A 20-year dispute between US and Chinese regulators regarding the auditing of Chinese-domiciled but US-listed securities could soon be resolved.
There was a high risk prior to this breakthrough that over 200 Chinese securities with a market cap of $1.6 trillion would be delisted from US exchanges in early 2024 under the Holding Foreign Companies Accountable Act (HFCAA).
The Public Company Accounting Oversight Board (PCAOB) has recently signed a Statement of Protocol with the China Securities Regulatory Commission (CSRC) and the Ministry of Finance of the People’s Republic of China governing inspections and investigations of audit firms based in China and Hong Kong. This agreement establishes a specific, accountable framework to make possible complete inspections and investigations by the PCAOB of audit firms based in China and Hong Kong, as required under US law. This allows the PCAOB to see all audit documentation without redaction even if Chinese authorities deem it sensitive.
While this new agreement is an important step forward, it should be noted that the agreement itself does not satisfy the HFCAA. Compliance with the agreement is ultimately what matters and US regulators will be monitoring compliance. The news of an agreement has provided some relief to investors and is an important step forward in resolving this dispute after significant uncertainly.
The paper covers:
- The background of the dispute
- The Holding Foreign Companies Accountable Act (HFCAA)
- Agreement between regulators
- Hong Kong listings
- Index impilcations
- What's next?
- What does it mean for investors?
This material has been prepared and issued by First Sentier Investors Realindex Pty Ltd (ABN 24 133 312 017, AFSL 335381) (Realindex), which forms part of First Sentier Investors, a global asset management business. First Sentier Investors is ultimately owned by Mitsubishi UFJ Financial Group, Inc (MUFG), a global financial group.
This material is directed at persons who are ‘wholesale clients’ (as defined under the Corporations Act 2001 (Cth) (Corporations Act)) and has not been prepared for and is not intended for persons who are ‘retail clients’ (as defined under the Corporations Act). This material contains general information only. It is not intended to provide you with financial product advice and does not take into account your objectives, financial situation or needs. Before making an investment decision you should consider, with a financial advisor, whether this information is appropriate in light of your investment needs, objectives and financial situation.
Any opinions expressed in this material are the opinions of the individual author at the time of publication only and are subject to change without notice. Such opinions: (i) are not a recommendation to hold, purchase or sell a particular financial product; (ii) may not include all of the information needed to make an investment decision in relation to such a financial product; and (iii) may substantially differ from other individual authors within First Sentier Investors.
To the extent permitted by law, no liability is accepted by MUFG, Realindex nor their affiliates for any loss or damage as a result of any reliance on this material. This material contains, or is based upon, information that Realindex believes to be accurate and reliable, however neither MUFG, Realindex nor their respective affiliates offer any warranty that it contains no factual errors. No part of this material may be reproduced or transmitted in any form or by any means without the prior written consent of Realindex.
Any performance information is gross performance and does not take into account any ongoing fees. No allowance has been made for taxation. Past performance is not indicative of future performance.
Copyright © First Sentier Investors, 2022
All rights reserved.