On March 24, 2021, the SEC approved provisional final amendments to carry out congressionally mandated submission and disclosure conditions introduced in the Holding Foreign Companies Accountable Act of December 2020 (HFCA Act). The provisional final amendments pertain to registrants that: 1) the SEC identifies as having filed an annual report on Forms 10-K, 20-F, 40-F or N-CSR with an audit report issued by a registered public accounting firm that is in a foreign jurisdiction; and 2) the Public Company Accounting Oversight Board (PCAOB) has determined it is unable to inspect or investigate entirely because of a position taken by an authority in that jurisdiction.
The SEC is required to implement a system for identifying these registrants, which are referred to as “Commission-Identified Issuers”. These registrants must be identified before they are required to comply with the interim final amendments. Under the HFCA Act, once a registrant is identified, the registrant must comply with the amendments in its annual report for each fiscal year it is identified. Also, Section 2 of the HFCA Act directs the SEC to forbid trading of the registrant’s securities if the registrant is determined to be a Commission-Identified Issuer for three consecutive years.
Section 3 of the HFCA Act states that under Exchange Act Rule 3b-4, foreign Commission-Identified Issuers are also subject to the following disclosure requirements:
reporting the percentage of the shares of the issuer owned by governmental entities in the foreign jurisdiction wherein the issuer is incorporated or otherwise organized
indicating the name of each Chinese Communist Party officer who is a member of the board of directors of the issuer or the operating entity concerning the issuer
indicating whether governmental entities in the applicable foreign jurisdiction with respect to that registered public accounting firm have a controlling financial interest with respect to the issuer
stating whether, during the period covered by the form, the registered public accounting firm mentioned above has prepared an audit report for the issuer
stating whether the articles of incorporation of the issuer (or equivalent organizing document) contains any charter of the Chinese Communist Party, including the text of any such charter
With the aim of advancing and streamlining the identification process, the SEC is encouraging interested parties to submit feedback related to the matters of submission and disclosure requirements and appropriate methods for determining Commission-Identified Issuers. The interim final amendments become effective 30 days following publication in the Federal Register, and comments on the amendments are due by the same date. The HFCA Act requires the SEC to issue rules within 90 days of the date of its passage to establish the approach registrants should take to comply with the documentation submission requirement. In compliance with this 90-day deadline, the SEC is issuing these interim final amendments. The SEC staff is currently evaluating methods to implement additional requirements, including the identification process and the trading prohibition requirements of the HFCA Act that are not subject to the 90-day deadline.
Comments may be submitted electronically via the SEC’s internet submission form or mailed to Vanessa A. Countryman, Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549-1090. Submissions should refer to File No. S7-03-21. Information that is submitted will become part of the public record and posted on the SEC’s website at sec.gov.