SEC Officials Focus on Investor Risk in Emerging Markets
Commentary by Steven Lofchie
At an SEC roundtable on the risks of investing in companies with operations in emerging markets, SEC Chair Jay Clayton and Commissioner Elad L. Roisman focused on disclosure, financial reporting standards, compliance and enforcement (see here and here).
Mr. Clayton highlighted ongoing challenges to ensuring the quality of audits in emerging markets, such as China. He noted regulatory and congressional efforts to mitigate risks to investors and "to highlight and address barriers to information that impede access to audit work and practices of PCAOB [Public Company Accounting Oversight Board] -registered auditing firms."
Mr. Roisman solicited feedback on the challenges that extraterritoriality can pose to effective due diligence and enforcement. In particular, he highlighted the importance of protecting investors from misleading financial data.
Commentary
SEC Chair Clayton makes multiple references to China; by contrast, Commissioner Roisman did not single out any country. Whether expressly mentioned or not, China is the elephant in the room. Some broad questions: (i) are U.S. retail investors hurt or benefitted if Chinese issuers cannot go public in the United States; and (ii) what is the cost to U.S. financial firms if the United States limits U.S. investor access to Chinese offerings?