On June 4, 2025, the US Securities and Exchange Commission published a concept release to solicit comments on whether and how the definition of “foreign private issuer” (FPI) should be changed. As a result of recent developments within the FPI population, including that FPIs are now frequently incorporated in jurisdictions with limited disclosure requirements and frequently traded solely on the US capital markets without meaningful regulatory oversight outside the United States, the SEC is reassessing FPI eligibility and whether the accommodations provided to FPIs should continue to apply to the companies that currently qualify as FPIs. The public comment period ends on September 8, 2025.
FPI status under the US securities laws allows non-US companies that are SEC-reporting issuers or conducting SEC-registered offerings to benefit from reduced reporting obligations and exemptions from certain regulations and disclosure requirements compared to US domestic issuers, easing their access to the US capital markets. Currently, FPIs are afforded a range of accommodations, including, among others, an ability to prepare their financial statements under internationally recognized or domestic accounting standards as opposed to US generally accepted accounting principles, exemption from US proxy rules, reduced executive compensation disclosure, extended timeframes to prepare annual reports, no requirement to file quarterly reports, and more freedom in terms of selective communications with investors and when current reports are required to be filed with the SEC, although they may still be subject to requirements to disclose material information promptly if required by the NYSE or Nasdaq. While major security holders of FPIs are subject to the beneficial ownership reporting requirements of Section 13 of the US Securities Exchange Act of 1934, as amended (Exchange Act), they and the officers and directors of FPIs are exempt from the stringent insider reporting and strict liability disgorgement rules of Section 16 of the Exchange Act.
The current definition of an FPI was established in 1983 and amended in 1999, while the current regulatory framework around FPIs was last revisited in 2008. It reflects the SEC’s expectation that non-US companies would be subject to meaningful disclosure and other regulatory requirements in their home country jurisdictions, and would therefore be permitted to take advantage of certain regulatory accommodations in the US to reduce the burden arising from duplicative or conflicting domestic and foreign disclosure requirements, accounting standards, and other legal and regulatory requirements.
As defined in Rule 3b-4 under the Exchange Act and Rule 405 under the US Securities Act of 1933, as amended (Securities Act), there are two tests used to determine whether a non-US company qualifies as an FPI: the “shareholder test” and the “business contacts test.” Under the current shareholder test, a non-US company with 50% or less of its outstanding voting securities held of record by US residents qualifies as an FPI. If such issuer has more than 50% of its voting securities held by US residents, it could still qualify as an FPI if it meets the qualifications under the business contacts test. Under this test, a non-US company qualifies as an FPI if none of the following applies to it: (1) a majority of its executive officers or directors are US citizens or residents, (2) more than 50% of its assets are located in the US, and (3) its business is administered principally in the United States.
The SEC staff conducted a broad review of changes in the population of reporting FPIs from 2003 to 2023, which focused on changes with regard to (1) the jurisdiction of incorporation and headquarters of FPIs and (2) the equity trading markets of FPIs.
Over the past 20 years, the concept release noted that the most common jurisdiction of incorporation of FPIs has shifted from Canada and the United Kingdom to the Cayman Islands, and the most common jurisdiction of headquarters for FPIs has shifted from Canada and the United Kingdom to mainland China. The concept release observed that one driver of the increased divergence between FPIs’ jurisdictions of incorporation and jurisdictions of headquarters was the increase in China-based issuers (CBIs) in the FPI population, which were almost exclusively incorporated in either the Cayman Islands or the British Virgin Islands in 2023.
Similarly, the concept release observed that since 2014, the global trading of FPIs’ equity securities has become increasingly concentrated in the US capital markets, whereby a majority of FPIs today have their equity securities traded almost exclusively on the US capital markets. The majority of such FPIs, moreover, are CBIs.
The concept release flagged that CBIs operate primarily in mainland China but are incorporated in other jurisdictions. These CBIs often use variable interest entity (VIE) structures, whereby a non-Chinese holding company enters into contractual arrangements with a China-based operating company to consolidate its financial statements, such that the non-Chinese holding company may trade abroad as a vehicle for the China-based operating company. The concept release noted that such structures pose unique risks to US investors, including limited enforceability of contracts, exposure to government penalties or license revocation, and loss of control if key individuals breach agreements or face legal issues.
