[Federal Register Volume 86, Number 63 (Monday, April 5, 2021)]
[Rules and Regulations]
[Pages 17528-17543]
[FR Doc No: 2021-06292]

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SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 249 and 274

[Release No. 34-91364; IC-34227; File No. S7-03-21]
RIN 3235-AM84

Holding Foreign Companies Accountable Act Disclosure

AGENCY: Securities and Exchange Commission.

ACTION: Interim final rule; request for comment.

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SUMMARY: We are adopting interim final amendments to Forms 20-F, 40-F,
10-K, and N-CSR to implement the disclosure and submission requirements
of the Holding Foreign Companies Accountable Act (``HFCA Act''). The
interim final amendments will apply to registrants that the Securities
and Exchange Commission (``Commission'') identifies as having filed an
annual report with an audit report issued by a registered public
accounting firm that is located in a foreign jurisdiction and that the
Public Company Accounting Oversight Board (``PCAOB'') is unable to
inspect or investigate completely because of a position taken by an
authority in that jurisdiction. Consistent with the HFCA Act, the
amendments require the submission of documentation to the Commission
establishing that such a registrant is not owned or controlled by a
governmental entity in that foreign jurisdiction and also require
disclosure in a foreign issuer's annual report regarding the audit
arrangements of, and governmental influence on, such registrants.

DATES:

    Effective date: The interim final rule is effective on May 5, 2021.
    Compliance date: See SUPPLEMENTARY INFORMATION for discussion on
compliance dates.
    Comments due date: Comments should be received on or before May 5,
2021.

ADDRESSES: Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (https://www.sec.gov/rules/submitcomments.htm).

Paper Comments

     Send paper comments to Vanessa A. Countryman, Secretary,
Securities and Exchange Commission, 100 F Street NE, Washington, DC
20549-1090.

All submissions should refer to File Number S7-03-21. To help us
process and review your comments more efficiently, please use only one
method. The Commission will post all comments on the Commission's
website (http://www.sec.gov/rules/interim-final-temp.shtml). Comments
are also available for website viewing and printing in the Commission's
Public Reference Room, 100 F Street NE, Washington, DC 20549, on
official business days between the hours of 10 a.m. and 3 p.m. Due to
pandemic conditions, however, access to the Commission's public
reference room is not permitted at this time. 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 available publicly.
    We or the staff may add studies, memoranda, or other substantive
items to the comment file during this rulemaking. A notification of the
inclusion in the comment file of any such materials will be made
available on our website. To ensure direct electronic receipt of such
notifications, sign up through the ``Stay Connected'' option at
www.sec.gov to receive notifications by email.

FOR FURTHER INFORMATION CONTACT: Steven G. Hearne, Senior Special
Counsel, at<PHONE_NUMBER>, in the Office of Rulemaking, Division of
Corporation Finance; or Blair Burnett, Senior Counsel, at (202) 551-
6792, in the Investment Company Regulation Office, Division of
Investment Management; U.S. Securities and Exchange Commission, 100 F
Street NE, Washington, DC 20549.

SUPPLEMENTARY INFORMATION: We are adopting interim final amendments to
the following forms.

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                         Commission reference                                     CFR citation (17 CFR)
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Securities Exchange Act of 1934       Form 20-F.......................  Sec.   249.220f.
 (Exchange Act) \1\.
                                      Form 40-F.......................  Sec.   249.240f.
                                      Form 10-K.......................  Sec.   249.310.
Exchange Act and Investment Company   Form N-CSR......................  Sec.  Sec.   249.331 and 274.128.
 Act of 1940 (Investment Company
 Act) \2\.
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    Compliance: As discussed in Section II, a registrant will not be
required to comply with the amendments until it has been identified by
the Commission as having a non-inspection year pursuant to a process to
be subsequently established by the Commission with appropriate notice.
Once identified, a registrant will be required to comply with the
amendments in its annual report for each fiscal year in which it is so
identified.
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    \1\ 15 U.S.C. 78a et seq.
    \2\ 15 U.S.C. 80a-1 et seq.
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I. Background

