SEC finalizes rule that allows it to delist foreign stocks for failure to…

SEC finalizes rule that allows it to delist foreign stocks for failure to...


Overseas public firms which might be listed in the USA could also be delisted if their auditors don’t adjust to requests for info from U.S. regulators. 

On Thursday, the Securities and Change Fee adopted amendments to finalize guidelines to implement the Holding Overseas Corporations Accountable Act (HFCAA). The legislation was handed in 2020 after Chinese language regulators repeatedly denied requests from the Public Firm Accounting Oversight Board (PCAOB), which was created in 2002 to supervise the audits of public firms, to examine the audits of Chinese language companies that record and commerce in the USA.

In 2020, Chinese language agency Luckin Espresso fired its CEO and chief working officer following an inside fraud probe, which elevated requires motion.   

The legislation permits the SEC to ban firms from buying and selling and be delisted from exchanges if the PCAOB shouldn’t be in a position to audit requested stories for 3 consecutive years. It additionally requires firms to declare whether or not they’re owned or managed by any international authorities.

The foundations adopted on Thursday set up a framework for the legislation’s implementation.  

Gary Gensler, chairman of the U.S. Securities and Change Fee (SEC), speaks throughout a Senate Banking, Housing and City Affairs Committee listening to in Washington, D.C., U.S., on Tuesday, Sept. 14, 2021.

Invoice Clark | Bloomberg | Getty Photographs

“We now have a primary discount in our securities regime, which got here out of Congress on a bipartisan foundation below the Sarbanes-Oxley Act of 2002. If you wish to concern public securities within the U.S., the companies that audit your books need to be topic to inspection by the PCAOB,” SEC Chair Gary Gensler stated in a press release.

Gensler famous that whereas greater than 50 international jurisdictions have labored with the PCAOB to permit inspections, “two traditionally haven’t: China and Hong Kong.”

“This ultimate rule furthers the mandate that Congress laid out and will get to the center of the SEC’s mission to guard buyers,” Gensler famous.

The finalized guidelines will permit buyers to determine international firms which might be listed within the U.S. that aren’t permitting the PCAOB to examine their audits. 

“It is a robust state of affairs, as a result of the businesses are being held hostage,” Brendan Ahern, chief funding officer of KraneShares, which runs a number of China-focused ETFs, together with the KraneShares China Web ETF, advised me. 

“It is the Chinese language regulators who’re stopping the U.S. regulators from inspecting the audits,” Ahern stated. “The problem sadly has been politicized. These firms are all audited by the Massive 4 accounting companies, however below Chinese language legislation regulators will not be permitting these audits to be despatched to the PCAOB.”

“What you have got is Chinese language legislation clashing with U.S. legislation,” he stated. “This must be handled above the regulator degree, maybe on the commerce consultant degree.”

“The losers are buyers in these shares, that are U.S. buyers,” Ahern added.

He famous that some Chinese language firms that record within the U.S. are already relisting in Hong Kong.  



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