U.S. SEC mandates Chinese companies detail ownership structure, audits

By Katanga Johnson

WASHINGTON (Reuters) -Chinese companies that list on U.S. stock exchanges must disclose whether they are owned or controlled by a government entity, and provide evidence of their auditing inspections, the Securities and Exchange Commission (SEC) said on Thursday.

The new rules implement a law passed by Congress in December 2020 that aims to ensure foreign companies listed in the United States, in particular Chinese companies, comply with U.S. rules.

Unlike many countries, China has not allowed the SEC’s accounting body, the Public Company Accounting Oversight Board, to inspect its auditors, which in turn certify the accounts of Chinese companies listed in the United States. Regulators worry that lack of oversight is putting U.S. investors at risk.

At its core, “the finalized rule will allow investors to easily identify registrants whose auditing firms are located in a foreign jurisdiction that the PCAOB cannot completely inspect. Moreover, foreign issuers will be required to disclose the level of foreign government ownership in those entities,” said an SEC official.

(Reporting by Katanga Johnson in Washington; Editing by Cynthia Osterman)