    We are adopting interim final amendments to Form 10-K, Form 20-F,
Form 40-F, and Form N-CSR to implement the disclosure and submission
requirements of the HFCA Act,\3\ which became law on December 18, 2020.
Among other things, Section 2 of the HFCA Act amended Section 104 of
the Sarbanes-Oxley Act of 2002 (``Sarbanes-Oxley Act'') \4\ to require
the Commission to identify each ``covered issuer'' \5\ that has
retained a registered public accounting firm \6\ to issue an audit
report \7\ where that registered public accounting firm has a branch or
office \8\ that:
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    \3\ Public Law 116-222, 134 Stat. 1063 (Dec. 18, 2020).
    \4\ 15 U.S.C. 7214 (as amended by Pub. L. 116-222).
    \5\ Sarbanes-Oxley Act Section 104(i)(1)(A) defines ``covered
issuer'' as an issuer that is required to file reports under Section
13 (15 U.S.C. 78m) or Section 15(d) (15 U.S.C. 78o(d)) of the
Exchange Act. Issuers filing reports under the Exchange Act are
referred to in Commission forms as ``registrants.'' In this release
we use the term ``issuers'' when referring to the HFCA Act, but
refer to ``registrants'' when discussing the forms and form
requirements.
    \6\ We use the terms ``registered public accounting firm'' and
``auditor'' interchangeably to mean public accounting firms that,
among other things, prepare accountant's reports on U.S. public
companies and are required to register with the PCAOB. The term
``accountant's report'' is defined in 17 CFR 210.1-02(a)(1) (Rule 1-
02(a)(1) of Regulation S-X) in regard to financial statements as a
document in which an independent public or certified public
accountant indicates the scope of the audit (or examination) which
the accountant has made and sets forth that accountant's opinion
regarding the financial statements taken as a whole, or an assertion
to the effect that an overall opinion cannot be expressed.
    \7\ The HFCA Act uses the term ``audit report.'' As noted above,
for the purposes of this release and the interim final amendments
the term ``audit report'' has the same meaning as ``accountants'
report'' in Rule 1-02(a)(1) of Regulation S-X.
    \8\ Where a branch or office of an international firm network is
a separate legal entity from the U.S.-based or international firm
network and that branch or office signs the audit report in its own
name, the Commission will look to the PCAOB determination for that
branch or office and not apply that determination to the U.S.-based
or other branches or offices of that firm network that are not based
in the PCAOB-identified foreign jurisdiction.
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     Is located in a foreign jurisdiction; and
     The PCAOB has determined that it is unable to inspect or
investigate completely because of a position taken by an authority in
the foreign jurisdiction.

Registrants so identified (``Commission-Identified Issuers'') are
required to submit documentation to the Commission that establishes
that they are not owned or controlled by a governmental entity in that
foreign jurisdiction. In addition, if the registrant is determined to
be a Commission-Identified Issuer for three consecutive years, Section
2 of the HFCA Act directs the Commission to prohibit trading of the
registrant's securities.\9\ Section 3 of the HFCA Act provides that
Commission-Identified Issuers that are

foreign issuers (``Commission-Identified Foreign Issuers''), as defined
in 17 CFR 240.3b-4 (``Exchange Act Rule 3b-4''),\10\ are subject to
additional specified disclosure requirements, as discussed in more
detail below.
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    \9\ See Sarbanes-Oxley Act Section 104(i)(3). Pursuant to
Section 104(i)(3) of the Sarbanes-Oxley Act, as added by Section 2
of the HFCA Act, if an issuer is a Commission-Identified Issuer for
three consecutive years, the Commission must prohibit the securities
of the issuer from being traded on a national securities exchange or
through any other method that is within the jurisdiction of the
Commission to regulate, including through ``over-the-counter''
trading. The implementation of Section 104(i)(3) of the Sarbanes-
Oxley Act and the required trading prohibition is not subject to the
90-day rulemaking deadline that applies to the submission
requirement in Section 104(i)(2) and will be addressed separately.
The Commission staff, in deciding what to recommend to the
Commission, is actively considering ways to implement the trading
prohibition, and the Commission anticipates seeking comment from the
public.
    \10\ Under Exchange Act Rule 3b-4, the term ``foreign issuer''
means any issuer which is a foreign government, a national of any
foreign country or a corporation or other organization incorporated
or organized under the laws of any foreign country.
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II. Discussion of Amendments

