Moore & Van Allen (MVA) Head of International Capital Markets John I. Sanders, Co-heads of Securities & Corporate Governance Ryan Hart and Charles Kemp, Corporate Associate Laura Sunday and Financial Services Associate Mia Gu co-authored a new article: "SEC Considers Changes to Foreign Private Issuer Definition."
On June 4, 2025, the SEC issued a concept release seeking public comment on whether the current definition of foreign private issuer ("FPI") should be revised. The release questions whether amendments to the FPI definition are warranted in light of "significant changes" in the jurisdictional makeup of FPIs and a desire to ensure that only appropriately regulated foreign companies continue to benefit from FPI status.
Current FPI Eligibility and Accommodations
Last substantively revised in 2008, the current framework for determining FPI status is based on a foreign issuer, other than a foreign government, satisfying one of two tests—the "shareholder test" or the "business contacts test." Under the "shareholder test," a foreign issuer qualifies as an FPI if 50% or less of its outstanding voting securities are held by U.S. residents. If the issuer cannot satisfy that test, it may still qualify under the "business contacts test" if (i) non-U.S. citizens or residents account for a majority of its executive officers or directors, (ii) less than 50% of its assets are located within the United States, and (iii) its business is principally administered outside of the United States.
FPIs benefit from significant accommodations compared to domestic issuers both during and after a public offering in the U.S. Although they may be listed on a major U.S. exchange, they are exempt from quarterly reporting, beneficial ownership reporting, the SEC's proxy rules and Regulation FD. FPIs also can prepare their financial statements using IFRS, which may provide more flexibility in interpretation than U.S. GAAP.
Regulatory Concerns
The FPI framework was designed to maintain adequate investor protections while alleviating the regulatory burden on FPIs that would result from overlapping or conflicting disclosure obligations across jurisdictions. However, the SEC's analysis of FPI reporting between 2003 and 2023 suggests that the existing framework may no longer protect U.S. investors as initially contemplated.
Significantly, the SEC found that FPIs are now incorporated in jurisdictions with less strict regulatory frameworks and their equity securities trade almost entirely in U.S. markets. In 2003, the U.K. and Canada, which maintain strong regulatory requirements, were the most common jurisdictions for FPIs. Now, Cayman Islands and Chinese companies predominate, which means many FPIs are subject to much weaker regulatory requirements than their U.S. peers. Further, around 55% of FPIs had minimal to no trading activity on non-U.S. markets, undermining the SEC's original assumption that FPIs would primarily trade in well-regulated foreign markets.
Proposed Changes
The SEC is seeking public comments with respect to six potential reforms to address its concerns: (1) tightening the existing FPI eligibility criteria (e.g., by lowering the 50% U.S. shareholder threshold under the "shareholder test" and revising the "business contacts test"); (2) introducing a foreign trading volume threshold to ensure FPIs are integrated into foreign markets and subject to meaningful home country regulations; (3) requiring a listing on a major foreign exchange to guarantee FPIs are regulated in jurisdictions with meaningful regulatory oversight; (4) conducting SEC assessments of home-country regulatory regimes; (5) creating mutual recognition systems similar to those used for Canadian issuers; and (6) conditioning FPI status on participation in international cooperation agreements under the International Organization of Securities Commissions (IOSCO) to deter cross-border financial misconduct.
Next Steps
The SEC will accept comments until September 8, 2025. It will then evaluate the comments and determine whether to proceed with a rulemaking that would alter the FPI definition. Our view is that any rulemaking should not disrupt the meaningful role that U.S. exchanges are playing in facilitating IPOs of companies incorporated in other developed nations with meaningful regulatory oversight, which has been significant and increasing in recent years. As the equity capital markets in other developed nations have struggled to accommodate their domestic companies in recent years, the U.S. has served as an important source of capital for those companies. This has been beneficial to those foreign companies, U.S. investors, and the global economy at large. Any SEC action should recognize this reality.
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