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Source: Securities and Exchange Commission

Dec. 18, 2020

Harmonizing the Act and the Report of the President’s Working Group on Financial Markets

Over the last several years, my colleagues and I have taken a number of actions to bring greater attention to, and to further address, the various risks associated with investing in emerging markets, including China.[1]  Additionally, as part of the President’s Working Group on Financial Markets, I supported the July 2020 release of the Report on Protecting United States Investors from Significant Risks from Chinese Companies (“PWG Report”).[2]  

In response to the PWG Report, I directed the SEC staff to prepare proposals consistent with the report’s recommendations for consideration by the Commission and to provide assistance and guidance to investors and other market participants as may be necessary or appropriate.  To date, the Divisions of Corporation Finance and Investment Management have each issued staff guidance as part of these efforts.[3]  The staff have been actively working on proposals relating to other recommendations, most notably enhanced exchange listing standards and access to audit work papers by the Public Company Accounting Oversight Board (“PCAOB”).[4] 

In addition to these actions by the SEC and the PWG, Congress has been actively considering legislation to address the PCAOB’s access to audit work papers and other long-standing issues to the benefit of U.S. investors.  This bicameral, bipartisan action culminated in the recent passage of the Holding Foreign Companies Accountable Act (the “Act”), sponsored by Senators John Kennedy and Chris Van Hollen.[5]  Today, President Trump signed into law the Act, which requires significant Commission action to implement. 

Prior to enactment of the Act, SEC staff were finalizing recommendations for proposed rules regarding enhanced listing standards for U.S. securities exchanges and auditor qualifications for the Commission’s consideration.  Because of the substantial overlap between the staff’s proposal and the Act, I have directed the staff to consider providing a single consolidated proposal for the Commission’s consideration on issues related to the PCAOB’s access to audit work papers, exchange listing standards, and trading prohibitions.  I also have asked the staff to consider additional issues relating to the Act’s implementation, including how the Act’s disclosure requirements can be implemented expeditiously and how any actual or perceived uncertainty can be addressed in a manner consistent with congressional intent as well as investor protection and the fair and orderly operation of our markets.

This pragmatic step, which will result in a more efficient use of staff resources, means that the Commission’s consideration of a rule proposal will not occur during my tenure.  While I am disappointed that I will not have an opportunity to consider the staff’s recommendation, I am pleased with the bipartisan, multi-agency approach to addressing these critical investor protection issues and greatly appreciate the work of Congress, the Department of the Treasury, my fellow financial regulators, the PCAOB, and the SEC staff.   


[1] For example, in July 2020, the SEC staff held an Emerging Markets Roundtable (“July Roundtable”).  During the July Roundtable, investors, other market participants, regulators and industry experts discussed issues related to the risks of investing in emerging markets, including China, the world’s largest emerging market and its second largest economy.  In connection with the July Roundtable, the SEC also opened a public comment page to provide members of the public an opportunity to submit their views as well as review the views of others.  See also SEC Chairman Jay Clayton, PCAOB Chairman William D. Duhnke III, SEC Chief Accountant Sagar Teotia, Statement on Third Meeting with Audit Firm Representatives Regarding Audit Quality in Emerging Markets and Recent Developments (Nov. 24, 2019) available at; SEC Chairman Jay Clayton, PCAOB Chairman William D. Duhnke III, SEC Chief Accountant Sagar Teotia, SEC Division of Corporation Finance Director William Hinman and SEC Division of Investment Management Director Dalia Blass, Emerging Market Investments Entail Significant Disclosure, Financial Reporting and Other Risks; Remedies are Limited (Apr. 21, 2020), available at; SEC Chairman Jay Clayton, PCAOB Chairman William D. Duhnke III, SEC Chief Accountant Sagar Teotia and SEC Division of Corporation Finance Director Bill Hinman, Statement on Continued Dialogue with Audit Firm Representatives on Audit Quality in China and Other Emerging Markets; Coronavirus — Reporting Considerations and Potential Relief (Feb. 19, 2020), available at; Press Release, SEC Chairman Clayton, PCAOB Chairman Duhnke, and Members of SEC Staff Meet With Auditing Firm Representatives to Discuss Audit Quality in Emerging Economies and Markets (Nov. 4, 2019), available at; SEC Chairman Jay Clayton, Former SEC Chief Accountant Wes Bricker, and PCAOB Chairman William D. Duhnke III, Statement on the Vital Role of Audit Quality and Regulatory Access to Audit and Other Information Internationally—Discussion of Current Information Access Challenges with Respect to U.S.-listed Companies with Significant Operations in China (Dec. 7, 2018), available at

[2] President’s Working Group on Financial Markets: Report on Protecting United States Investors from

Significant Risks from Chinese Companies (July 24, 2020), available at  The PWG Report includes five recommendations for the SEC that are centered on strengthening protections for investors and promoting the integrity of our capital markets by (1) leveling the playing field for all companies listed on U.S exchanges and (2) improving disclosure regarding, and consideration by fiduciaries and other market professionals of, the risks of investing in emerging markets, including China.

[4] See Regulatory Flexibility Agenda (Fall 2020) [(“The Division of Trading and Markets and the Office of the Chief Accountant are considering jointly recommending (i) amendments to Rule 2-01(a) of Regulation S-X to provide that only U.S. registered public accounting firms will be recognized by the Commission as a qualified auditor of an issuer incorporated or domiciled in non-cooperating jurisdiction (as defined) for purposes of the federal securities laws, and (ii) rule amendments to enhance listing standards of U.S. national securities exchanges to prohibit the initial and continued listing of issuers that fail to timely file with the Commission all required reports and other documents, or file a report or document with a material deficiency, which includes financial statements not prepared by a U.S. registered public accounting firm recognized by the Commission as a qualified auditor.”)].

[5] The U.S. House of Representatives previously advanced similar legislation championed by Reps. Brad Sherman and Anthony Gonzalez.  Additionally, the PWG Report specifically noted that its recommendations were informed by the Act.  I thank Senators Kennedy and Van Hollen, and Reps. Sherman and Gonzalez, for their willingness to engage with me and Commission staff.