Market Trends 2022/23: Disclosure on the Holding Foreign Companies Accountable Act

This practice note discusses the Holding Foreign Companies Accountable Act (the HFCAA), which affects the securities of certain foreign companies listed on U.S. markets and requires them to submit documentation and disclosures to the SEC and the PCAOB. The HFCAA aims to address the regulatory challenge posed by Chinese law that prevents the PCAOB from inspecting or investigating audit firms in China and Hong Kong, where many U.S.- listed companies are based or operate. The HFCAA imposes additional disclosure requirements for covered issuers, such as their ownership and control by foreign governments, and provides an enforcement mechanism for the SEC to prohibit the trading of their securities if their auditors are not inspected by the PCAOB for two or three consecutive years. The SEC and the PCAOB have issued rules and reports to implement the HFCAA and have identified more than 150 companies as covered issuers. The practice note also provides sample HFCAA-related disclosures included in public filings and concludes with recommendations on how to enhance these disclosures.