A consultation document released by China’s securities watchdog potentially removes a key hurdle for US regulators to gain full access to the auditing reports of Chinese companies listed in New York – but it does not weaken the oversight of Chinese regulators, say two partners at Merits & Tree Law Offices.
The latest consultation paper by the China Securities Regulatory Commission focuses on a decade-long rule restricting how offshore listed companies can share financial data. A requirement that on-site inspections should be mainly conducted by Chinese regulatory agencies could be lifted and rules on overseas regulatory agencies investigating in China relaxed.
Some lawyers see the move as strengthening cross-border audit co-operation, with Wang Yi, a partner at Merits & Tree Law Offices and head of its corporate compliance department, saying “it does not mean to curtail the involvement of Chinese regulators”.
As the consultation paper mentions enterprises must provide documents containing confidential or sensitive information for auditing, authority approval or filing procedures, Wang says this means domestic regulators will still participate in these procedures.
Wang also points out that some amendments are a continuation of the 2021 crackdown on illegal securities activities and will help build an international alliance to combat cross-border financial violations and crimes.
Chen Wenhao, another partner at Merits & Tree, advises that counsel at companies planning to go public overseas should clarify sensitive data in advance in case a new measure is suddenly launched.
Chen anticipates that issuers will face six scenarios in terms of data compliance: provision of data; public disclosure; data export; data leakage; regulatory inquiries; and enforcement. Companies due to be listed should make appropriate arrangements as soon as possible to avoid violations and other risks that hamper IPO procedures.
Although the revision is regarded as a step forward in dual-audit co-operation, Chen agrees that the Sino-US audit and supervision co-operation agreement requires more scrutiny, “especially [regarding] the limitation of dual-audit investigation, and… any new supervision policy revision for the cross-border practice of overseas accounting firms”.
A total of 40 Chinese companies are currently at risk after the US Securities and Exchange Commission began to delist companies in March, with 11 confirmed to be delisted.