On August 6, 2020, the President’s Working Group on Financial Markets (PWG) released its “Report on Protecting United States Investors from Significant Risks from Chinese Companies” (Report) pursuant to a directive from President Trump issued on June 4, 2020. The Report is the latest development in the US government’s efforts to level the playing field among issuers listed on US exchanges, an initiative spurred by the US Senate’s May 20, 2020,unanimous passage of S. 945 Holding Foreign Companies Accountable Act (Act).
The Securities and Exchange Commission (SEC), which oversees the Public Company Accounting Oversight Board (PCAOB), mandates that in order to list on US exchanges, companies must provide access to these documents to the PCAOB. Presently, the PWG is tasked with examining certain risks to investors in US financial markets, resulting from the inability of the PCAOB to access the audit work papers of US-listed companies whose operations are based in China (Chinese Companies). As analyzed in our prior publication, “Delisting From Exchanges,” Chinese law currently prohibits Chinese Companies from sharing materials relating to securities business activities overseas.
Both the Report and the Act (together, the Measures) still must go through the required procedures to take effect. The Measures should continue to move forward in the US, but in the interim, certain actions have been proactively taken that could significantly alter the landscape of capital markets, including revisions to exchange listing requirements in mainland China and Hong Kong, going private transactions and secondary listings on alternative exchanges.