and wide discretion on using their call-in powers, which may prevent parties from structuring a transaction to avoid having to comply with a mandatory filing requirement.
“It is therefore now increasingly important to understand from the outset which regulatory filings will be required, as well as whether a transaction would give rise to any substantive regulatory concerns, in order to assess the likely timeline, risk profile and the overall viability of a deal before committing significant time and resources to a potential transaction.
Chris Rowland, executive vice president and head of Custody, Digital and Fund Services Product, at State Street notes: “Cross-border transactions now need to be planned through a geopolitical lens, as filing requirements, review timelines and ownership sensitivities can directly affect deal execution and market-entry strategy.
“For global investors, regulatory certainty is becoming a competitive advantage. Predictable markets may increasingly attract capital, even where they are not the lowest-cost option.”
The major rise in FDI screening regimes over the past few years has inevitably led to delays to transaction timetables for cross-border transactions, Platts explains. The accompanying uncertainty resulting from extra regulatory hurdles is undoubtedly an extra consideration for parties in their deal timelines.
The proliferation of FDI regimes has had an obvious effect on cross-border investments in regards to timing and overall deal certainty, he says. “In practice, delays in even accepting notifications as complete are becoming increasingly common, and if the authorities request further information, this will extend the timetable further.
“Requests for additional information can significantly prolong review periods, with knock-on effects for financing arrangements and overall transaction costs. Any delay is likely to impact any financing, as well as increasing transaction costs.
“FDI regimes are by nature opaque in their decision-making, which creates uncertainty around timing to clearance and the likelihood of intervention, and contributes to longer and less predictable timelines.
Reshaping Investment patterns
The broadening of FDI regimes is leading to the concentration of cross-border capital and greenfield FDI among nations with shared geopolitical alignments. Meanwhile capital allocation is majorly limited between geopolitical competitors leading to majorly diminished investments in politically rivalled regions.
Rigid screening laws such as the expanded EU FDI Screening Regulation majorly limits foreign capital in sensitive areas such as critical minerals, semi conductors, and AI. This is leading to the isolation of innovative networks and prevents technological overflow across economic blocs.
Additionally, the International Monetary Fund says a rise in geopolitical tensions can lessen bilateral cross-border portfolio and bank allocations majorly. The trend of nearshoring mostly impacts developing countries who are significantly dependent on external finance and knowledge transfer. Furthermore, added deal clearance complexity, with national discretion over national security enabling various countries to engage in diverging scrutiny criteria results in lengthened timelines and increased transaction expenses for multinational firms. Consequentially more stringent FDI controls are remodeling global investment flows, pushing capital away from critical infrastructure and sensitive technology sectors towards highly compliant markets, while lengthening timelines and enhancing transaction complexity.
Marta Garcia, partner at Stephenson Harwood comments that the rising complexity and irregularity of FDI regimes in specific jurisdictions is demanding asset managers to evaluate regulatory risk alongside traditional investment criteria such as return potential and market access.
“There is a shift in how exposure is being allocated and managed and asset managers are increasingly differentiating between ‘FDI-light’ and ‘FDI-heavy’ jurisdictions when sizing positions, structuring funds, and selecting co-investors, especially for state-owned entities.”
This effect is more obvious on Chinese-linked investment into Western economies and conversely on Western investment into China, Garcia notes.
“Jurisdictions that combine clear statutory tests, predictable timelines, and a track record of reasoned decisions are particularly preferred, and on the other hand, asset managers are more selective in markets where review might be more opaque, politically directed, or where conditions imposed at clearance are harder to anticipate.”
Despite this, Garcia explains this does not necessarily reflect a shift away from regulated markets, “Rather, investors are increasingly favouring jurisdictions where regulatory risks are transparent, outcomes are predictable, and execution certainty can be achieved.
Graham says: “Asset managers are increasingly alive to the expansive reach of FDI screening regimes and will typically address that exposure through carefully negotiated protections in the transactional documents, including through long stop dates, ‘hell or high water’ clauses, warranties, and reverse break fees, amongst other mechanisms.”
According to Graham, this particularly occurs when the target is involved in sensitive cross-border activities or functions within sectors that attract heightened regulatory scrutiny.
