SEC Review of Foreign Private Issuer Status
The SEC has issued a concept release seeking public comment on whether to revise the definition and eligibility criteria for Foreign Private Issuers benefiting from regulatory accommodations.
Topic Tags
Executive Summary
The Concept Release solicits public comment on several potential reform paths, including tightening existing tests, introducing trading volume requirements, or requiring a listing on a major foreign exchange. These potential changes could substantially increase the difficulty for some non-U.S. companies to obtain or maintain FPI status.
Legal Analysis and Impact
On June 4, 2025, the U.S. Securities and Exchange Commission ("SEC") issued a Concept Release initiating a comprehensive reassessment of the definition of a "Foreign Private Issuer" ("FPI"). This action stems from the SEC's observation of fundamental shifts in the FPI population over recent decades.
Background
The FPI regime was designed to balance investor protection with the goal of attracting foreign companies to U.S. capital markets, based on the core assumption that FPIs are subject to meaningful regulation in their home countries. SEC Chair Paul S. Atkins noted in his June 4, 2025 statement that the world, financial markets, and corporate legal structures have significantly changed over the past forty-plus years. A white paper by the SEC's Division of Economic and Risk Analysis (DERA) found: (1) Concentration of Trading Venue—as of fiscal year 2023, nearly 55% of FPIs have their securities traded almost exclusively (99% or more) in the U.S.; (2) Divergence of Incorporation and Headquarters—the percentage of FPIs with differing jurisdictions of incorporation and headquarters surged from 7% in 2003 to 48% in 2023, with the Cayman Islands the most common jurisdiction of incorporation (33.3%) and mainland China the most common headquarters location (22.6%). The SEC is concerned that when the U.S. is effectively a company's primary or sole trading market and its jurisdiction of incorporation does not provide ongoing disclosure and oversight comparable to U.S. law, it may no longer be appropriate to grant accommodations unavailable to domestic companies.
Potential Regulatory Paths Under Consideration
The Concept Release seeks input on several potential approaches, including: (1) Updating existing eligibility criteria (e.g., lowering the greater-than-50% U.S. resident ownership threshold in the shareholder test or revising the business contacts test); (2) Adding a foreign trading volume requirement (SEC analysis indicates a 1% foreign trading volume requirement could disqualify 55% of current FPIs); (3) Requiring listing on a "major foreign exchange" recognized by the SEC; (4) Requiring an SEC assessment that the FPI's jurisdiction has a "robust regulatory and oversight framework"; (5) Establishing new mutual recognition systems; (6) Requiring the FPI's home country securities authority to be a signatory to the IOSCO MMoU.
Potential Implications
If the SEC tightens the FPI definition, companies losing FPI status would be treated as U.S. domestic issuers and become subject to more stringent compliance requirements, including Form 10-Q, proxy rules, Section 16 reporting, and Regulation FD; the transition from IFRS to U.S. GAAP would also be costly and complex. Some companies may re-evaluate the benefits of a U.S. listing or pursue dual listing on a major foreign exchange. The public comment period will remain open for 90 days following the release's publication in the Federal Register.
Summary of Relevant Regulations and Rules
Regulatory references are integrated in the legal analysis section above.
