The China Securities Regulatory Commission (CSRC) has enacted a policy change that could keep Chinese cross-listed firms from being delisted from U.S. stock markets.
The CSRC's announcement came late last week. The regulator stated that its policy preventing firms from disclosing necessary accounting documentation to foreign regulators "has not kept up with the changing legal and institutional landscape and the evolving market and regulatory practices."
"The revised provisions specifies [sic] that requests made by overseas regulators to conduct investigations, including collecting evidence for investigation purpose[s], and inspections in the Chinese mainland shall be carried out through cross-border regulatory cooperation mechanisms," a CSRC spokesperson told reporters. "The CSRC and competent authorities of the Chinese government will provide necessary assistance pursuant to bilateral and multilateral cooperation mechanisms."
The CSRC's pivot will allow Chinese firms to comply with American disclosure laws by permitting them to provide the necessary documentation sought by the SEC and the Public Company Accounting Oversight Board (PCAOB), the regulatory entity that reviews said documents. Several changes to the policy allow firms to provide foreign entities with a broader array of documentation, though safeguards remain to protect Chinese state secrets.
This change comes as the Securities Exchange Commission (SEC) has begun to compile a list of companies not compliant with U.S. disclosure laws that were tightened by the Holding Foreign Companies Accountable Act (HFCAA) and could eventually be delisted in the U.S. While the change in Chinese policy could allow the PCAOB access to accounting documentation that is required to satisfy HFCAA disclosure rules, the board itself has noted in a statement that "speculation about a final agreement between the PCAOB and the People's Republic of China (PRC) authorities on PCAOB access to audit firms headquartered in China and Hong Kong is premature."
The decision is solid a starting point for further discussions between the U.S. and China and seemingly signals that Beijing is willing to compromise on the issue. The CSRC has noted that its consultations with their American counterparts have been going "well," possibly indicating that U.S. officials are at least receptive to Chinese proposals.