A deadline is fast approaching for U.S. and Chinese regulators to strike a deal that would enable investors to continue to trade stocks of Chinese companies on U.S. exchanges, but Securities and Exchange Commission Chairman Gary Gensler is unsure that an agreement can be struck.
“I don’t know that there’ll be any deal there,” Gensler told reporters at a virtual press conference Wednesday. “If this were easy, it might have been solved years ago.”
The Holding Foreign Companies Accountable Act, passed unanimously by Congress in 2020 and signed into law by President Trump prohibits trading an issuer’s stock unless the Public Company Accounting Oversight Board is allowed by foreign jurisdictions to oversee their audits.
The law applies to all foreign companies, but is directed at China, the only country that has failed to reach an agreement with U.S. regulators allowing the audit process that was required by the 2002 Sarbanes-Oxley Act, passed into law in the wake of the Enron and WorldCom accounting scandals.
After three years of noncompliance, the law requires U.S. exchanges to delist an issuers stock, and Gensler has said previously that the three-year clock began ticking in 2021.
“It’s been 20 years this month since Sarbanes-Oxley passed and 52 other countries have found their way to…allow a mechanism that the auditors of public companies open themselves up to investigations and inspections,” he said. “And over these 20 years, China has had access to our capital markets, but has not fully complied with that.”
The regulator added that if an agreement were to be reached it would simply be “giving teeth” to the law to ensure that the PBAOC has access to all the documents it needs to oversee the auditing of listed Chinese companies.
The remarks follow a May speech by YJ Fischer, head of the SEC’s Office of International Affairs said that an agreement would have to be reached by “early November 2022” in order to avoid major companies like Alibaba Group Holding Ltd.
Yum China Holdings Inc.
and Baidu Inc.
facing a trading prohibition beginning in 2023.