The nature of the investor concern has shifted more recently, Graham notes: “Historically, FDI risk was viewed primarily through the lens of Chinese or Russian ownership - the assumption being that scrutiny was directed at a relatively defined category of investor. That assumption no longer holds.
“In light of current geopolitical developments, we are seeing investors ask much more searching questions about whether a jurisdiction that was previously considered a reliable partner might take a less predictable approach to reviewing a particular transaction. What may have been approved with conditions five years ago, may not be the case today.”
Rowland remarks: “More broadly, we are seeing a shift from efficiency-first globalisation towards resilience-first investing, with clients reassessing concentration risk, provider dependency, and exposure to sensitive jurisdictions.”
Custodians redesigning fund servicing models
Stricter FDI regimes are obliging custodians to enact enhanced look-through abilities, establish automated cross-border compliance screening tools, and carry out Ultimate Beneficial Ownership Tracing (UBO) to handle transaction risk across more than 100 jurisdictions.
Platts comments: “The proliferation of FDI screening regimes, requirement for increasingly stringent regulatory compliance (with greater transparency and accountability), ever-increasing cyber security vulnerability, the general trend towards digitalisation and automation, and the emergence of new digital asset classes, has meant that custodians have had to fundamentally redesign fund servicing models in many respects.”
According to Platts, custodians are investing more and more in improved screening capabilities, pre-trade due diligence, and beneficial ownership analytics to locate transactions that may prompt FDI filing obligations, and to flag standstill or suspensory requirements impacting closing, registration, or corporate-action processing.
“Similarly, transaction monitoring, escalation frameworks and post-approval compliance tracking are being strengthened. In addition to refining its operational models to ensure clearer segregation of activities and data flows between jurisdictions, closing workflows are also being adapted to accommodate potential delays arising from screening processes, including blocked or pending corporate actions and transactions while regulatory clearance is being obtained.”
Rowland emphasises the tightened FDI frameworks has a prevalent impact on custody: “Asset servicers need operating models that can adapt to differing national rules, ownership restrictions, settlement requirements, and regulatory expectations. Custodians are increasingly expected to act as regulatory navigators rather than simply safekeepers. In today’s fragmented global landscape, clients are looking for insight, market access support and operational readiness.”
Graham reiterates that the most immediate pressure stems from the look-through obligations many FDI screening regimes now enact.
“Identifying the ultimate beneficial owner of an investment is straightforward enough when you are dealing with a direct corporate acquirer but for funds, particularly those with complex multi-layered structures and a diverse international investor base, it is genuinely difficult.
“Custodians and fund administrators have had to build out or significantly enhance their investor identification capabilities to support that process, and given that the answer can differ depending on which jurisdiction’s regime you are applying, the architecture required to do that consistently across multiple regimes is not trivial.
“The divergence point compounds this. Different regimes have different ownership thresholds that trigger a notification obligation, different definitions of control, and different expectations around what information needs to be provided. So you are not just asking the question once, you are asking it multiple times against different criteria, and the infrastructure needs to be able to support that simultaneously.”
She says additionally an ongoing monitoring component is sometimes overlooked.
“FDI clearance is not always a one-time event at the point of acquisition. Some authorities impose conditions that require continuous monitoring of investor composition, of operational compliance with mitigation measures and the expectation is increasingly that fund administrators will have systems in place to flag material changes.
“And the consequence of getting it wrong is severe enough; notification failures can result in transaction avoidance and significant penalties in some jurisdictions. As we discussed above, that instinct is to over-invest in compliance infrastructure rather than risk the alternative. That has a cost, and it is ultimately a cost that flows through to fund managers and their investors.”
Evolving global custody landscape
The global custody ecosystem is being reshaped by key national security concerns and trade dispute developments, especially the rising use of economic policy as a national security tool, US-strategic competition, and critical minerals and energy security anxieties.
Custody providers’ roles are evolving in response as they bear responsibility for managing sanctions risks, FDI screening requirements, export control effects, and beneficial ownership transparency obligations.
