SEC Pursues Plan Requiring Chinese Firms to Use Auditors Overseen by U.S: Under proposal, companies would be shut out of U.S. exchanges if they don’t comply

WASHINGTON—Chinese companies with shares traded in America would be required to use auditors overseen by U.S. regulators or face being kicked off exchanges under a plan being drafted by regulators, according to people familiar with the matter.

The proposal, which is likely to be issued for public comment in December, would address the disparate treatment that applies to Chinese companies going public in the U.S. The firms have long been able to sell shares here, yet their auditors violate a key investor protection: China hasn’t allowed their work to be inspected.

Auditor supervision has been overseen by a special watchdog—the Public Company Accounting Oversight Board—since the accounting scandals that took down Enron Corp. nearly 20 years ago. The Securities and Exchange Commission has taken different tacks to try to get China’s cooperation with the PCAOB, from suing its audit firms to get information on fraudulent companies, to negotiating with Chinese regulators and issuing public warnings to U.S. investors about the problem.

Total funds raised by Chinese companies through U.S.initial public offerings Source: S&P Global Market Intelligence Note: 2020 figure is calendar year to date. .billion 2016 ’20 0 2 4 6 8 10 12 $14 Now, the SEC’s proposal would put the onus on the New York Stock Exchange and Nasdaq NDAQ -0.23% Stock Market to require compliance with the audit inspections—or bar a new Chinese company from listing. Those with shares already traded here would have a few years to comply before possibly losing their listing.


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