    The scope of the interim final amendments is limited to (1) the
statutory mandate to issue rules that establish the manner and form in
which a Commission-Identified Issuer must make the submissions required
under Section 104(i)(2)(B) of the Sarbanes-Oxley Act, and (2) the
disclosure obligations set forth in Section 3 of the HFCA Act that we
have added to the relevant Commission forms. The new disclosure and
submission requirements established by the HFCA Act are triggered by
the identification of affected registered public accounting firms by
the PCAOB and affected registrants by the Commission.
    Under Section 104(i)(2) of the Sarbanes-Oxley Act, as added by the
HFCA Act, the PCAOB is responsible for determining that it is unable to
inspect or investigate completely a registered public accounting firm
because of a position taken by an authority in a foreign jurisdiction.
We understand that the PCAOB is considering its obligations under the
HFCA Act, including the process for making these determinations. We
believe it is important that the PCAOB act quickly to identify the best
manner in which to make these determinations. Any PCAOB rulemaking in
response to the HFCA Act will be subject to Commission review and
approval prior to taking effect. Once the PCAOB process has been
established, the Commission will use the PCAOB's determination about
which firms it is unable to inspect or investigate completely, along
with information in a registrant's annual reports, to compile a list of
registrants that are Commission-Identified Issuers.

Disclosure Requirement

    Section 3 of the HFCA Act requires a Commission-Identified Foreign
Issuer to provide certain additional disclosure in its annual report
for the year that the Commission so identifies the issuer. The HFCA Act
requires this disclosure in the issuer's Form 10-K, Form 20-F, or a
form that is the equivalent of, or substantially similar to, these
forms.\11\ Specifically, a Commission-Identified Issuer is required to
disclose:
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    \11\ Section 3 of the HFCA Act specifically identifies Form 10-K
and Form 20-F. The disclosures required by Section 3 of the HFCA Act
are also required in transition reports filed on Forms 10-K and in
transition reports on Form 20-F that include audited financial
statements. The disclosures should address the transition period as
if it were a fiscal year.
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     That, during the period covered by the form, the
registered public accounting firm has prepared an audit report for the
issuer; \12\
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    \12\ The registered public accounting firm referenced in the
statute means a firm that the PCAOB is unable to inspect or
investigate completely because of a position taken by an authority
in the foreign jurisdiction, as described in Section 104(i)(2)(A) of
the Sarbanes-Oxley Act. The interim final amendments contain minor
revisions to the statutory language to clarify this and other
points. Specifically, the amendments require a Commission-Identified
Foreign Issuer to disclose that, for the immediately preceding
annual financial statement period, a registered public accounting
firm that the PCAOB was unable to inspect or investigate completely,
because of a position taken by an authority in the foreign
jurisdiction, issued an audit report for the registrant.
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     The percentage of the shares of the issuer owned by
governmental entities in the foreign jurisdiction in which the issuer
is incorporated or otherwise organized;
     Whether governmental entities in the applicable foreign
jurisdiction with respect to that registered public accounting firm
have a controlling financial interest with respect to the issuer;
     The name of each official of the Chinese Communist Party
(``CCP'') who is a member of the board of directors of the issuer or
the operating entity with respect to the issuer; and
     Whether the articles of incorporation of the issuer (or
equivalent organizing document) contains any charter of the CCP,
including the text of any such charter.
    While Section 3 of the HFCA Act does not mandate specific rule or
form changes, we believe that amending our forms to include the new
disclosure requirements will help registrants comply with the HFCA Act.
The Commission is therefore amending Form 10-K, Form 20-F, Form 40-
F,\13\ and Form N-CSR \14\ to reflect the disclosure requirements in
Section 3 of the HFCA Act.
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    \13\ In reviewing the Commission's forms, we determined that
Form 40-F is an equivalent or substantially similar form filed by
foreign issuers. The Form 40-F is a form that may be used by
Canadian issuers that seek to offer their securities in the U.S. and
is used by those issuers for annual reports filed under Section
13(a) or Section 15(d) of the Exchange Act. As such, even though the
form is not expressly named in the HFCA Act, its use by issuers for
annual reports filed under Section 13(a) and Section 15(d)
establishes the form as equivalent or substantially similar to the
Form 10-K and Form 20-F.
    \14\ Form N-CSR is an annual reporting form used by the
registered investment companies that will be affected by the HFCA
Act to file their audited financial statements with the Commission.
Although Form N-CSR is not specifically identified in the HFCA Act,
its use by these registered investment companies for annual reports
filed under Section 13(a) and Section 15(d) establishes the form as
equivalent or substantially similar to the Form 10-K and Form 20-F.
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    Specifically, we are amending Form 10-K to add Part II, Item 9C,
Form 20-F to add Part II, Item 16I, Form 40-F to add paragraph B.18,
and Form N-CSR to add paragraphs (i) and (j) of Item 4. The added items
entitled ``Disclosure Regarding Foreign Jurisdictions that Prevent
Inspections'' in Form 10-K, Form 20-F, and Form 40-F are located with
other accounting, financial, and corporate governance disclosure
requirements but are not required to be included in a registrant's
proxy or information statement.\15\ The amendments to Form N-CSR are
located in an existing item entitled ``Principal Accountant Fees and
Services.''
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    \15\ See 17 CFR 240.14a-101 and 17 CFR 14c-101.
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    The registrant will be required to provide the disclosure for each
year in which the registrant is a Commission-Identified Issuer. Because
the period covered by the forms looks back at the prior year, a
Commission-Identified Foreign Issuer that was identified in the prior
year will be required to provide the HFCA Act Section 3 disclosure in
its annual report for the year in which it was identified, even if the
registrant's subsequent filing includes an audit report issued by a
registered public accounting firm that the PCAOB is able to inspect or
investigate completely.
    In addition, we have added an instruction in each of Form 20-F and
Form 40-F to specify that the disclosure applies to annual reports, and
not to registration statements.\16\
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    \16\ While Form 20-F and Form 40-F may be used as an initial
registration form, we believe that in the context of Section 3 of
the HFCA Act, which linked the Form 20-F requirement to the Form 10-
K requirement, the disclosure was intended to be required when the
form is used as an annual report.
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Submission Requirement