Graham notes that custody is being elevated from a back office function to a strategically sensitive part of financial infrastructure due to the effect of trade disputes and national security concerns.
“Governments are increasingly scrutinising custodians due to their role in holding assets, processing transactions, and managing sensitive financial data, which drives tighter FDI screening and regulatory oversight of ownership and control structures. At the same time, cross?border transactions involving custody providers face longer timelines, and heightened regulatory risk, particularly where investors are from jurisdictions viewed as politically sensitive.”
Global custodians must concentrate on ensuring compliance with progressively strict and wide regulatory obligations, Garcia emphasises: “As a result of recent geopolitical events, the complexity and opacity of sanctions and FDI regimes FDI challenges has grown — and global custodians face a greater burden to monitor and ensure no sanctions are breached, including across supply chains.
“This reflects a wider shift toward economic security as a core policy objective, leading to heightened scrutiny of investor origin and ownership structures, greater focus on sensitive sectors such as data and infrastructure, and more complex cross-border regulatory coordination.”
Rowland adds: “Looking ahead, the next phase of FDI regulation will not operate in isolation. It will increasingly intersect with sanctions, export controls, tariffs and industrial policy, making joined-up regulatory intelligence an essential capability for firms operating across global markets. The firms that combine scale, local market expertise, strong governance and technology-enabled monitoring across their custody networks will be best placed to thrive.”
Cross-border capital is increasingly flowing into infrastructure, private equity, digital infrastructure, energy transition assets, and real estate, while globally sovereign wealth funds, pensions funds, and insurance capital investing are growing. In spite of geopolitical fracturing, institutional investors are pursuing ongoing international diversification.
Rivalry over investments among jurisdictions exists along with enhanced protectionism, as investment policy is altered by geopolitical tensions, supply chain resilience, and economic security.
Future landscape
Investment screening regimes are anticipated to widen further into the future. Additional trends point to more outbound investment controls, increased emphasis on beneficial ownership disclosure, and greater regulatory cooperation between allied jurisdictions going forward.
Fragmentation is also expected to increase further rather than lessen, with compliance obligations anticipated to grow.
As FDI regimes continue to broaden their sectoral coverage and enhance pre-transaction notification obligations, custody providers have developed into key regulatory intermediaries.
As governments move to increase supervision of foreign capital, to safeguard economic security and supply chain resilience over complete free-market expansion, FDI screening has become a concrete fixture of global investing rather than an interim geopolitical response.
Tighter foreign direct investment (FDI) screening and economic security reviews have developed from a deal risk consideration to a major strategic factor for investors and boards. The FDI ecosystem is being moulded by drivers such as tariff volatility and industrial policy, causing capital to re-price supply chain, inputs, and market access. Global capital has moved away from pure cost-efficiency to geopolitical resilience, supply chain nearshoring, and strategic autonomy. Furthermore, multinational firms are prioritising resilience over efficiency, opting to pay more to guarantee availability, and scalability in supply chains. Capital is circumventing conventional hubs to move largely into markets emerging as hotspots including India and Brazil. The US and China have seen a reversal in roles with China changing from being a significant FDI recipient to a large capital exporter, while in the US, inbound FDI has surged to 41 per cent of entire cross-border investment projects.
Regulations such as the US Committee on Foreign Investment in the United States (CFIUS) and the UK National Security and Investment Act 2021 (NSIA) are expanding in scope to incorporate early-stage technology, critical mineral, and data governance. Europe and related jurisdictions are subject to a more rigorous economic lens where strategic autonomy, resilience, and defence readiness progressively impact how transactions are evaluated and conditioned. The EU has moved to strengthen its guidelines through revised regulations and Cyprus has shifted to enforce stringent new national FDI laws to scrutinise transactions. Major jurisdictions are no longer focused on inbound controls, they are increasingly regulating outbound investments to avert core technology leaks. Despite regulation converging around national security concerns, implementation is continuing to be very fragmented. While global capital is being met with substantially greater regulatory friction it remains mobile.
Operational challenges of expanded regimes
FDI screening has majorly transitioned in the last five years. From a relatively peripheral closing formality, it is now a real deal-risk factor that is remodeling how cross-border capital is structured and deployed, according to Christine Graham, partner at Bryan Cave Leighton Paisner in the global Antitrust and International Trade Team.
“Many regimes now capture not only outright acquisitions but also minority investments — in some jurisdictions at thresholds as low as 10 per cent. Consequently, we are seeing far greater emphasis on early-stage FDI risk mapping, more careful calibration of stake sizes, and in some cases the deliberate exclusion of investors from sensitive jurisdictions at the fund formation stage. On timelines, these are absolutely affecting investment decisions.”
Graham explains that formal review periods can appear manageable on paper: “30 days here, 45 days there — but in practice, a complex transaction requiring parallel clearances across the US, UK, Germany, and Australia can realistically take anywhere from 6 to 18 months from signing to close, depending on the sensitivity of the target’s activities and the level of control being acquired by the investor.
The timeline pressure is compounded by authorities often pausing their review clock while pending written responses to information requests, Graham notes. This can put additional weeks or months on an already extended process.
Tom Platts, partner at Stephenson Harwood explains that the screening timelines and crucially the uncertainty as to both timing and outcomes, can be very off-putting for investors. He notes: “The need to factor in FDI clearance timelines alongside antitrust and other regulatory approvals is now a standard feature of transaction planning and can materially affect deal structuring and execution.
“Where screening outcomes are genuinely uncertain, particularly for investors from or affiliated with countries deemed to pose higher risk or in strategically sensitive sectors, such as defence or critical infrastructure, we have seen a reluctance to pursue certain cross-border transactions — and in some cases a dampening effect on cross-border fund flows more generally.”
Investors may also try to structure investments to fall below mandatory notification thresholds, Platts comments.
“However, certain FDI authorities have very broad notification thresholds and wide discretion on using their call-in powers, which may prevent parties from structuring a transaction to avoid having to comply with a mandatory filing requirement.
“It is therefore now increasingly important to understand from the outset which regulatory filings will be required, as well as whether a transaction would give rise to any substantive regulatory concerns, in order to assess the likely timeline, risk profile and the overall viability of a deal before committing significant time and resources to a potential transaction.
Chris Rowland, executive vice president and head of Custody, Digital and Fund Services Product, at State Street notes: “Cross-border transactions now need to be planned through a geopolitical lens, as filing requirements, review timelines and ownership sensitivities can directly affect deal execution and market-entry strategy.
“For global investors, regulatory certainty is becoming a competitive advantage. Predictable markets may increasingly attract capital, even where they are not the lowest-cost option.”
The major rise in FDI screening regimes over the past few years has inevitably led to delays to transaction timetables for cross-border transactions, Platts explains. The accompanying uncertainty resulting from extra regulatory hurdles is undoubtedly an extra consideration for parties in their deal timelines.
The proliferation of FDI regimes has had an obvious effect on cross-border investments in regards to timing and overall deal certainty, he says. “In practice, delays in even accepting notifications as complete are becoming increasingly common, and if the authorities request further information, this will extend the timetable further.
“Requests for additional information can significantly prolong review periods, with knock-on effects for financing arrangements and overall transaction costs. Any delay is likely to impact any financing, as well as increasing transaction costs.
“FDI regimes are by nature opaque in their decision-making, which creates uncertainty around timing to clearance and the likelihood of intervention, and contributes to longer and less predictable timelines.
Reshaping Investment patterns
The broadening of FDI regimes is leading to the concentration of cross-border capital and greenfield FDI among nations with shared geopolitical alignments. Meanwhile capital allocation is majorly limited between geopolitical competitors leading to majorly diminished investments in politically rivalled regions.
Rigid screening laws such as the expanded EU FDI Screening Regulation majorly limits foreign capital in sensitive areas such as critical minerals, semi conductors, and AI. This is leading to the isolation of innovative networks and prevents technological overflow across economic blocs.
