On Sunday, May 24, 2020, the China Securities Regulatory Commission (CSRC) responds to Washington’s audit proposal, citing the bill could “weaken global investors in U.S. capital markets” and unprofessional “considerations of good regulation over securities markets.”
The U.S. Senate passed the Holding Foreign Companies Accountable Act on Wednesday, May 20, 2020, with unanimous consent. The Act states it “prohibits securities of a company from being listed on any of the U.S. securities exchanges if the company has failed to comply with the Public Company Accounting Oversight Board’s (PCAOB) audits for three years in a row.”
It also requires companies to disclose whether they are owned or controlled by a foreign government.
On its news release, the CSRC accuses the bill of “politicizing securities regulation,” arguing that some contents of the proposal directly target China with a clear representation of unprofessional “considerations of good regulation over securities markets.”
In their defense, Chinese firms prioritize the “audit oversight cooperation between the U.S. and China concerning capital markets.” The CSRC notes that it has facilitated PCAOB’s inspection via a Chinese accounting firm pilot program launched in 2017. The response added that it has provided “specific proposals on conducting joint inspections” through its pilot program since 2019.
PCAOB’s 2018 Inspection Observations; however, notes that as of 2017, China is the only jurisdiction that remains restricted to conduct inspections. In conjunction with the Act’s background, China’s communist government refused to allow the PCAOB to inspect companies listed in China and Hong Kong, which the Senate believes poses a “keen risk” to American investors.
Companies listed on countries where PCAOB can’t audit has a combined market capitalization of more than $1.8 trillion.
“It’s asinine that we’re giving Chinese companies the opportunity to exploit hardworking Americans—people who put their retirement and college savings in our exchanges—because we don’t insist on examining their books,” says Sen. John Kennedy.
The CSRC, however, warns that the proposed Act, if enacted, will harm the interests of both countries and hinder foreign issuers from listing in the U.S.
“It would also undermine global investors’ confidence in the U.S. capital markets and weaken the international standing of the U.S. markets,” says CSRC.