A few days ago, I blogged about the SEC issuing this 71-page concept release to rethink the definition of “foreign private issuer.” This Cooley Alert penned by Brad Goldberg, Beth Sasfai, Reid Hooper and Shari Ness delves into what the regulatory concerns are – and what the potential regulatory responses could be. Here’s an excerpt:
“Regulatory concerns:
Key concerns raised by the SEC in the concept release focus on the lack of home country regulation coupled with reduced US regulation. An increasing percentage of FPIs who follow 20-F reporting requirements have equity securities that trade almost exclusively on a US stock exchange, as opposed to stock exchanges outside the US.
Many of these FPIs – particularly those incorporated in jurisdictions with limited disclosure requirements (e.g., the Cayman Islands, British Virgin Islands, Bermuda and Marshall Islands) – may not be subject to meaningful home country regulation, potentially resulting in less information being available to US investors, which would be important to an investment decision.
In addition, the application of FPI reporting requirements can become circular in some instances and end up requiring less disclosure – for example, there can be situations where an FPI is exempt from both home country reporting requirements and US reporting requirements, as some home country rules exempt issuers with US FPI status. The current regulatory accommodations for FPIs were based, in part, on the expectation that FPIs would be subject to meaningful disclosure and other regulatory requirements in their home country jurisdictions and avoid an unnecessary dual burden.
However, the increasing use of offshore incorporation and the concentration of trading in US capital markets may allow issuers to benefit from FPI accommodations without being subject to robust foreign oversight, potentially creating competitive disparities with issuers subject to the US domestic issuer reporting regime.”
Authored by
Broc Romanek