Carrots and sticks: the next wave of Australia's foreign investment reform
03 November 2025
Ahead of the Deal - Australian M&A Briefing
Key insights
- Treasury has released a Discussion Paper on major reforms to Australia's foreign investment framework. The package looks like a good one: it has some potentially important and useful carrots and generally reasonable sticks.
- Key proposals include introducing automatic approvals for certain low-risk transactions and useful enhancements to the Exemption Certificate framework (eg confirming funds don't have to be treated as foreign government investors because of passive investors). The paper also flags reducing duplicative reporting requirements and fixing aspects of the conditions regime, so it is fit for purpose.
- On the other hand, the reforms seek to enhance enforcement. This includes by enabling faster and more flexible disposal orders, expanding the reach of conditions and expanding the definition of “associate” to capture broader forms of influence.
- It also considers introducing penalties for deliberate avoidance. This point could be interesting in practice if we end up with an "anti-avoidance regime" of broad application.
- Other measures would allow the greater information sharing for regulatory and national security purposes, as well as providing more certainty and flexibility around decision timeframes.
- Stakeholders are invited to provide feedback on these proposals by 12 December 2025.
Context
The Discussion Paper (the Paper) comes at a time when we have distinctly different approaches to regulatory issues in Australian M&A deals, with much discussion around the potential overreach of some aspects of the new ACCC regime.
The Paper represents a genuine and constructive attempt to iron out some of the wrinkles in our FIRB process. It is to be commended both for its substance and its spirit.
The Treasurer's press release set the tone:
"Our goal is a foreign investment regime that is much stronger where risks are high and much faster where risks are low. These reforms are all about unlocking more investment that’s in Australia’s national interest and subjecting higher risk proposals to more rigorous scrutiny."
The Paper also set out its mission as follows:
"A more streamlined framework will reduce regulatory burden for investors where possible, support more efficient administration of the framework by the regulators and be easier to navigate for investors and stakeholders."
"A stronger framework will manage risk, deter bad actors and appropriately penalise serious non-compliance with strong and flexible powers to manage high-risk investment to ensure that Australia’s national interest and national security are protected."
Of course, it will be important to land these good ideas into solutions that work in practice, and to limit unintended consequences of the new enforcement measures, and so industry feedback will be important.
The carrots: a more streamlined foreign investment framework
Automatic approvals and notification requirements
Currently, all investments above certain thresholds are treated similarly, regardless of risk. The Government is considering a Canadian-style approach, where low-risk investments would only require notification, but not approval, before proceeding. This could include low to medium value commercial acquisitions in non-sensitive sectors or small changes in shareholdings without consequences for control or influence. Such actions would be subject to a “call-in” power, but they would otherwise be able to proceed. While investors are traditionally averse to leaving a call-in power on the table, you could see a scenario where more comfort was taken as investors got used to the concept (noting also other divestment powers in the Act). A key question for the consultation touches on that very point:
"1.1.4 Would investors prefer the option to notify Treasury of a proposed action and proceed after a set period (not requiring approval), or would they still seek a full assessment and safe harbour from call in?"
Exemption Certificate reform
The Paper notes that the current Exemption Certificate regime is a partial solution to "the repeat scrutiny of low-risk investments from low-risk, frequent investors". The Paper happily proposes adjusting and expanding exemption certificate powers. One example provided is to exempt a fund with passive foreign government investors from Foreign Government Investor requirements.
This is potentially one of the most useful parts of the Paper and it is important that people engage with it to make sure that the benefits of it are achieved.
Conditions
The Paper provides some suggestions to make the conditions regime fit for purpose. The powers of the Treasurer in relation to conditions are relatively inflexible. By way of example, a no objection notification issued with conditions cannot be converted to one without conditions. Retrospective applications required conditions, even if none are needed. There is also a recognition that the usual 12-month time limit on validity might be too short on large, complex deals. These are all sensible and welcomed ideas.
Reducing reporting and tracing requirements
The Paper notes that the Register of Foreign Ownership of Australian Assets, launched in July 2023, has over 80,000 registrations. The Paper looks at ways to reduce duplicative or onerous reporting, such as allowing one party to report on behalf of others in a deal, or removing requirements to report certain types of interests. The Paper also looks at reducing friction with the tracing of minor interests.
The timing of approvals
The Paper considers mechanisms to pause or adjust timeframes when additional information is needed. This doesn't seem like a major reform – rather it looks like it supports a renewed effort on the part of FIRB to clear a majority of decisions within 30 days.
The sticks: a stronger foreign investment framework
Enhanced conditions and undertakings
The proposed changes to the Treasurer’s toolkit for managing foreign investment risks marks a shift from reactive oversight to pre-emptive governance. Under the current regime, conditions attach only once a transaction closes, and Treasury is concerned that regulatory action therefore lags behind commercial momentum.
Treasury’s proposal to let the Treasurer set conditions before a deal closes, and even on upstream or minority investors, signals a significant move from passive oversight to active risk management. In a world where influence can matter more than ownership, waiting until after completion to act is perhaps viewed by the Government as shutting the gate after the horse has bolted.
Enhanced enforcement powers
The proposal to enhance the Treasurer’s enforcement powers signals a move from deterrence to stronger intervention when required. The current 30-day buffer before disposal orders take effect is a relic of a slower, simpler era. Accelerating the operation of disposal orders and restricting resale to other high-risk entities is clearly intended to bring the framework in line with contemporary national security realities, and to provide the Government with regulatory credibility.
Expanded approval requirements in sensitive sectors
As technologies evolve and strategic dependencies shift, the Paper identifies that the old boundaries of “sensitive” no longer capture where real vulnerabilities lie. Artificial intelligence, quantum computing, data infrastructure, and critical minerals now sit alongside defence and energy as the front lines of national interest. Treasury is looking at ways to designate emerging sensitive sectors for mandatory notification and approval without the need for legislative change, and to introduce post-acquisition screening powers for rare, high-risk cases.
Association
It is clear from the Paper that the Government is now expanding its focus to influence without direct ownership. The Paper contemplates an expansion of the 'associate' definition, with a nod to influence that can flow through debt and contractual arrangements. Capturing more forms of 'association' will be an attempt to close perceived loopholes, though where the lines are drawn is always difficult. As with the other 'sticks', striking the right balance will be key.
Sharing protected information
Treasury is seeking greater information flows between regulators, national security partners and other third parties, with a view to sharpening enforcement. The difficult task for Treasury is to craft a framework that allows targeted, intelligent information-sharing whilst still protecting investor confidential and commercially sensitive information that is provided to FIRB in confidence. This is an important one to get right.
Flexible enforcement tools
The Government considers that the current infringement notice regime is limited in scope and flexibility. Proposed changes include scaling penalties for multiple breaches, expanding the range of contraventions covered, and considering introducing more proportionate responses to non-compliance by being able to group multiple breaches. If adopted, these changes will present a significant increase in the 'sticks' available to the Treasurer.
Anti-avoidance provisions
The Paper contemplates that deliberate avoidance of the framework is not currently penalised. The Government is considering making avoidance a contravention, attracting civil and/or criminal penalties. This sounds like a general anti-avoidance provision, the application of which will need careful consideration.
Other reforms: a spring clean of the Act
Feedback is also on some other more minor and technical changes, such as clarifying terminology, refining definitions, and addressing the treatment of Australian Carbon Credit Units in certain transactions.
Comments due 12 December 2025
Feedback on the proposals is due by 12 December 2025.
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