Securities Law

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Ernst & Young

Rani Doyle

Managing Editor, Securities Law
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Securities Regulation

Congress Tightens Holding Foreign Companies Accountable Act

By Thomas W. White, Retired Partner, WilmerHale

The omnibus appropriations act passed by Congress and signed by President Biden at the end of 2022 contains an amendment to the Holding Foreign Companies Accountable Act (HFCAA). The HFCAA, which was enacted in late 2020, threatened to impose U.S. trading prohibitions on the securities of Chinese issuers whose auditors could not be fully inspected or investigated by the Public Company Accounting Oversight Board for three consecutive years as a result of restrictions imposed by Chinese regulatory authorities. The amendment changes section 104(i)(3)(A) of the Sarbanes-Oxley Act to reduce from three to two the number of consecutive non-inspection years that will trigger a trading prohibition of a covered issuer.

This amendment has no immediate effect, in light of the PCAOB’s determinations that in 2022 it was able to conduct inspections and investigations completely of registered public accounting firms headquartered in mainland China and Hong Kong and that the Chinese authorities had not taken a position to restrict PCAOB access or otherwise impair its ability to conduct its planned inspections and investigations. (See prior note on the PCAOB determinations.) However, the shortened time frame for triggering a trading prohibition should maintain pressure on the Chinese regulatory authorities to continue to permit full PCAOB inspections and investigations in 2023 and subsequent years.

Nasdaq Receives Approval for Rule Change Providing More Flexibility for Direct Listings with Capital Raise

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