On June 4, 2025, the Securities and Exchange Commission (“SEC”) published a concept release (“Concept Release”) soliciting public comments on the definition of a foreign private issuer (“FPI”). FPIs are subject to disclosure requirements that differ from those applicable to U.S. domestic issuers and have special registration and reporting forms that are only available to FPIs.
In light of changes that have occurred in over forty years since the foundation of the current FPI definition was established, the SEC has indicated a desire to solicit comments on the concept of revisiting the FPI definition, including potentially revising the definition in ways that could significantly decrease the number of companies that would qualify as FPIs. In the open meeting held to approve the Concept Release, the Commissioners noted the need to balance the desire to attract foreign companies to U.S. markets with the need to ensure that U.S. investors have material information to make investment decisions, while domestic filers are not competitively disadvantaged. Chairman Atkins noted that “maintaining reasonable accommodations in the federal securities laws to attract foreign companies to U.S. markets and to provide U.S. investors with the opportunity to trade in those companies under U.S. laws and regulations remains an objective. That objective must be balanced with other considerations, including providing investors with material information about these foreign companies, including their unique corporate structures, and ensuring that domestic companies are not competitively disadvantaged with respect to regulatory requirements.”
Background
An FPI is currently defined as any issuer which is a national of any foreign country or a corporation or other organization incorporated or organized under the laws of any foreign country (other than a foreign government), except for an issuer meeting the following conditions as of the last business day of its most recently completed second fiscal quarter: (1) More than 50% of the issuer's outstanding voting securities are directly or indirectly held of record by residents of the United States (the “Shareholder Test”); and (2) Any of the following: (i) the majority of the executive officers or directors are United States citizens or residents; (ii) more than 50% of the assets of the issuer are located in the United States (“Asset Test”); or (iii) the business of the issuer is administered principally in the United States (the “Business Contacts Test”).
FPIs receive several accommodations as compared to domestic filers. They are not subject to quarterly reporting. FPIs only file an annual report on Form 20-F with disclosure requirements that differ from Form 10-K, and Form 20-F is due four months after fiscal year-end. Instead of filing Current Reports on Form 8-K, FPIs file reports on Form 6-K, which are considered “furnished” and not “filed” for the purposes of incorporation by reference and certain liability provisions of the federal securities laws. FPIs register the offer and sale of securities under the Securities Act of 1933 on different forms, such as Forms F-1, F-3 and F-4, which specify different disclosure requirements than those specified in Forms S-1, S-3 and S-4. FPIs are permitted to present their financial statements using International Financial Reporting Standards, U.S. GAAP or accounting principles issued by the IASB with a reconciliation to U.S. GAAP. FPIs are not required to file proxy statements, are not subject to Regulation FD, and insiders of FPIs do not have to file Section 16 reports. FPIs are also provided with certain accommodations related to corporate governance under exchange listing standards.
The Concept Release
The Concept Release proposes six possible approaches to changing the FPI definition:
- Updating the existing FPI eligibility criteria;
- Adding a foreign trading volume requirement;
- Adding a major foreign exchange listing requirement;
- Incorporating an SEC assessment of foreign regulation applicable to an FPI;
- Establishing new mutual recognition systems; and/or
- Adding an international cooperation arrangement requirement.
Updating Existing Eligibility Criteria
In the Concept Release, the SEC requests comment on lowering the existing 50% threshold under the Shareholder Test or the Asset Test. The Concept Release also questions whether the criteria under the Business Contacts Test should be changed, or whether the Business Contacts Test should be eliminated. The Concept Release generally requests comment on other potential changes or additions to the FPI definition.
Trading Volume Requirement
The SEC requests comment on whether a foreign trading volume test should be added to the FPI definition, based on the reasoning that companies which trade a meaningful amount of securities on a non-U.S. market are more likely to be subject to home country oversight and thus merit accommodations, as compared to issuers that primarily traded in the United States. The SEC estimates that imposing a requirement that 1% of a company’s trading volume be in a foreign market would result in over half of current FPIs losing their FPI status.
Foreign Exchange Listing Requirement
The SEC also asks whether FPIs should be required to be listed on a major foreign exchange in order to qualify as an FPI. The SEC notes that being listed on another major exchange would help to ensure that FPIs are subject to meaningful oversight and would increase incentives to provide material and timely disclosure. The Concept Release suggests that one potential way of determining whether an exchange is a “major foreign exchange” would be for the SEC to maintain a list of foreign exchanges that meet specific criteria, based on total market size, corporate governance or disclosure requirements, enforcement authority or other criteria.
