Yesterday, November 23, 2020, the Staff of the Securities and Exchange Commission Division of Corporation Finance issued CF Disclosure Guidance Topic No. 10.  The guidance addresses disclosure considerations for companies that are based in or that have a majority of their operations in China.  This guidance follows various public statements from SEC officials, as well as a roundtable on the  risks associated with investments in emerging markets, an  executive order, and the  recommendations of the President's Working Group on Financial Markets.

The statement emphasizes the importance of high quality, reliable disclosure, including financial statement disclosure, while noting the limitations of promoting and enforcing high quality disclosure standards for PRC-based issuers.  The guidance identifies various risks that should be considered and disclosed, including, but not limited to the following:

  • Risks related to U.S. regulators' access to information and limited ability for regulatory oversight;
  • Risks related to the company's organizational structure, through the use of variable interest entities (VIEs) and other contractual arrangements that are intended to mimic the benefits of direct ownership;
  • Risks related to the regulatory environment in China;
  • Differences in shareholder rights and recourse, governance, and reporting associated with China-based issuers;
  • Limitations on shareholder rights and recourse;
  • Differences in corporate law and corporate governance; and
  • Reporting differences for China-based issuers that qualify as foreign private issuers.

The Staff Guidance notes that China-based issuers consider disclosing these and other material risks, and poses a number of questions that registrants should consider in preparing and reviewing the sufficiency of their disclosures.  See the full CF Disclosure Guidance Topic here.

A client alert will follow.

Visit us at

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.

© 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.