The concept release raised concerns that the recent changes in the FPI population may require a reassessment of the FPI definition because an increasing number of FPIs have less onerous reporting requirements in their home countries than those of US domestic issuers, and an increasing number of FPIs are traded solely in the US capital markets and not subject to meaningful regulatory oversight outside the United States. The absence of home country regulation conflicts with the central tenet of the FPI framework, which has historically been to provide accommodations to foreign issuers who are already subject to meaningful regulation in their home countries.
Potential Regulatory Responses
The SEC’s June 4, 2025 concept release sought public input on a number of potential approaches to amending the FPI definition, including:
Update Existing FPI Eligibility Criteria
One potential approach to amending the FPI definition would be to lower the existing 50% US ownership threshold in the shareholder test that is currently used to determine whether a non-US company qualifies as an FPI. This would presumably reduce the number of non-US companies qualifying as FPIs under the shareholder test, but it is unclear whether any such companies would still fail to qualify as FPIs under the three prongs of the “business contacts test.” In this regard, the concept release also requested comment on whether they should tailor an amended FPI definition such that any other changes along the lines of the other potential approaches described below would only apply to FPIs utilizing the business contacts test, calling into question the relative merits of allowing FPI status on those two bases.
Foreign Trading Volume Requirement
Another potential approach would be to incorporate a foreign trading volume test that would require FPIs to have a certain percentage of the trading volume of their securities in at least one trading market outside the United States over the preceding 12-month period. The fact that the concept release spent more pages in the release analyzing this approach and its effects on the FPI population than any other approach may be noteworthy and could reflect a preference toward applying this new test.
The concept release noted that the SEC’s rules and regulations currently apply a similar foreign trading volume test in other contexts—namely, under Rule 12g3-2(b) and Rule 12h-6, which allow American depositary receipts (ADRs) representing securities of an FPI which meets certain criteria to trade on the over-the-counter markets without the FPI needing to register its equity securities with the SEC under Section 12(g) of the Exchange Act, and provide an FPI with securities that are registered under Section 12(g) with more options on how to terminate that registration and the attendant reporting obligations than a domestic issuer, respectively—and that foreign issuers who have a meaningful amount of securities traded on foreign markets may be more likely to be subject to such foreign jurisdiction’s own oversight, disclosure and other regulatory requirements. Foreign issuers that are already subject to their home country disclosure regimes are precisely those issuers that the current FPI framework is intended to benefit.
The concept release further highlighted that the foreign trading volume approach could be utilized in addition to the shareholder and business contacts tests that are currently used to determine FPI status. Based on SEC data, over 55% of FPIs and over 81% of China-headquartered FPIs would fail to qualify as such if the SEC imposed even a 1% foreign trading volume requirement. Although FPIs that are CBIs would be most affected by this new requirement, it is significant that a 1% foreign trading volume requirement would exclude over 60% of FPIs incorporated in Israel and Ireland. The concept release also notes that implementing a 5% foreign trading volume requirement would make it more likely that the foreign trading would be legitimate, rather than orchestrated to allow for continued FPI status, while excluding 62% of current FPI and 89% of China-headquartered FPIs.
Major Foreign Exchange Listing Requirement
A third potential approach would be to add a requirement that FPIs be listed on a major foreign exchange to ensure that FPIs are subject to meaningful regulation and oversight in a foreign market. The concept release noted that, similar to the approach taken in the definition of “designated offshore securities markets” for purposes of Regulation S (which deems offers and sales of securities that occur outside of the United States to not be subject to the SEC’s registration requirements), the SEC could prescribe certain criteria that the listing requirements of a foreign exchange would need to meet in order to be considered a “major” exchange, including corporate governance requirements, reporting and disclosure requirements, enforcement authority, and other factors.
Commission Assessment of Foreign Regulation
A fourth potential approach would be to impose new requirements that FPIs: (1) be incorporated or headquartered in a jurisdiction that the SEC has determined to have a robust regulatory and oversight framework for issuers (including rules requiring annual reports with audited financial statements and interim disclosure of material events, among others), and/or (2) be subject to such securities regulations and oversight without modification or exemption. Under such a requirement, the SEC would designate certain foreign jurisdictions as meeting applicable criteria considered indicative of robust securities regulation and oversight, which the SEC would routinely monitor and update on an ongoing basis to ensure the adequate protection of US investors.
