The SEC amended certain annual reporting and registration forms (Forms 20-F, 40-F, 10-K and/or N-CSR) to implement disclosure requirements under the Holding Foreign Companies Accountable Act ("HFCA Act").

As previously covered, the HFCA Act requires the SEC to determine whether a registered issuer has engaged an accounting firm in a foreign jurisdiction that the Public Company Accounting Oversight Board ("PCAOB") is not able to inspect. In such cases, the SEC is required to obtain from the registered issuer "documentation that establishes the covered issuer is not owned or controlled by a governmental entity in the foreign jurisdiction" of the relevant accounting firm.

The SEC stated that, although the HFCA Act does not mandate rule or form changes, amending these forms will help issuers comply with the HFCA Act. The interim final amendments updated the forms to:

• reflect the disclosure requirements in Section 3 of the HFCA Act, which require SEC-registered foreign issuers to disclose, among other things:

  • the percentage of the issuer owned by governmental entities in the foreign jurisdiction of the issuer;

  • whether foreign governments in the jurisdiction of the relevant accounting firm have a controlling financial interest in the issuer;

  • the names of any Chinese Communist Party "officials" who are members of the board of directors, of the company, or of an operating entity with respect to the issuer; and

  • whether the issuer's articles of incorporation contain any Chinese Communist Party charter, including the text of any such charter; and

• require all SEC-registered issuers that are "not owned or controlled by a governmental entity in that foreign jurisdiction" to submit documentation on a supplemental basis establishing that they are not so owned or controlled.

The finalized amendments go into effect 30 days following their publication in the Federal Register.

In a statement, SEC Chair Gary Gensler emphasized that the amendments "further[] the mandate that Congress laid out and get[] to the heart of the SEC's mission to protect investors." He said that the amendments will enable investors to easily determine if a registrant has an auditing firm in a foreign jurisdiction that the Public Company Accounting Oversight Board is unable to fully inspect. Mr. Gensler also said that foreign governments should cooperate with the PCAOB to "ensure that the auditors of foreign companies accessing U.S. capital markets play by our rules."

Primary Sources

1. SEC Press Release: SEC Adopts Amendments to Finalize Rules Relating to the Holding Foreign Companies Accountable Act

2. Final Rule; Holding Foreign Companies Accountable Act Disclosure

3. SEC Fact Sheet: Holding Foreign Companies Accountable Act - Final Amendments

4. SEC Statement, Gary Gensler: Statement Holding Foreign Companies Accountable Act: Final Amendments