06/11/2025 | News release | Distributed by Public on 06/11/2025 15:02
On June 4, 2025, the US Securities and Exchange Commission (the Commission) issued a 71-page concept release seeking public comment on whether to amend the current eligibility criteria for foreign private issuer (FPI) status under the US securities laws. The Commission cited certain developments within the FPI population that have prompted it to consider whether the current FPI definition continues to reflect the issuers that it intended to benefit from the current accommodations granted to FPIs while continuing to protect investors and promote capital formation.
The concept release marks the first comprehensive review of the FPI regulatory framework since 2008 and signals a potential material shift in the regulatory framework applicable to non-US issuers accessing the US capital markets.
The comment period will be open for 90 days following publication of the comment request in the Federal Register.
Foreign issuers that qualify as an FPI are afforded significant accommodations and exemptions under the reporting, disclosure, corporate governance and other requirements imposed by the US securities laws and US securities exchanges.
Should the Commission revise the FPI definition, a significant number of foreign companies currently qualifying for, and benefiting from, FPI status may no longer qualify as an FPI and would be required to comply with the more stringent, burdensome and costly reporting and disclosure obligations applicable to US domestic issuers. They may also need to implement costly changes to their financial and accounting framework, reporting and systems, including preparing financial statements in accordance with US GAAP.
The current FPI definition is contained in Rule 405 of the Securities Act of 1933 (the Securities Act) and Rule 3b-4 of the Securities Exchange Act of 1934 (the Exchange Act) and includes a two prong "shareholder test" and "business contacts test."
Under the "shareholder test" prong, any foreign issuer (other than a foreign government) that has 50 percent or less of its outstanding voting securities "held of record" directly or indirectly by US residents qualifies as an FPI.
A foreign issuer (other than a foreign government) that fails the "shareholder test" prong may still qualify as an FPI under the "business contacts test" prong if it has none of the following contacts with the United States: (1) a majority of its executive officers or directors are US citizens or residents; (2) more than 50 percent of its assets are located in the United States; or (3) its business is administered principally in the United States.
For an Exchange Act reporting issuer, FPI eligibility is determined annually as of the end of a foreign issuer's second fiscal quarter. A foreign issuer filing an initial registration statement under the Securities Act or the Exchange Act determines its FPI status as of a date within 30 days prior to filing.
FPIs benefit from significant accommodations and exemptions under the reporting, disclosure, corporate governance and other requirements imposed by the US securities laws and US securities exchanges. The concept release notes that the Commission provided these accommodations and exemptions based on its understanding that most FPIs would be subject to meaningful disclosure and other regulatory requirements in their "home country" jurisdictions and that FPIs' securities would be traded in non-US markets.
Some of the most important accommodations from which FPIs benefit compared to US domestic issuers include, but are not limited to, the following:
In its review of FPIs subject to Exchange Act reporting, the Commission cited a significant shift over the last two decades in the jurisdictions where FPIs are incorporated and where they have their headquarters. Specifically, Canada and the United Kingdom were the most common jurisdictions where FPIs were incorporated and had their headquarters in 2003. By 2023, the Cayman Islands became the most common jurisdiction of incorporation for FPIs, and mainland China the most common jurisdiction for the headquarters of FPIs. The Commission also noted a substantial increase in FPIs with different jurisdictions of incorporation from where their headquarters are located, increasing from 7 percent in 2003 to 48 percent in 2023.
In addition, the Commission found that a majority of Exchange Act reporting FPIs now trade primarily or exclusively on US markets rather than in their "home country", raising questions about the appropriateness of existing FPI accommodations for these issuers. As of 2023, approximately 55 percent of Exchange Act reporting FPIs had no or minimal trading on any non-US market and maintained listings only on US securities exchanges.
In light of these trends, in the concept release the Commission outlines and seeks comment on several possible approaches to amending the FPI definition in order to better reflect today's FPI population while continuing to protect US investors and provide them with access to foreign issuers' securities. Specifically, the concept release seeks comment on approaches and ways to modify the FPI definition to ensure that foreign issuers only qualify for FPI status if they are meaningfully subject to "home country" regulatory oversight and therefore merit the accommodations available to FPIs under the Commission's rules and regulations.
The concept release identifies and seeks comment on a number of approaches designed to address these goals, including, but not limited to, the following:
The Commission's review of the FPI definition could lead to significant changes in the regulatory landscape for foreign issuers accessing US capital markets. Should the Commission revise the FPI definition, a significant number of foreign companies currently qualifying for, and benefiting from, FPI status may no longer qualify as an FPI and would be required to comply with the more stringent, burdensome and costly reporting and disclosure obligations applicable to US domestic issuers. They may also need to implement costly changes to their financial and accounting framework, reporting and systems, including preparing financial statements in accordance with US GAAP.
A recent analysis conducted, and cited, by the Commission in the concept release to estimate how many current Exchange Act reporting FPIs would be affected through loss of FPI status if the FPI definition were to incorporate a non-US trading volume component at various minimum threshold levels shows that a significant number of current FPIs would be impacted by such a requirement.
The following table shows the number and percentage of Exchange Act reporting FPIs that would lose FPI status if the definition included a minimum non-US trading volume requirement of 1 percent, 3 percent, 5 percent, 10 percent, 15 percent and 50 percent based on the Commission's analysis:
Minimum non-US trading volume threshold |
Number of Exchange Act reporting FPIs that would lose FPI status |
Percentage of all of Exchange Act reporting FPIs that would lose FPI status |
1% |
519 |
55.04% |
3% |
571 |
60.55% |
5% |
588 |
62.35% |
10% |
607 |
64.37% |
15% |
621 |
65.85% |
50% |
716 |
75.93% |
The Commission acknowledged the potential impact of any changes to the FPI definition in the concept release and accordingly is also seeking public input on how to mitigate disruption through phased implementation, transition periods and possible exemptions. The Commission discusses several approaches in the concept release, including permitting a transition period during which existing FPIs could continue to rely on "home country" generally accepted accounting principles before being required to adopt US GAAP, or providing other accommodations. The concept release also raises the possibility of setting transition periods based on specific issuer characteristics-for example, offering more time or flexibility to issuers from certain jurisdictions. The Commission also is seeking comment on whether any rule changes should apply only to new registrants, effectively grandfathering existing FPIs either indefinitely or for a set period.
While the timing of any rulemaking remains uncertain, we believe that the issuance of this concept release signals the Commission's intention to take a more restrictive approach to regulating non-US issuers with securities trading in the US - particularly those trading exclusively, or almost exclusively, in the US that are from jurisdictions with less stringent disclosure requirements and regulatory oversight than in the US Any resulting rule changes will likely have meaningful implications for such foreign companies listed or seeking to list on a US securities exchange.