Home Scholarly articles SEC paves way for ban of foreign companies from U.S. stock exchanges

SEC paves way for ban of foreign companies from U.S. stock exchanges

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The Securities and Exchange Commission on Friday approved a rule to implement a law barring foreign companies from accessing U.S. stock exchanges if their auditors have not been inspected by U.S. regulators.

The rule implements a framework adopted in September by the Public Company Accounting Oversight Board, the agency responsible for overseeing the US audit industry. The accounting board plans to use the framework to decide whether it is able to investigate audit firms in jurisdictions such as China and Hong Kong. The SEC, which oversees the PCAOB, could then require disclosures from companies audited by those companies or take other action, such as implementing a trade ban.

The rule meets the requirements of a law signed by former President Trump in December that would ban certain foreign companies from trading on U.S. stock exchanges. The law applies to companies whose auditors have not been inspected by US authorities for three consecutive years.

“This is an important step to protect American investors. I think it is essential that the Commission and the PCAOB work together to ensure that auditors of foreign companies entering the US capital markets follow the same rules, ”SEC Chairman Gary Gensler said in a statement. hurry.

The Chinese government has for years resisted audit inspections by Chinese companies. The PCAOB, which inspects non-U.S. Audit firms in about 40 other jurisdictions, cannot review audit documents in China without approval from Chinese authorities. Accounting scandals in Chinese companies including Luckin Coffee Inc.

drew attention to gaps in audit inspections.

The SEC could ban about 270 Chinese companies from trading on U.S. stock exchanges by 2024 if the companies do not allow inspections by their auditors, Gensler said in a September editorial in the Wall Street Journal.

Some investor representatives praised the SEC’s move. “While potential business write-offs could result in losses for some investors, in the long run the rule is necessary. Investors and capital markets would suffer more if a country ignored US securities laws, ”said Amy Borrus, executive director of the Council of Institutional Investors, which represents pension funds and other large fund managers.

The PCAOB said it would assess audit firms based on factors such as timely access to documents and staff. The board could also consider whether to inspect audit firms on a jurisdiction-wide basis.

Write to Kristin Broughton at [email protected]

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