What’s new: China’s top securities regulator may provide auditing firms with clear guidance that could help break a long-standing stalemate with U.S. watchdogs over access to the audit work papers of U.S.-listed Chinese firms.
The China Securities Regulatory Commission (CSRC) is mulling the issuance of a clear legal interpretation of the Securities Law that would tell auditing firms the conditions they need to meet prior to handing over such papers to the Public Company Accounting Oversight Board (PCAOB), the U.S. organization that oversees the audits of public companies, a source close to the CSRC said.
The revised Securities Law, which came into effect in March 2020, stipulates that no entity or individual in China may provide documents and information related to securities activities to overseas regulators without the approval of the government.
The background: The urgency of resolving this long-standing dispute increased after the U.S. Securities and Exchange Commission (SEC) on March 8 named five Chinese companies that could be delisted for failing to meet audit requirements, triggering one of the steepest sell-offs of U.S.-listed Chinese stocks since the global financial crisis.
Talks over audit regulation cooperation are in progress, according to both sides. The PCAOB confirmed last week that it had been meeting with Chinese authorities, while a meeting of China’s top financial policy committee in the same week said regulators in both countries have made positive progress on the issue and are working on a detailed plan to cooperate.
The CSRC last week also reiterated that it would push ahead in its communication with U.S. regulatory agencies and strive to reach an agreement on their cooperation “as soon as possible.”
The five firms named by the SEC have at least two years before they are delisted. In May, 248 Chinese companies were listed on U.S. exchanges, with a total market capitalization of $2.1 trillion, according to the U.S.-China Economic and Security Review Commission.
Contact reporter Kelsey Cheng (kelseycheng@caixin.com) and editor Joshua Dummer (joshuadummer@caixin.com)
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