On August 6, 2020, the President’s Working Group on Financial Markets (“Working Group”) released its Report on Protecting United States Investors from Significant Risks from Chinese Companies (“Report”). The Working Group is chaired by the Secretary of the Treasury, and includes the Chairman of the Board of Governors of the Federal Reserve System, the Chairman of the Securities and Exchange Commission and the Chairman of the Commodity Futures Trading Commission. In preparing the Report, the Working Group also consulted the Federal Reserve Bank of New York, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.
The Report was submitted to the President in compliance with a Presidential memorandum that was issued on June 4, 2020 calling for “firm, orderly action to end the Chinese practice of flouting American transparency requirements without negatively affecting American investors and financial markets” (more details here). The Report recommended:
- enhancing listing standards of U.S. securities exchanges by requiring, as a condition to initial and continued exchange listing, Public Company Accounting Oversight Board’s (“PCAOB”) access to work papers of the principal audit firm of the listed company or, if companies are unable to do so due to governmental restrictions, the company may provide a co-audit from an audit firm with comparable resources and experience where the PCAOB determines it has sufficient access to audit work papers and practices to conduct an appropriate inspection of the co-audit firm;
- enhancing issuer disclosures on the risks of investing in certain jurisdictions (including China) that do not cooperate with U.S. regulators or that do not currently provide the PCAOB with the ability to inspect public accounting firms or sufficient access to conduct inspections and investigations of audits of public companies (“Non-Cooperating Jurisdictions”);
- reviewing the risk disclosures of registered funds that have exposures to issuers in Non-Cooperating Jurisdictions and issuing interpretative guidance to enhance these disclosures;
- encouraging or requiring registered funds to conduct greater due diligence of indexes and their index providers before selecting any index to implement a particular investment strategy or objective; and
- issuing guidance to investment advisers on their fiduciary obligations when considering investments in Non-Cooperating Jurisdictions.