SEC Reconsidering Foreign Private Issuer Eligibility

The Securities and Exchange Commission (SEC) has issued a concept release seeking public comment on the definition of “foreign private issuer” (FPI), marking its first comprehensive review of the regulatory framework since 2007. The concept release, published on June 4, 2025, comes amid significant changes in the composition and trading patterns of foreign issuers accessing U.S. capital markets.

Regulatory Accommodations Under Scrutiny

Foreign companies that qualify as FPIs currently benefit from various regulatory accommodations not available to U.S. issuers. These include filing annual reports four months after fiscal year-end (instead of 60-90 days for domestic issuers), exemption from quarterly reporting requirements, flexibility in financial statement presentation, and exemption from proxy requirements and insider trading reporting obligations under Section 16 of the Securities Exchange Act of 1934, as amended (the Exchange Act). In addition, Nasdaq and NYSE each give accommodations to FPIs, allowing them to comply with home country rules for corporate governance and exemptions from shareholder approval requirements for certain share issuances.

Dramatic Shift in FPI Composition

According to concept release, the SEC staff’s analysis has revealed dramatic changes in the FPI population since 2003 (the first year for which Forms 20-F are consistently available on EDGAR for all 20-F FPIs). At that time, the most prominent jurisdiction for FPIs was Canada, which Commissioner Caroline A. Crenshaw notes has been recognized by the SEC to have a “robust regulatory regime.” According to the concept release, the Cayman Islands is now the most common jurisdiction of incorporation among FPIs filing annual reports on Form 20-F, with 33.3% of such issuers incorporated there. Meanwhile, mainland China has become the most common headquarters location, representing 22.6% of these companies.

Trading Patterns Raise Concerns

Perhaps most concerning to regulators is the finding that 55% of FPIs filing on Form 20-F now have their equity securities traded almost exclusively in U.S. capital markets, with less than 1% of their global trading volume occurring outside the United States. This contradicts a foundational assumption of the FPI framework: that these companies would be subject to meaningful regulatory oversight in their home markets.

“When the United States is effectively a foreign company’s exclusive or primary trading market and the company is not subject to meaningful disclosure requirements or securities law oversight in its jurisdiction of incorporation or headquarters, careful consideration should be given to whether the foreign company is eligible for accommodations under the federal securities laws that are unavailable to U.S. companies,” SEC Chairman Paul S. Atkins stated.

Potential Regulatory Responses

The concept release outlines several potential approaches to address these concerns:

1. Updating Existing FPI Eligibility Criteria: Modifying the current shareholder and business contacts tests, potentially by lowering the 50% U.S. ownership threshold.
2. Foreign Trading Volume Requirement: Adding a requirement that a certain percentage of an FPI’s trading volume occur outside the U.S., which may mean that such issuers could be more likely to be subject to home country oversight, disclosure and other regulatory requirements.
3. Major Foreign Exchange Listing Requirement: Requiring FPIs to maintain a listing on a qualified major foreign exchange, which could help ensure that FPIs are subject to meaningful regulation and oversight in a foreign market.
4. SEC Assessment of Foreign Regulation: Limiting FPI status to issuers from jurisdictions with robust regulatory frameworks and which are not exempt from their jurisdictions’ regulatory oversight.
5. Mutual Recognition Systems: Developing systems of mutual recognition with respect to Securities Act of 1933 registration and Exchange Act periodic reporting requirements (such as the MJDS system for Canadian issuers).
6. International Cooperation Arrangement Requirement: Requiring FPIs to certify they are either incorporated or headquartered in a jurisdiction whose securities authority has signed the International Organization of Securities Commissions Multilateral Memorandum of Understanding (MMoU) or Enhanced MMoU. These arrangements facilitate information-sharing and assistance among securities regulators in enforcement matters, potentially enhancing the SEC’s ability to protect U.S. investors in cases involving FPIs.

Competitive Concerns

The SEC also expressed concern about potential competitive disadvantages for U.S. companies that must comply with more stringent disclosure requirements. “One central issue that underpins today’s concept release is whether, and to what extent, the substance and frequency of disclosure by foreign issuers should differ from U.S. issuers when raising capital in the United States,” said Commissioner Mark T. Uyeda. “How do we promote capital formation for companies and investment opportunities for investors, while minimizing the likelihood that foreign competitors might leverage regulatory vacuums to obtain a competitive advantage over their U.S. peers?”

Commissioner Crenshaw was even more direct, suggesting that the data “appear to paint a picture of regulatory forum shopping. Companies seem to be setting up headquarters in one country (perhaps based on the location of the founders, cheap labor, resources, extradition laws or other reasons); then seeking incorporation in a separate country, which may provide diminished oversight, disclosure or reporting requirements; and then, finally, coming to the U.S. to satiate their capital needs.” While we have not seen widespread evidence of FPIs engaging in such behavior in practice, Commissioner Crenshaw’s strong statement suggests that the SEC is taking these concerns seriously and that its review may lead to meaningful reforms of the FPI framework.

Next Steps

The SEC is soliciting public comments on the concept release for 90 days. The review could have significant implications for foreign issuers accessing U.S. markets, domestic competitors, and investors pursuing international diversification opportunities.