Additionally, the International Monetary Fund says a rise in geopolitical tensions can lessen bilateral cross-border portfolio and bank allocations majorly. The trend of nearshoring mostly impacts developing countries who are significantly dependent on external finance and knowledge transfer. Furthermore, added deal clearance complexity, with national discretion over national security enabling various countries to engage in diverging scrutiny criteria results in lengthened timelines and increased transaction expenses for multinational firms. Consequentially more stringent FDI controls are remodeling global investment flows, pushing capital away from critical infrastructure and sensitive technology sectors towards highly compliant markets, while lengthening timelines and enhancing transaction complexity.
Marta Garcia, partner at Stephenson Harwood comments that the rising complexity and irregularity of FDI regimes in specific jurisdictions is demanding asset managers to evaluate regulatory risk alongside traditional investment criteria such as return potential and market access.
“There is a shift in how exposure is being allocated and managed and asset managers are increasingly differentiating between ‘FDI-light’ and ‘FDI-heavy’ jurisdictions when sizing positions, structuring funds, and selecting co-investors, especially for state-owned entities.”
This effect is more obvious on Chinese-linked investment into Western economies and conversely on Western investment into China, Garcia notes.
“Jurisdictions that combine clear statutory tests, predictable timelines, and a track record of reasoned decisions are particularly preferred, and on the other hand, asset managers are more selective in markets where review might be more opaque, politically directed, or where conditions imposed at clearance are harder to anticipate.”
Despite this, Garcia explains this does not necessarily reflect a shift away from regulated markets, “Rather, investors are increasingly favouring jurisdictions where regulatory risks are transparent, outcomes are predictable, and execution certainty can be achieved.
Graham says: “Asset managers are increasingly alive to the expansive reach of FDI screening regimes and will typically address that exposure through carefully negotiated protections in the transactional documents, including through long stop dates, ‘hell or high water’ clauses, warranties, and reverse break fees, amongst other mechanisms.”
According to Graham, this particularly occurs when the target is involved in sensitive cross-border activities or functions within sectors that attract heightened regulatory scrutiny.
The nature of the investor concern has shifted more recently, Graham notes: “Historically, FDI risk was viewed primarily through the lens of Chinese or Russian ownership - the assumption being that scrutiny was directed at a relatively defined category of investor. That assumption no longer holds.
“In light of current geopolitical developments, we are seeing investors ask much more searching questions about whether a jurisdiction that was previously considered a reliable partner might take a less predictable approach to reviewing a particular transaction. What may have been approved with conditions five years ago, may not be the case today.”
Rowland remarks: “More broadly, we are seeing a shift from efficiency-first globalisation towards resilience-first investing, with clients reassessing concentration risk, provider dependency, and exposure to sensitive jurisdictions.”
Custodians redesigning fund servicing models
Stricter FDI regimes are obliging custodians to enact enhanced look-through abilities, establish automated cross-border compliance screening tools, and carry out Ultimate Beneficial Ownership Tracing (UBO) to handle transaction risk across more than 100 jurisdictions.
Platts comments: “The proliferation of FDI screening regimes, requirement for increasingly stringent regulatory compliance (with greater transparency and accountability), ever-increasing cyber security vulnerability, the general trend towards digitalisation and automation, and the emergence of new digital asset classes, has meant that custodians have had to fundamentally redesign fund servicing models in many respects.”
According to Platts, custodians are investing more and more in improved screening capabilities, pre-trade due diligence, and beneficial ownership analytics to locate transactions that may prompt FDI filing obligations, and to flag standstill or suspensory requirements impacting closing, registration, or corporate-action processing.
“Similarly, transaction monitoring, escalation frameworks and post-approval compliance tracking are being strengthened. In addition to refining its operational models to ensure clearer segregation of activities and data flows between jurisdictions, closing workflows are also being adapted to accommodate potential delays arising from screening processes, including blocked or pending corporate actions and transactions while regulatory clearance is being obtained.”
Rowland emphasises the tightened FDI frameworks has a prevalent impact on custody: “Asset servicers need operating models that can adapt to differing national rules, ownership restrictions, settlement requirements, and regulatory expectations. Custodians are increasingly expected to act as regulatory navigators rather than simply safekeepers. In today’s fragmented global landscape, clients are looking for insight, market access support and operational readiness.”
Graham reiterates that the most immediate pressure stems from the look-through obligations many FDI screening regimes now enact.
