US-listed Chinese companies are required to disclose ownership and audit: SEC | Financial Market News

The base offers a process that could lead to the launch of more than 200 companies on US stock exchanges.

The Securities and Exchange Commission (SEC) said Thursday that Chinese companies that list on US exchanges must disclose whether they are owned or controlled by a government entity, and provide evidence of inspections and audits.

The rule introduces a process that could lead to more than 200 companies being launched on US stock exchanges and could make some Chinese companies less attractive to investors.

The new rules implement a law passed by Congress in December 2020 that aims to ensure that foreign companies listed in the United States, particularly Chinese companies, comply with US rules.

Unlike many countries, China has not allowed the Securities and Exchange Commission’s accounting body, the Public Company Accounting Oversight Board (PCAOB), to examine auditors, who in turn certify the accounts of Chinese companies listed in the United States.

Chinese authorities are reluctant to allow foreign regulators to inspect domestic accounting firms due to national security concerns.

US regulators are concerned that the lack of US oversight is putting investors at risk.

In essence, “The final rule will allow investors to easily identify registrants whose audit firms are located in a foreign jurisdiction that PCAOB cannot fully examine. Furthermore, foreign exporters will be required to disclose the level of foreign government ownership in those entities,” an authority official said. Securities and Exchanges.

The rule would also require enhanced disclosures from Chinese entities incorporated in the United States via a means known as a Variable Interest Entity (VIE).

While this structure allows Chinese companies in some sectors to circumvent local rules on overseas listings, US regulators are concerned that the structure creates risks for investors and may obscure information about their ultimate ownership.

Companies will have 15 days to object to a Securities and Exchange Commission (SEC) designation that requires enhanced disclosure.

The Securities and Exchange Commission has up to three years to issue an order to delist companies that do not adhere to the rules.

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Andrew Naughtie

News reporter and author at @websalespromo