US: SEC Now Asking Chinese Firms For Variable Interest Entity Disclosures, Report Says.

As published on pymnts.com, Monday 23 August, 2021.

The U.S. Securities and Exchange Commission (SEC) has passed down new disclosure requirements for Chinese companies looking to list in New York, Reuters reported.

The intention is to make investors more aware of the risks involved, according to the report. Some Chinese companies are now receiving more detailed SEC instructions about how to disclose their offshore vehicles called variable interest entities (VIEs) for their initial public offerings (IPOs), along with the implications for investors and the risk that Chinese authorities might interfere with the operations.

SEC Chairman Gary Gensler has asked for a pause on Chinese companies listing in the U.S., citing the need for more transparency, the report stated. Chinese listings have come to a halt after the SEC’s freeze.

A letter from the SEC requested information on “how this type of corporate structure may affect investors and the value of their investment, including how and why the contractual arrangements may be less effective than direct ownership, and that the company may incur substantial costs to enforce the terms of the arrangements,” per the report.

In addition, the SEC asked in the letter that Chinese companies issue a disclosure that “investors may never directly hold equity interests in the Chinese operating company,” according to the report, citing concerns over how money flows through offshore tax havens like the Cayman Islands.

The SEC’s new requirements represent U.S. regulators’ most recent move against corporate China, an entity that has for years frustrated Wall Street by refusing to submit to U.S. auditing standards and improve how the companies held closely by founders are governed, the report stated.

In other China-related news, cryptocurrency miners have been leaving the country in droves due to China’s crackdown on Bitcoin mining and trading behavior.