: SEC’s Gensler cautions deal with Chinese is just a ‘first step’ toward avoiding stock delisting

by | Aug 26, 2022 | Stock Market

U.S. securities regulators reached a deal Friday with their Chinese counterparts to inspect the books of Chinese companies listed on American stock exchanges. The deal could open the door for major Chinese companies like Alibaba Holding Group Ltd.
and JD.com Inc.
to continue to raise capital from U.S. investors, though officials warned that this is only the beginning of a long process of ensuring compliance with new laws that require foreign firms to follow the same accounting regulations as their U.S. peers.

“While important, this framework is merely the first step in the process,” Securities and Exchange Commission Chairman Gary Gensler said Friday of the agreement, which empowers the U.S. Public Company Accounting Oversight Board to travel to China to inspect the records of Chinese auditors. “This agreement will be meaningful only if the PCAOB actually can inspect and investigate completely audit firms in China,” Gensler added, in a statement. “If it cannot, roughly 200 China-based issuers will face prohibitions on trading of the securities in the U.S. if they continue to use those audit firms.” The Holding Foreign Companies Accountable Act, passed unanimously by Congress in 2020 and signed into law by President Trump, prohibits trading an issuer’s stock unless the PCAOB is allowed by foreign jurisdictions to oversee their audits. The law applies to all foreign companies, but is directed at China, the only country at that point which had failed to reach an agreement with U.S. regulators allowing the audit process that was required by the 2002 Sarbanes-Oxley Act, passed into law in the wake of the Enron and WorldCom accounting scandals. After three years of noncompliance, the law requires U.S. exchanges to delist an issuers stock, and Gensler has said previously that the three-year clock began ti …

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