SEC Assessment of Foreign Regulation
The SEC requests comment on requiring an FPI to be incorporated or headquartered in a jurisdiction that the SEC has determined has robust regulatory oversight and is subject to securities regulations and oversight without modification and exemption. This would require the SEC to individually assess foreign regulatory frameworks.
New Mutual Recognition Systems
The Concept Release also suggests developing a system of mutual recognition for issuers from selected foreign jurisdictions. Participating jurisdictions would be expected to meet certain standards in their regulatory approaches, but these standards would not necessarily be the same as SEC requirements for domestic issuers. Mutual recognition systems would be tailored to suit the specific jurisdiction and evolve over time.
International Cooperation Arrangement Requirement
Lastly, an additional suggestion would be a requirement for an FPI to certify it is either incorporated or headquartered in, and subject to the oversight of the signatory authority of, a jurisdiction in which the foreign securities authority has signed the IOSCO Multilateral Memorandum of Understanding Concerning Consultation, Cooperation, and the Exchange of Information (“MMoU”) or the Enhanced MMoU (“EMMoU”). IOSCO screens prospective MMoU applicants and IOSCO members that sign the MMoU express their intent and authority to assist other members in enforcement matters. The EMMoU seeks to build on the MMoU and facilitate the provision of a broader array of assistance among securities authorities in enforcement matters. While the criteria for permitting an authority to sign the MMoU (and EMMoU) primarily relates to an authority’s ability to provide information and other assistance to authorities investigating potential violations of their securities laws and abide by the MMoU’s/EMMoU’s provisions on confidentiality and use of information, the MMoU and EMMoU do not require their signatories to have robust disclosure requirements. Commissioner Peirce, while expressing support for the Concept Release, noted some hesitation with this suggestion and pointed out that it was unclear whether an international cooperation arrangement requirement would ensure U.S. investors have access to material information needed for making informed investment decisions, and that incorporating the MMoU or EMMoU would cause the SEC to give up regulatory authority.
Reasoning of the SEC to Reexamine the FPI Definition
Changes in circumstances since the adoption of the FPI definition. During the open meeting, the Commissioners frequently pointed out the amount of time that has elapsed since the current definition of an FPI was adopted. The Commissioners pointed out that the current FPI accommodations were based on the assumption that FPIs are subject to meaningful disclosure requirements in their home countries, and that FPIs would be cross-listed in their home country. The Concept Release raises concerns as to whether this is still the case. Approximately 55% of FPIs appear to only be listed in the United States. Of the FPIs that are exclusively listed in the United States, China/Hong Kong/SAR and Israel make up more than 50% of the headquarters’ locations of those companies. The Concept Release also notes that FPIs in some instances appear to have more disclosure requirements under their home country jurisdictions, which may reduce the information available to U.S. investors due to home country accommodations under the SEC’s rules. Lastly, the Concept Release indicates that some jurisdictions, such as Israel, provide exemptions to home country disclosure requirements if an issuer is an FPI.
Competitive disadvantage to U.S. companies. One concern echoed by the Commissioners during the open meeting was the ability for FPIs to have a competitive advantage against U.S. companies in the regulatory regime. Commissioner Crenshaw noted that “… we need to have a robust, but level playing field…. We should not unwittingly allow our markets to be part of an international regulatory loophole, at the expense of U.S. investors and U.S. businesses.” With the significant accommodations noted above, the regulatory burden for FPIs is significantly lower and less costly as compared to domestic filers.
Concern for U.S. investors to have all material information. Commissioners also noted the need for U.S. investors to have all material information related to FPIs. Commissioner Uyeda noted there may be less information about FPIs made available to investors than was available in the past and “this trend may increase investment risks for U.S. investors...” This concern is based in part on the statistics showing that a significant number of FPIs are exclusively listed in the United States.
Comment Process
The SEC’s issuance of the Concept Release does not mean that the agency will ultimately propose a new rule to modify the definition of FPI. Concept Releases are used by the SEC to receive public input before issuing a rule proposal and the feedback is taken into consideration as the SEC decides whether to proceed with rulemaking. If the SEC were to move forward with modifying the definition of an FPI, the agency would publish a rule proposal setting forth the proposed modifications to the FPI definition and would solicit comments on those proposed changes. Following that comment period and after taking the comments into account, the SEC would vote on a final rule and publish an adopting release if the final rule is approved.
The public comment period on the Concept Release will remain open until September 8, 2025. Anyone can submit a comment. Comments often include information about how the proposed change would affect the commentator, facts or other information that contradict, clarify or expand on statements in the Concept Release, or provide changes or alternatives to the proposed changes in the Concept Release. The Concept Release also lists specific questions that it is requesting comment on. The SEC staff reads every comment and considers the feedback provided. Comments can impact any future rule proposal.
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