Statement Announcing SEC Staff Roundtable on Emerging Markets
May 4, 2020
Over the past decade, U.S. investors, and the U.S. capital markets more generally, have increased exposure to companies with significant operations in emerging markets, including China—the largest emerging market and the world’s second largest economy. Investments in emerging markets, including China, entail significant disclosure, financial reporting and other risks for U.S. investors. Significantly, while the U.S. securities laws and regulations applicable to emerging market companies listed on U.S. exchanges are the same as (or comparable to) the laws and regulations applicable to U.S. public companies, the practical effects are substantially different, based on the inability of U.S. regulators to inspect for compliance and enforce these rules and regulations. This is a fundamental issue in emerging market investing that I believe investors, particularly our Main Street investors, should better understand.
In order to bring greater attention to these risks, SEC staff and I, along with the Chairman of the Public Company Accounting Oversight Board (PCAOB), have issued several joint statements outlining these risks for investors and other market participants. Recognizing the difficulties we face with inspection and enforcement, we have also engaged with U.S. auditing firms including certain of their global network representatives regarding the significance of their work and the importance of their diligence efforts with respect to their work in China.
Still, significant barriers to effective inspections and regulatory oversight continue to exist in many emerging markets, including China. In light of these substantial concerns, the SEC staff will host a roundtable this summer to hear the views of investors, other market participants, regulators, and industry experts on how we can continue to raise investor awareness of these risks and explore potential additional steps that can be taken to mitigate them.
Among the topics that may be explored further at the roundtable are the following:
- the limited ability to inspect for compliance and to enforce U.S. laws;
- the quality of financial information and risk disclosures for emerging market issuers;
- the PCAOB’s inability to inspect audit work papers in China;
- auditors’ global oversight of member firms in emerging markets;
- the role of index providers and other passive investment strategies;
- obligations of financial professionals in making recommendations for emerging market issuers; and
- potential future additional remedial actions (a range of which have been suggested), and the potential collateral consequences of those actions.
The roundtable date, agenda items, panelists, moderators, and logistical information will be made public as they are finalized.
Members of the public who wish to provide views on the risks of investing in emerging markets, including China, may submit their views electronically to EmergingMarkets@SEC.gov or use the SEC’s Internet submission form. Comments may be submitted either in advance of or after the roundtable. Information that is submitted will be posted on the SEC’s website. All comments received will be posted without change. Persons submitting comments are cautioned that we do not redact or edit personal identifying information from comment submissions. You should submit only information that you wish to make publicly available.
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The ability to inspect for and enforce our laws and regulations is of paramount importance to U.S. investors and our capital markets more generally. I look forward to continuing our work to ensure transparency and confidence in our markets.
 See Emerging Market Investments Entail Significant Disclosure, Financial Reporting and Other Risks; Remedies are Limited (Apr. 21, 2020), available at https://www.sec.gov/news/public-statement/emerging-market-investments-disclosure-reporting; Statement on the Vital Role of Audit Quality and Regulatory Access to Audit and Other Information Internationally—Discussion of Current Information Access Challenges with Respect to U.S.-listed Companies with Significant Operations in China (Dec. 7, 2018), available at https://www.sec.gov/news/public-statement/statement-vital-role-audit-quality-and-regulatory-access-audit-and-other; see also Press Release, SEC Chairman Clayton, PCAOB Chairman Duhnke, and Members of SEC Staff Meet With Auditing Firm Representatives to Discuss Audit Quality in Emerging Economies and Markets (Nov. 4, 2019), available at https://www.sec.gov/news/press-release/2019-228.