“Identifying the ultimate beneficial owner of an investment is straightforward enough when you are dealing with a direct corporate acquirer but for funds, particularly those with complex multi-layered structures and a diverse international investor base, it is genuinely difficult.
“Custodians and fund administrators have had to build out or significantly enhance their investor identification capabilities to support that process, and given that the answer can differ depending on which jurisdiction’s regime you are applying, the architecture required to do that consistently across multiple regimes is not trivial.
“The divergence point compounds this. Different regimes have different ownership thresholds that trigger a notification obligation, different definitions of control, and different expectations around what information needs to be provided. So you are not just asking the question once, you are asking it multiple times against different criteria, and the infrastructure needs to be able to support that simultaneously.”
She says additionally an ongoing monitoring component is sometimes overlooked.
“FDI clearance is not always a one-time event at the point of acquisition. Some authorities impose conditions that require continuous monitoring of investor composition, of operational compliance with mitigation measures and the expectation is increasingly that fund administrators will have systems in place to flag material changes.
“And the consequence of getting it wrong is severe enough; notification failures can result in transaction avoidance and significant penalties in some jurisdictions. As we discussed above, that instinct is to over-invest in compliance infrastructure rather than risk the alternative. That has a cost, and it is ultimately a cost that flows through to fund managers and their investors.”
Evolving global custody landscape
The global custody ecosystem is being reshaped by key national security concerns and trade dispute developments, especially the rising use of economic policy as a national security tool, US-strategic competition, and critical minerals and energy security anxieties.
Custody providers’ roles are evolving in response as they bear responsibility for managing sanctions risks, FDI screening requirements, export control effects, and beneficial ownership transparency obligations.
Graham notes that custody is being elevated from a back office function to a strategically sensitive part of financial infrastructure due to the effect of trade disputes and national security concerns.
“Governments are increasingly scrutinising custodians due to their role in holding assets, processing transactions, and managing sensitive financial data, which drives tighter FDI screening and regulatory oversight of ownership and control structures. At the same time, cross?border transactions involving custody providers face longer timelines, and heightened regulatory risk, particularly where investors are from jurisdictions viewed as politically sensitive.”
Global custodians must concentrate on ensuring compliance with progressively strict and wide regulatory obligations, Garcia emphasises: “As a result of recent geopolitical events, the complexity and opacity of sanctions and FDI regimes FDI challenges has grown — and global custodians face a greater burden to monitor and ensure no sanctions are breached, including across supply chains.
“This reflects a wider shift toward economic security as a core policy objective, leading to heightened scrutiny of investor origin and ownership structures, greater focus on sensitive sectors such as data and infrastructure, and more complex cross-border regulatory coordination.”
Rowland adds: “Looking ahead, the next phase of FDI regulation will not operate in isolation. It will increasingly intersect with sanctions, export controls, tariffs and industrial policy, making joined-up regulatory intelligence an essential capability for firms operating across global markets. The firms that combine scale, local market expertise, strong governance and technology-enabled monitoring across their custody networks will be best placed to thrive.”
Cross-border capital is increasingly flowing into infrastructure, private equity, digital infrastructure, energy transition assets, and real estate, while globally sovereign wealth funds, pensions funds, and insurance capital investing are growing. In spite of geopolitical fracturing, institutional investors are pursuing ongoing international diversification.
Rivalry over investments among jurisdictions exists along with enhanced protectionism, as investment policy is altered by geopolitical tensions, supply chain resilience, and economic security.
Future landscape
Investment screening regimes are anticipated to widen further into the future. Additional trends point to more outbound investment controls, increased emphasis on beneficial ownership disclosure, and greater regulatory cooperation between allied jurisdictions going forward.
Fragmentation is also expected to increase further rather than lessen, with compliance obligations anticipated to grow.
As FDI regimes continue to broaden their sectoral coverage and enhance pre-transaction notification obligations, custody providers have developed into key regulatory intermediaries.
As governments move to increase supervision of foreign capital, to safeguard economic security and supply chain resilience over complete free-market expansion, FDI screening has become a concrete fixture of global investing rather than an interim geopolitical response.
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