Exclusive-SEC gives Chinese companies new requirements for US IPO disclosures

The U.S. Securities and Exchange Commission has started to issue new disclosure requirements to Chinese companies seeking to list in New York as part of a push to boost investor awareness of the risks involved, according to a document reviewed by Reuters and people familiar with the matter.

Last month, SEC Chair Gary Gensler asked for a"pause" in U.S. initial public offerings of Chinese companies and sought more transparency about these issues. Chinese listings in the United States came to a standstill after the SEC freeze. In the first seven months of 2020, such listings reached a record US$12.8 billion, as Chinese companies capitalized on the soaring U.S. stock market.

The SEC has also asked Chinese companies for a disclosure that"investors may never directly hold equity interests in the Chinese operating company," according to the letter. Many Chinese VIEs are incorporated in tax havens such as the Cayman Islands. Gensler has said there are too many questions about how money flows through these entities.

The SEC has also asked some companies for more details in cases where they do not comply with the U.S. Holding Foreign Companies Accountable Act on accounting disclosures to regulators. China has so far prevented companies from sharing the work of their auditors with the U.S. Public Company Accounting Oversight Board. Last month, the SEC removed the chairman of the board, which has been unsuccessful in its push to ensure independent auditing of U.S.-listed Chinese companies.

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