On August 6, 2020, the President's Working Group on Financial Markets ("Working Group") released its Report on Protecting United States Investors from Significant Risks from Chinese Companies ("Report"). The Working Group is chaired by the Secretary of the Treasury, and includes the Chairman of the Board of Governors of the Federal Reserve System, the Chairman of the Securities and Exchange Commission and the Chairman of the Commodity Futures Trading Commission. In preparing the Report, the Working Group also consulted the Federal Reserve Bank of New York, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation.

The Report was submitted to the President in compliance with a Presidential memorandum that was issued on June 4, 2020 calling for "firm, orderly action to end the Chinese practice of flouting American transparency requirements without negatively affecting American investors and financial markets" (more details here). The Report recommended:

  • enhancing listing standards of U.S. securities exchanges by requiring, as a condition to initial and continued exchange listing, Public Company Accounting Oversight Board's ("PCAOB") access to work papers of the principal audit firm of the listed company or, if companies are unable to do so due to governmental restrictions, the company may provide a co-audit from an audit firm with comparable resources and experience where the PCAOB determines it has sufficient access to audit work papers and practices to conduct an appropriate inspection of the co-audit firm;
  • enhancing issuer disclosures on the risks of investing in certain jurisdictions (including China) that do not cooperate with U.S. regulators or that do not currently provide the PCAOB with the ability to inspect public accounting firms or sufficient access to conduct inspections and investigations of audits of public companies ("Non-Cooperating Jurisdictions");
  • reviewing the risk disclosures of registered funds that have exposures to issuers in Non-Cooperating Jurisdictions and issuing interpretative guidance to enhance these disclosures;
  • encouraging or requiring registered funds to conduct greater due diligence of indexes and their index providers before selecting any index to implement a particular investment strategy or objective; and
  • issuing guidance to investment advisers on their fiduciary obligations when considering investments in Non-Cooperating Jurisdictions.

See the full text of the Report here and the Treasury Department's press release here.

Originally published 08 August, 2020

Visit us at mayerbrown.com

© Copyright 2020. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.