On March 24, 2021, the SEC adopted interim final amendments to the following forms:
Under the Securities Exchange Act of 1934 (Exchange Act)
Form 20-F § 249.220f
Form 40-F § 249.240f
Form 10-K § 249.310
Under the Exchange Act and Investment Company Act of 1940 (Investment Company Act)
Form N-CSR §§ 249.331 and 274.
This is a step towards implementing the HFCA (Holding Foreign Companies Accountable) Act, passed by Congress on December 18, 2020. Among other things, Section 2 of the HFCA Act amended Section 104 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), requiring the Commission to identify every “covered issuer” that:
Files annual report on Forms 10-K, 20-F, 40-F or N-CSR
Files an audit report issued by a public accounting firm having a branch or office located in a foreign jurisdiction and
Has not allowed the Public Company Accounting Oversight Board (PCAOB) to thoroughly inspect its accounts because of a position taken by an authority in the foreign jurisdiction
The Commission will identify registrants required to comply with the rule through a process and is seeking public comments on this identification process. “Commission-Identified Issuers,” as defined in Exchange Act Rule 3b-4, will be subject to specified disclosure requirements under Section 3 of the HFCA:
That the issuer is not owned or controlled by a governmental entity in that foreign jurisdiction
Any annual report with governmental influence on its audit arrangements.
The audit report is prepared by the public accounting firm with a branch/office in a foreign land.
The percentage of the shares owned by a foreign government in which the issuer is incorporated or otherwise organized.
The name of each official of the Chinese Communist Party who is a member of the board of directors of the issuer or the operating entity with respect to the issuer and
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.
Once identified, a registrant will be required to comply with the amendments every fiscal year, and if the identification holds for three consecutive years, the SEC will prohibit the registrant’s securities trading. The Commission will address the trading prohibitions separately in the future as it is not subject to the 90-day deadline.
The interim final rule is effective on May 5, 2021. The general public can submit comments through any of the following methods: