SEC asks 5 US-listed Chinese firms to hand over detailed audit documents, or they will be delisted

The US Securities and Exchange Commission said Thursday that five US-listed Chinese companies will be delisted if they do not hand over detailed audit documents that back their financial statements. 

According to CNBC, SEC has identified fast-food giant Yum China, biotechnology groups BeiGene, Zai Lab and HutchMed, and technology company ACM Research for failing to adhere to the Holding Foreign Companies Accountable Act (HFCAA).

The HFCAA was passed in late 2020 after some US-listed foreign companies repeatedly rejected requests from the Public Company Accounting Oversight Board (PCAOB), which was established in 2002 to oversee the audits status of US-listed foreign companies. 

Under the act, SEC is permitted to ban companies from trading and be delisted from exchanges if the PCAOB is not able to audit requested reports for three consecutive years. 

It’s the first batch of US-listed Chinese firms to be identified as failing to adhere to the HFCAA, and the SEC begins the countdown for compliance for them. These five companies are on the list because they recently filed their annual reports with the SEC, and the list is likely to expand as more companies release their annual returns and provide details about their accounting standards.

Following the SEC’s statement, a sell-off in Chinese equities trading in the US accelerated.

In response, China’s securities regulator said it was in talks with the US audit authority to settle the standoff over foreign access to Chinese firms’ documents. “We believe the two sides can reach an agreement that is consistent with both nations’ laws and regulations… that safeguards global investors,” the agency stated.

According to Financial Times, BeiGene, Zai Lab, and ACM Research said they are working to be compliant with the law and fully expect to maintain their listings. 

Over the last three years, unstopping tensions and uncertainties between the US and China have resulted in a spike of secondary listings in Hong Kong by US-listed Chinese companies. Electric vehicle manufacturer NIO, which went public in the US in 2018, began trading its shares in Hong Kong on Thursday.

Cover image by Maxim Hopman on Unsplash