The SEC could make a general determination for all companies from a particular country or tailor its approach based on factors like the company’s size, industry, or where its shares are listed. This would help reduce unnecessary duplicative regulations for some FPIs. However, the concept release concedes that this framework would only be effective if the SEC staff can thoroughly evaluate the relevant foreign country’s rules and enforcement, which may be difficult due to limits in the SEC staff’s knowledge of foreign laws, the openness of the legal systems of particular countries, and the level of cooperation from foreign regulators. Additionally, if a country changes its rules after being assessed, it could require the SEC to revise its decision, which might create instability for companies with FPI status.
Mutual Recognition Systems
A fifth potential approach would be to implement a framework similar to the Multijurisdictional Disclosure System (MJDS), which is currently used for eligible US domestic and Canadian issuers. Under this system, FPIs from selected jurisdictions could meet Securities Act registration and Exchange Act reporting requirements by complying with their own country’s disclosure rules, provided that those rules offer investor protections comparable to those in the United States.
This approach would be based on mutual benefit and reciprocity and would not require foreign regulations to match US rules exactly, but such regulations would need to provide similar levels of transparency and investor protection. A key advantage of this approach is that it allows the SEC to tailor requirements based on the specific regulatory environment of each foreign jurisdiction and to update the framework as needed over time.
However, because not all jurisdictions have the same close regulatory alignment as the United States and Canada, the SEC staff would need to evaluate each jurisdiction individually to determine whether it meets the necessary standards, and such an effort could be time-consuming. In some cases, foreign regulators might also need to make significant changes to their own rules to qualify under the framework.
International Cooperation Arrangement Requirement
The final proposed approach to amending the FPI definition would be to require that an FPI be incorporated or headquartered in a country whose securities regulator has signed the IOSCO Multilateral Memorandum of Understanding (MMoU) or the Enhanced MMoU (EMMoU), which are international agreements designed to promote cooperation among securities regulators, particularly for enforcement purposes.
Although the MMoU and EMMoU are voluntary and do not override domestic laws, they signal that a country’s securities regulator has the legal authority to assist in investigations, such as by sharing bank records, brokerage account information, and ownership data. The EMMoU goes further, enabling regulators to share audit information, compel testimony, freeze assets, and obtain internet-related communications held by financial institutions.
Currently, more than 130 jurisdictions have signed the IOSCO MMoU, and the SEC has bilateral relationships with many of these jurisdictions through its participation in the MMoU and EMMoU. These agreements provide a critical foundation for international enforcement cooperation and are regularly used by the SEC staff in cross-border investigations, including those involving foreign issuers.
One notable shortcoming with such a requirement would be that these agreements focus on enforcement cooperation, not issuer disclosure requirements. Signing the MMoU or EMMoU does not mean a country or jurisdiction has strong financial reporting standards or investor protection rules for its public companies. As such, requiring an FPI to be based in an MMoU or EMMoU signatory country would serve as a helpful complement to other regulatory criteria, rather than a stand-alone measure. More specifically, it would support enforcement efforts but would not substitute for an assessment of the quality of a country’s disclosure or investor protection regime.
Additionally, when the concept release was published Commissioner Hester M. Peirce released a statement that criticized conditioning FPI status on a company's connection to a country that is a signatory to the MMoU or EMMoU. Peirce argued that such a requirement would not meaningfully improve investor protection or access to material disclosures and could cede too much authority to international organizations.
Although the concept release was primarily focused on fine-tuning the definition of FPI and the attendant population of eligible companies, the second question posed for comment in the release itself and the statements of Chairman Atkins and Commissioner Crenshaw in connection with the release also raise the possibility of a reassessment of the accommodations provided to FPIs. The concept release asks for comment on whether US investors are sufficiently protected in light of those accommodations, whether they are receiving sufficient information to make informed investment decisions, and whether FPIs currently voluntarily provide more disclosure and comply with additional regulatory requirements even if not subject to stringent regulatory regimes outside of the United States. While Chairman Atkins’ statement that “maintaining reasonable accommodations” remains an objective and reference to reassessing the definition of which foreign companies should qualify as FPIs and avail themselves of FPI accommodations as a “first step” implies a potential second step of reassessing those accommodations, Commissioner Crenshaw’s statement explicitly contemplates revisiting the list of over 20 FPI accommodations included in the concept release—and notably questions whether FPIs should continue to be exempt from Section 16 of the Exchange Act’s insider trading reporting and liability provisions.
