On December 2nd, the SEC adopted amendments to finalize provisional final rules to carry out congressionally mandated submission and disclosure conditions that were introduced in Sections 2 and 3 of the Holding Foreign Companies Accountable Act of December 2020 (HFCA Act). The interim final amendments apply 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) is unable to inspect or investigate entirely because of a position taken by an authority in that jurisdiction. The final changes implement new submission and disclosure requirements to increase transparency and investor access to pertinent information concerning these registrants.
The SEC will identify registrants to which the changes apply (or “Commission-Identified Issuers”) for fiscal years beginning after December 18, 2020. Commission-Identified Issuers will be required to comply with the new requirements in the annual report for each year that it was identified. A registrant identified as a Commission-Identified Issuer based on its annual report for the fiscal year ended December 31, 2021 will be required to comply with the submission or disclosure requirements in its annual report filing covering the fiscal year ended December 31, 2022. Additionally, the SEC has established procedures to identify issuers and prohibit the trading of the securities of certain registrants as required by the HFCA Act.
In addition, Section 3 of the HFCA Act asserts that, under Exchange Act Rule 3b-4, foreign Commission-Identified Issuers must also comply with 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 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
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
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
Finally, a new paragraph has been appended to Rule 405 of Regulation S-T to clarify that registrants are required to use the three new data elements added to the December 2021 Document Entity and Information (2021 DEI) taxonomy update. The new elements apply to annual report filings on Forms 10-K, 20-F and 40-F that are submitted with XBRL presentations. The paragraph will be included in Regulation S-T until the 2021 DEI taxonomy is removed from EDGAR in 2023.
The final rules go into effect on January 10, 2022, with the exception of the addition of §232.405(c)(1)(iii)(C), which is effective from January 10, 2022 until July 1, 2023.
The adopting release is published on sec.gov and in the Federal Register.