On December 18, 2020, President Trump signed the Holding Foreign Companies Accountable Act (HFCAA) into law. Later that day, US Securities and Exchange Commission (SEC) Chairman Jay Clayton published a statement providing an update on a planned SEC rulemaking in light of the enactment of the HFCAA. Noting the significant overlap between the HFCAA and the planned SEC rulemaking, Chairman Clayton has directed the staff to revise the near-final rule proposal to incorporate the congressional mandate.
The passage of the HFCAA, which mandates that the SEC adopt rules applicable to reporting companies that use an auditor located in a jurisdiction where authorities restrict the Public Company Accounting Oversight Board’s (PCAOB) ability to inspect or investigate the audit firm. Specifically, the SEC would have to promulgate rules requiring disclosure about ties to foreign governmental entities, including the Chinese Communist Party. In addition, the SEC would have to prohibit trading of a company’s securities if the SEC determines that the company has had three “non-inspection years” related to its audit.
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