On June 4, 2025, the US Securities and Exchange Commission (SEC) issued a “Concept Release” that will be of significant interest to our “foreign private issuer” (“FPI”) clients, their shareholders, and our investment banking clients who advise them.
The Concept Release
In the Concept Release, the SEC is soliciting comments on the definition of “foreign private issuer” (FPI) under the US Securities Act of 1933 (the "Securities Act") and the US Securities Exchange Act of 1934 (the “Exchange Act”). This is the first time the SEC has visited the FPI regulatory framework in a significant way since September 2008. The Concept Release is a pre-cursor to anticipated SEC rulemaking on the FPI definition, and the concepts on which the release solicit comments could herald the most significant modifications in recent memory regarding how the US securities laws will apply to registration of US public offerings and reporting to the US public markets by most non‑US companies.
A full text of the Concept Release may be found here.
Foreign issuers that qualify for FPI status under the US securities laws have for many years benefitted from significant accommodations that provide full or partial relief from the registration, reporting and governance requirements that apply to US domestic issuers. Many of our clients will be familiar with these accommodations, which include lengthening the time that FPIs have to file their annual reports, the ability to report in International Financial Reporting Standards as issued by the International Accounting Standards Board rather than in US GAAP, the ability to follow home-country governance practices, exemptions from the US proxy requirements and the obligations under Section 16 of the Exchange Act, the ability to furnish current reports based on “home country” disclosures rather than file or furnish current and periodic reports under the Exchange Act, including the quarterly reports that are required of US domestic issuers, and an exemption from compliance with Regulation Fair Disclosure (FD), which addresses the selective disclosure of material non-public information. These accommodations have for years reflected an understanding that, while legal and regulatory requirements differ across non‑US, home country jurisdictions, most FPIs registering their securities in the United States would be subject to meaningful disclosure and regulatory requirements in their home country jurisdictions.
However, based on the SEC’s broad review, the universe of FPIs with reporting obligations under the Exchange Act has undergone significant changes from 2003 to 2023. It is these changes that have prompted the SEC to solicit comments on the potential regulatory responses and additional questions set forth in the Concept Release, as the current composition of FPIs may not represent the intended beneficiaries of the SEC’s FPI accommodations.
Most significant among these are:
- a dramatic shift since 2003 in the home country jurisdictions of FPIs and an accompanying shift in the substance of the disclosure requirements of the home country, including a shift to some jurisdictions that rely on the FPI regulatory framework in the United States to be the primary set of regulations governing their issuers; and
- a significant increase in the number of FPIs (“US Exclusive FPIs”) that have their equity securities almost exclusively traded in the US capital markets (comprising 55% of FPIs reporting under the Exchange Act as of 2023), resulting in a lesser likelihood that such issuers would be subject to relevant regulatory and disclosure requirements in their home countries.
The SEC’s FPI population overview is comprehensive, focusing both on FPI jurisdiction and headquarters as well as FPI reliance on the US capital markets. We would encourage interested clients to review the tables and figures set forth in the Concept Release for more information. The most significant trends are an increased divergence between the jurisdiction of organisation of the FPI and the jurisdiction of its headquarters, with the most common jurisdiction of organisation in 2023 being the Cayman Islands and the most common jurisdiction of headquarters being mainland China (although the overview also notes the small percentage that the market capitalisation of such FPIs represents of the global total FPI market capitalisation). This contrasts with 2003, when the most common jurisdictions for both incorporation and headquarters were Canada and the United Kingdom. The SEC also notes that US Exclusive FPIs tend to have different home country jurisdictions than other FPIs reporting under the Exchange Act, with a higher propensity of being incorporated in the Cayman Islands and headquartered in China.
The SEC has requested feedback on the following potential approaches to revise the FPI definition1 (including whether a combination of them may be appropriate), as well as a general request for comment about the current FPI definition and accommodations.
- Updating FPI eligibility criteria. The Concept Release asks whether eligibility criteria should be amended by changing the existing two prong test and either reducing the 50% threshold of US beneficial holders in the shareholder test or modifying the list of criteria under the business contacts test. It also asks whether or not the current FPI definition is appropriate to identify foreign issuers that are subject to home country regulation that merits accommodation under Federal securities law.
- Introducing a foreign trading volume requirement. The Concept Release asks for comment on whether to add a trading volume requirement to the FPI definition, noting that issuers with a meaningful amount of trading of their securities on a non-US market could be more likely to be subject to meaningful home country regulation and oversight. In particular, the Concept Release highlights the SEC’s experience with the “primary trading market” requirement for accommodations under Rule 12g3-2(b).
- Introducing a major foreign exchange listing requirement. The Concept Release seeks comment as to whether to introduce a requirement that an FPI be listed on a “major foreign exchange” as a way of ensuring that the FPI is subject to meaningful home country regulation. It seeks comment on several factors that would go into whether a foreign exchange is “major” and notes several factors that may be burdensome to implement. In this context, the SEC highlighted its experience with “designated offshore securities markets” under Regulation S.
- SEC Assessment of Foreign Regulation. The Concept Release asks whether each FPI should be incorporated in a jurisdiction that the SEC determines has a sufficiently robust regulatory and oversight framework. It notes the need for a high level of cooperation and commitment of resources between foreign country regulators and the SEC in order to implement this revision, as well as whether objective tests may need to be established to implement the requirement.
- Mutual recognition systems. The Concept Release requests comments on whether to establish, and if so, what jurisdictions should be considered, a system of mutual recognition with respect to Securities Act registration and Exchange Act reporting, similar to the MJDS system applicable to Canadian issuers. It also notes the disadvantage that would be associated with this approach in the form of the time it would take to assess jurisdictions on a case-by-case basis.
- International cooperation agreement requirement. The Concept Release seeks comment on a potential requirement for FPIs to certify that they are organised or headquartered in a member jurisdiction of the International Organisation of Securities Commissions (IOSCO) that is a party to agreements on information sharing.
Our Take
As our clients will be aware, the enactment of any, or a combination of the revisions noted above could have a significant impact on foreign private issuers seeking to access the US capital markets, especially those that are seeking to register their securities in the United States and list them only on a US stock exchange or where home country disclosure and reporting standards may not be as robust compared to the United States. Yet the SEC and several of its Commissioners in supplemental speeches have indicated that they may take a practical and reasoned approach to any revisions and recognise the balance that the SEC has historically sought to strike between the information needs for investors, with the public interest served by opportunities to invest in a variety of securities including those of foreign issuers.
Among other factors that we believe are worthy of consideration by the SEC are the competitive impact of any changes to the FPI definition of registrations and listings in the United States, whether any FPIs that register in the United States do so because they operate in some of the most innovative sectors of the global economy, whether there have been regulatory or market failures resulting from differences in FPI and US domestic issuer disclosure requirements that might justify rolling back the accommodations for FPIs, the extent to which US Exclusive FPIs have nevertheless voluntarily implemented US style disclosure practices in the absence of home country requirements for market or other reasons, and the extent to which there is evidence that US domestic issuers are disadvantaged by the accommodations provided to FPIs.
Please reach out to any of the Herbert Smith Freehills Kramer team listed below if you would like to discuss any of what is above or other aspects of the Concept Release.
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A “foreign private issuer” is currently defined as any foreign issuer (other than a foreign government), except any issuer:
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with more than 50% of its outstanding voting securities held directly or indirectly by U.S. residents; and
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for which any of the following applies:
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the majority of its executive officers or directors are United States citizens or residents;
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more than 50% of its assets are located in the United States; or
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its business is administered principally in the United States.
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