In the short term, the adoption of any of the concept release’s proposed changes to the FPI framework could bring greater regulatory scrutiny and improved oversight of non-US companies accessing the US capital markets. By encouraging higher governance standards and enhancing the transparency of non-US companies traded in the United States, the changes could strengthen investor confidence, particularly where concerns have arisen over limited home-country enforcement or disclosure practices.
Over the long term, these reforms could promote a more stable and trustworthy market environment, attracting high-quality non-US companies that are better aligned with US investor expectations. They could also reinforce the integrity of the US capital markets globally by signaling a commitment to consistent disclosure and regulatory standards, reducing regulatory gaps that some companies may have previously exploited, and leveling the playing field for US domestic issuers that face stricter regulatory requirements.
However, the adoption of changes to the FPI framework could also create greater regulatory uncertainty and increase the cost and complexity of accessing the US capital markets for non-US. companies. The adoption of any changes to the FPI definition may also impact Nasdaq and NYSE listing standards, as both these exchanges currently allow companies with FPI status as defined under Rule 3b-4 to follow home-country corporate governance practices instead of complying with the exchange listing standards for domestic companies.
Companies that currently enjoy the benefits of FPI status may reassess whether a US listing remains attractive under a more stringent framework, which could lead to a reduction in non-US company participation on US stock exchanges and capital flight from the United States, especially among companies from jurisdictions with limited regulatory alignment with the United States, or to eligible companies trading in the United States through American depositary receipts traded on the over-the-counter markets while avoiding the need to provide any information to US investors beyond that required by Rule 12g3-2(b).
Non-US companies that might otherwise consider a US listing could opt to remain private, list on foreign exchanges, or turn to alternative markets perceived as more predictable or less demanding, which could limit US investor access to high-growth international companies and shift deal flow to other financial centers. This trend is already evident with Chinese issuers—many large companies have delisted, new listings in the United States are limited to very small companies, and state-owned enterprises have disappeared entirely from US exchanges, while some of the largest offerings globally occur on the Hong Kong Stock Exchange.
Non-US companies evaluating a US IPO or dual listing may face increased hesitation in the market, particularly if they are incorporated in jurisdictions perceived as higher risk or lacking clear alignment with US regulatory expectations. Possible changes to eligibility standards and increased regulatory scrutiny may complicate the decision-making process for non-US companies evaluating a US listing.
Depending on how any changes to the FPI definitions and requirements are crafted, there may also be implications for non-US companies that are not registered with the SEC but are offering securities outside the United States or to investors in the United States pursuant to exemptions from registration. Under the Regulation S safe harbor, any issuer that is not a “foreign government” or an FPI falls under the category “domestic issuer.” This could potentially be problematic, as the least restrictive Category 1 restrictions under Regulation S are generally only available to a “foreign issuer”.
Furthermore, Rule 12g3-2(a) and Rule 12g3-2(b) under the Exchange Act exempt FPIs from having to register a class of equity securities under Section 12(g) of the Exchange Act if they have fewer than 300 holders resident in the United States or maintain foreign listings in their primary trading market and electronically publish certain specified information in English (among other requirements), respectively. The inability to rely on such exemptions could have important implications for non-US companies who already have or may in the future have 300 or more US beneficial holders of their equity securities (for example pursuant to an IPO in a foreign jurisdiction that includes shares being placed to investors in the United States pursuant to Rule 144A under the Securities Act).
Given the number of moving pieces, it would be difficult to analyze how changing the definition of FPI could affect the availability of such safe harbors and exemptions, but regulators and investors should be aware that any change to the definition of FPI could potentially have important implications even for non-SEC-registered foreign companies, potentially leading to unexpected requirements to register under the Exchange Act and comply with the reporting and other securities law obligations applicable to US-based companies. The concept release appears to recognize at least some of these potential consequences and has requested comment on whether any amendments to the FPI definition should apply only to reporting FPIs, or also to those relying on exemptions under Rule 12g3-2(a) or (b).
While the concept release is aimed at strengthening investor protections and ensuring consistent regulatory oversight, any changes to the FPI definition or accommodations introduce important strategic considerations for non-US companies and US investors. The degree to which these potential changes are adopted and how they are implemented could reshape the landscape of US capital markets and redefine the role of the United States as a global listing destination.
If you are interested in submitting a comment to the SEC in response to the concept release, please reach out to a member of our team.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following: