Chinese companies could soon be removed from American stock exchanges as the latter moves to tighten existing rules.
The Securities and Exchange Commission issues a statement on Thursday announcing it is a step closer to finalising rules implementing the submission and disclosure requirements in the Holding Foreign Companies Accountable Act (HFCAA), a move that will require foreign companies to open their books to US scrutiny.
“If you want to issue public securities in the US, the firms that audit your books have to be subject to inspection by the PCAOB (Public Company Accounting Oversight Board),” SEC chair Gary Gensler said on Thursday.
“While more than 50 jurisdictions have worked with the PCAOB to allow the required inspections, two historically have not: China and Hong Kong,” Mr Gensler added.
China has refused, for over a decade, to allow PCAOB inspectors to review audits of companies, including Alibaba, that trade on American exchanges.
Last year, during the Trump administration, Congress, on a bipartisan basis, declared it was time for audit firms in all jurisdictions around the world to comply fully with Sarbanes-Oxley – the 2002 law that mandates auditing and financial regulations for public companies.
HFCAA mandated that, if governmental authorities don’t allow the auditors of foreign companies to open their work papers to PCAOB inspection for three consecutive years, the securities of companies audited by those firms could be prohibited from trading in the US.
“The finalised rules will allow investors to easily identify registrants whose auditing firms are located in a foreign jurisdiction that the PCAOB cannot completely inspect. Moreover, foreign issuers will be required to disclose the level of foreign government ownership in those entities,” Mr Gensler said.
“The Commission and the PCAOB will continue to work together to ensure that the auditors of foreign companies accessing US capital markets play by our rules.
“We hope foreign governments will, working with the PCAOB, take action to make that possible,” he concluded.
Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.
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