The US Securities and Exchange Commission plans to propose a new rule by the end of the year that would require Chinese shares that do not comply with US audit rules to be delisted.
The rules, which are due by the end of the year, would delist companies that do not comply with US audit rules.
The issue has flared up since August, when China refused to let inspectors from the U.S. Public Company Accounting Oversight Board inspect audit reports of Alibaba, Baidu and other companies that trade on U.S. markets, bloomberg reported.
The problem has been exacerbated by growing tensions between the two countries, and has been made more urgent by an accounting scandal in China’s Luckin Coffee, according to Bloomberg.
With Donald Trump’s administration expected to end its term in January, the SEC’s move is likely to further destabilise the dynamic between the two superpowers.
The move is unusual in that most US agencies suspend major new policy announcements after a presidential election, especially if another party takes office. Separately, Securities and Exchange Commission Chairman Jay Clayton announced Monday that he plans to step down early at the end of the year, making it unlikely that any legislation will be completed in that short time. That task is expected to be left to a new SEC chairman chosen by the president-elect, Joe Biden.
But by pushing for a vote, Mr Clayton will force the committee’s Republican and Democratic members to say publicly whether they support tougher restrictions on Chinese companies, an issue that currently enjoys rare bipartisan support in Congress.
According to the SEC, U.S. investors have a growing exposure to Chinese stocks. By 2019, more than 150 Chinese companies were listed on major EXCHANGES in the United States, with a total market capitalization of $1.2 trillion.
The problems with audit inspections date back to the 2002 Sarbanes-Oxley Act, enacted after the collapses of Enron and WorldCom, and the creation of America’s Public Company Accounting Oversight Board, which regularly inspects companies that review the books of other companies.
According to the Wall Street Journal, the SEC has tried different tactics to get China to cooperate with the PCAOB, from suing its auditors to obtain information on fraudulent companies, to negotiating with Chinese regulators and issuing public warnings to U.S. investors about the issue.
The SEC’s proposal would also make the New York Stock Exchange and the Nasdaq market responsible for requiring companies to comply with audit inspections or ban new Chinese listings, according to reports. Chinese companies already listed in the United States will have several years to reach compliance or risk losing their listing status.
The report also said the SEC is pressing ahead with key elements of the plan before Chairman Clayton steps down at the end of December.