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US Securities and Exchange Commission

House Panel To Discuss Speedier Delisting for U.S.-Listed Chinese Companies

Bill Flook  Editor, Accounting and Compliance Alert

Bill Flook  Editor, Accounting and Compliance Alert

A House Financial Services subcommittee in October will discuss a draft bill to hasten a delisting deadline for public companies whose audits the PCAOB cannot inspect, a measure that would increase pressure on Chinese companies traded on U.S. exchanges. The bill, the Accelerating Holding Foreign Companies Accountable Act, cleared the Senate in June.

Rep. Brad Sherman, chair of the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets, is interested in the bill and plans to add it as a discussion draft for consideration at an upcoming subcommittee hearing on Chinese issuers in the U.S. later this month, a spokesman for Sherman’s office told Accounting & Compliance Alert by email.

“However, he would like to hear additional views on the bill before making the final decision to introduce it,” the spokesman added.

The California Democrat’s subcommittee had originally planned to hold a hearing on the risk Chinese investments pose to retail investors on September 22, 2021, but postponed it.

Last month, SEC Chair Gary Gensler testified in support of the bill before the Senate Banking Committee. (See SEC Chair Gensler Backs Speeding up Delisting Deadline for Chinese Companies in the September 15, 2021, edition of Accounting & Compliance Alert.)

The Senate version was introduced by Sen. John Kennedy, a Louisiana Republican, who during the September 14 hearing acknowledged that “we’re having a little trouble getting the House to take it up.” Gensler, the sole witness at the hearing, responded that “I’ve already had some discussions and expressed to some of the leadership over there that I support that.”

The Accelerating Holding Foreign Companies Accountable Act builds on the Holding Foreign Companies Accountable Act (HFCA), legislation signed into law late last year that threatens to delist U.S.-traded Chinese issuers after three consecutive non-inspection years. The HFCA, which Gensler also supports, would carry out what had long been considered a “nuclear option” in addressing the Chinese government’s refusal to grant U.S. regulators access to audit work papers for companies traded on U.S. exchanges, resulting in ongoing Sarbanes-Oxley violations for those companies.

Both the SEC and PCAOB have begun implementation of the law, with the latter last month adopting a rule in Release No. 2021-004, Rule Governing Board Determinations Under the Holding Foreign Companies Accountable Act. The board is adding new Rule 6100Board Determinations Under the Holding Foreign Companies Accountable Act, which would establish a framework for the board to determine it is unable to inspect a public accounting firm in a foreign jurisdiction due to a position taken by that country’s government. The SEC is now seeking comment on the PCAOB rule. (See SEC Seeks Comments on PCAOB Rule Related to Holding Foreign Companies Accountable Act in the September 29, 2021, edition of ACA.)

In addition to the delisting threat, the HFCA also requires the companies to establish they are not owned or controlled by a foreign government, among other disclosure requirements. The SEC in late March issued interim final rules and request for comment in Release No. 34-91364Holding Foreign Companies Accountable Act Disclosure that address the disclosure portions of the law. (See SEC Starts to Implement Rules to Address Chinese Company Audit Inspections in the March 25, 2021, edition of ACA.)

 

This article originally appeared in the October 01, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.

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