The President's Working Group on Financial Markets ("PWG") made several recommendations to the SEC addressing the Public Company Accounting Oversight Board's ("PCAOB's") lack of access to auditors of Chinese companies that are listed on a U.S. exchange, or are otherwise registered with the SEC. The PWG report follows a "Memorandum on Protecting United States Investors from Significant Risks from Chinese Companies" issued by President Donald J. Trump (see previous coverage).

The PWG recommended that the SEC:

  • enhance U.S. exchanges' listing standards to require that either (i) a principal audit firm for a listed issuer provides the PCAOB access to its audit work papers for an audit of the listed company or (ii) in the case of a listed issuer that is unable to comply with this requirement due to governmental restrictions on access to audit work papers and practices (a/k/a "Non-Cooperating Jurisdiction," or "NCJ"), the listed issuer also employs a PCAOB-approved co-audit firm that can be inspected by the SEC;
  • widen the scope of required issuer disclosures to include the risks of investing in NCJs;
  • examine risk disclosures provided by registered funds that have exposures to issuers based in NCJs to understand how these risk disclosures can be improved;
  • promote greater due diligence of indices and index providers by registered funds that track indices; and
  • provide guidance to investment advisers on their fiduciary duties regarding potential NCJ investments.

In the report, the PWG acknowledged a number of potential negative consequences of its recommendations, including that Chinese companies could delist or retaliate by buying out U.S. investors at unfavorable prices.

SEC Commissioner Jay Clayton and senior members of the SEC staff issued a statement noting that proposals in accordance with the PWG recommendations are forthcoming. The statement also affirmed the SEC's commitment to aid Congress in making any technical changes necessary for implementing related legislation. Signatories to the statement included the Division of Corporation Finance Director William Hinman, Division of Investment Management Director Dalia Blass, Division of Trading and Markets Director Brett Redfearn, Office of International Affairs Director Raquel Fox, and Chief Accountant Sagar Teotia.


The PWG is sending a message not only to China and Chinese issuers, but also to U.S. financial intermediaries that assist such issuers in any way, whether by providing a trading venue, by participating in distributions, or by advising clients to invest in these issuers. This is not the first time that this cautionary message has been sent to intermediaries. See, e.g., SEC Identifies Investment Risks Concerning Emerging Markets.

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Primary Sources

  1. President's Working Group on Financial Markets Report: Protecting United States Investors from Significant Risks from Chinese Companies
  2. U.S. Department of the Treasury: President's Working Group on Financial Markets Releases Report and Recommendations on Protecting Investors from Significant Risks from Chinese Companies
  3. SEC Statement on SEC Response to the Report of the President's Working Group on Financial Markets

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