Capital Markets & Securities Law Watch

On December 15, 2022, the Public Company Accounting Oversight Board (the PCAOB or the Board) announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in mainland China and Hong Kong for the first time and issued its 2022 HFCAA Determination Report (collectively, the 2022 Determinations)[i] under the Holding Foreign Companies Accountable Act of 2020 (the HFCAA or the Act).

On August 26, 2022, the U.S. Public Company Accounting Oversight Board (the PCAOB) announced a Statement of Protocol (the SOP) with the China Securities Regulatory Commission (the CSRC) and Ministry of Finance of China (MOF) in respect of cooperation on the oversight of PCAOB-registered public accounting firms based in mainland China and Hong Kong. This represents a first and meaningful move to address the decade-long audit oversight conflict between the PCAOB and regulators in the People’s Republic of China (the PRC).

On November 17, 2021, the Securities and Exchange Commission (SEC) adopted amendments to the federal proxy rules to require the use of a universal proxy card in public solicitations involving contested director elections where a dissident shareholder seeks to solicit proxies for a slate of candidates other than the company nominees. The universal proxy rules will become effective for any shareholder meeting involving a contested election held after August 31, 2022.

On November 5, 2021, the SEC approved Rule 6100, Board Determinations Under the Holding Foreign Companies Accountable Act, of the Public Company Accounting Oversight Board (PCAOB). Rule 6100 establishes a framework for the PCAOB’s determinations under the Holding Foreign Companies Accountable Act (HFCAA) that the PCAOB is unable to inspect or investigate completely registered public-accounting firms located in a foreign jurisdiction because of a position taken by an authority in that jurisdiction. Rule 6100 is effective immediately.

On July 30, 2021, SEC Chair Gary Gensler directed the SEC staff to seek certain disclosures and engage in targeted reviews of issuers associated with China-based operating companies in order to enhance the overall quality of disclosures in SEC registration statements and filings of these issuers.

On July 6, 2021, the General Office of the Central Committee of the Communist Party of China and the General Office of the State Council of the People's Republic of China jointly issued “Opinions on Strictly Cracking Down on Illegal Securities Activities in accordance with the Law” (Opinions) signaling that the country will step up its supervision of domestic firms listed both onshore and offshore.

On December 18, 2020, President Trump signed into law the “Holding Foreign Companies Accountable Act” (the Act), requiring foreign companies and their auditing firms to submit to U.S. regulator inspections of their audits—or face trading prohibitions on U.S. stock exchanges and over-the-counter markets for failure to have an inspection for three consecutive years.

On November 23, 2020, the Division of Corporation Finance (the Division) of the U.S. Securities and Exchange Commission (the SEC) released new disclosure guidance on the Division’s views regarding disclosures for companies based in, or with the majority of their operations located in, China.

Following our recent post on Nasdaq’s proposed rules intended to impose stricter requirements on companies looking to go public or be listed on Nasdaq that have their businesses principally administered in certain jurisdictions defined by Nasdaq as “Restrictive Markets” (including China) or whose auditors’ qualifications raise concerns and the Senate’s recently passed bill to delist companies that have not had PCAOB inspections of their auditors for three consecutive years, the White House, the Secretary of State, and the Chairman of the SEC have taken actions or released statements in support of the goals of these proposals.

In May 2020, Nasdaq filed three proposals with the Securities and Exchange Commission (SEC) intended to address concerns about companies that have their businesses principally administered in certain jurisdictions defined by Nasdaq as “Restrictive Markets” (including China) looking to go public or become listed on Nasdaq. The proposals relate to auditors, initial listing criteria for foreign companies, and management’s qualifications.