SEC Implements Final Regulations for the Holding Foreign Insiders Accountable Act

The Securities and Exchange Commission has recently implemented final rule and form revisions to comply with the provisions of the recently passed Holding Foreign Companies Accountable Act (HFCA). The HFCA was signed into law in December 2020 with the aim of increasing oversight of foreign companies listed on U.S. stock exchanges. The final rule and form amendments are a crucial step in the SEC’s efforts to enhance transparency and protect investors in U.S. markets.

One of the key provisions of the HFCA is the requirement for foreign companies to allow the Public Company Accounting Oversight Board (PCAOB) access to their audit work papers. The PCAOB is the U.S. regulator responsible for overseeing the audits of public companies. By granting the PCAOB access to audit work papers, the SEC aims to strengthen the integrity of financial reporting and ensure that investors have access to reliable information when making investment decisions.

The final rule adopted by the SEC establishes a process for the PCAOB to determine whether it is unable to inspect certain companies’ audit work papers due to restrictions imposed by foreign authorities. If the PCAOB is unable to inspect these work papers, the SEC may require the affected companies to provide additional disclosures to investors. This requirement is intended to inform investors about the limitations on the PCAOB’s ability to oversee the audits of these companies.

In addition to the provisions related to audit work papers, the final rule includes amendments to Form 20-F, which is used by foreign companies that are listed on U.S. stock exchanges to file their annual reports. The amendments to Form 20-F require companies to disclose information about their audit firm and the extent of government involvement in their operations. These disclosures are designed to increase transparency and provide investors with a better understanding of the risks associated with investing in foreign companies.

The SEC’s adoption of these final rule and form amendments demonstrates its commitment to protecting investors and ensuring the integrity of U.S. markets. By implementing the requirements of the HFCA, the SEC is taking important steps to address concerns about the lack of transparency and accountability among foreign companies listed on U.S. stock exchanges. These amendments will help to strengthen investor confidence and promote the stability and efficiency of U.S. capital markets.

Overall, the final rule and form amendments reflect the SEC’s dedication to upholding the highest standards of transparency and accountability in the securities industry. By aligning its regulations with the provisions of the HFCA, the SEC is working to enhance the resilience and competitiveness of U.S. markets. Investors can be reassured that the SEC is taking proactive measures to protect their interests and uphold the integrity of the financial system.