US companies listed in the US must report ownership, audits: SEC | Financial Market News

The rule outlines a process that could lead to more than 200 companies launching U.S. exchanges.

Chinese companies listed on U.S. stock exchanges must report that they are owned or controlled by a government entity, and must provide evidence of their audits, the Securities and Exchange Commission (SEC) said on Thursday.

The rules anticipate a process that could trigger more than 200 U.S. exchanges, and some Chinese companies have been unattractive to investors.

The new rules set out a law passed by Congress in December 2020 that aims to ensure that foreign companies listed in the U.S., especially Chinese companies, comply with U.S. rules.

Unlike in many countries, China has not allowed the SEC’s accounting body, the Public Company Accounting Oversight Board (PCAOB), to audit its auditors, who certify the accounts of Chinese companies listed in the US.

Chinese authorities are reluctant to allow foreign regulators to inspect local accounting firms because of concerns about national security.

U.S. regulators are concerned that a lack of US oversight would put investors at risk.

Essentially, “the completed rules will allow investors to easily identify the registrar in a foreign jurisdiction that the audit firm cannot fully inspect by the PCAOB. In addition, foreign issuers must disclose the level of foreign government ownership in these institutions,” an SEC official said.

The rules will also require enhanced disclosures by U.S.-listed Chinese entities through a vehicle known as a variable interest entity (VIE).

While this structure allows Chinese companies in some sectors to avoid internal listing rules abroad, U.S. regulators are concerned that the structure poses risks to investors and may obscure information about their recent ownership.

Companies will have 15 days to discuss an SEC designation requiring enhanced disclosure.

The SEC has a three-year deadline to order the removal of the list of companies that do not comply with the rules.