    As discussed above, in addition to the Section 3 disclosure
requirement, Section 2 of the HFCA Act amended Sarbanes-Oxley Act
Section 104 to, in part, require any Commission-Identified Issuer to
submit to the Commission documentation establishing that the issuer is
not owned or controlled by a governmental entity in the foreign
jurisdiction of the registered public accounting firm that the PCAOB is
unable to inspect or investigate completely, and mandates that the
Commission adopt rules establishing the manner and form in which such

submissions will be made no later than 90 days after enactment.
    Because the submission requirement is triggered by the preparation
of an audit report on a registrant's financial statements, the
Commission is amending Form 10-K, Form 20-F, Form 40-F, and Form N-CSR
to implement this provision.\17\ In contrast to the disclosure
requirement in Section 3 of the HFCA Act that applies only to
Commission-Identified Foreign Issuers, the submission requirement in
Section 2 of the HFCA Act applies to all Commission-Identified Issuers.
The amendments require a registrant that is a Commission-Identified
Issuer that is not owned or controlled by a governmental entity in the
described foreign jurisdiction to electronically submit documentation
\18\ to the Commission on a supplemental basis that establishes that
the registrant is not so owned or controlled. Under the interim final
amendments, such submissions will be made through the Electronic Data
Gathering, Analysis, and Retrieval (``EDGAR'') system \19\ on or before
the due date of the relevant annual report form.
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    \17\ See supra notes 11, 13, 14, and 16 and accompanying
discussion.
    \18\ For purposes of these requirements, use of the term
``supplemental'' does not have the meaning of ``supplemental
information'' in 17 CFR 240.12b-4.
    \19\ Prior to the due date of any such required submission, the
Commission will amend the EDGAR Filer Manual to provide technical
instructions regarding how such submissions can be uploaded onto the
EDGAR system.
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    While the interim final amendments prescribe the timing and means
by which such submissions shall be made, neither they nor the HFCA Act
specify the particular types of documentation that can or should be
submitted for this purpose. Moreover, we recognize that available
documentation could vary depending upon the organizational structure
and other factors specific to the registrant. Thus, as an initial
matter, registrants will have flexibility under the interim final
amendments to determine how best to satisfy this requirement. At the
same time, we are requesting comment as to whether the Commission
should require specific types of documentation or whether additional
guidance would be necessary or useful to registrants as they seek to
comply with the submission requirement.
    For purposes of these requirements, we preliminarily believe that
the use of the terms ``owned or controlled'' in Section 2 of the HFCA
Act, and ``owned'' and ``controlling financial interest'' in Section 3
of the HFCA Act (which are not otherwise defined in the statute), are
intended to reference a person's or governmental entity's ability to
``control'' the registrant as that term is used in the Exchange Act and
the Exchange Act rules.\20\ A registrant that is owned or controlled by
a foreign governmental entity is not required to submit such
documentation under the interim final amendments. However, we note that
Commission-Identified Foreign Issuers are required to make certain
disclosures about their foreign affiliations and ownership by
governmental entities pursuant to the disclosure requirements of
Section 3 of the HFCA Act.\21\
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    \20\ See Exchange Act Section 13(d), 17 CFR 210.1-02(g), and 17
CFR 240.12b-2. However, we are requesting comment on this point
below.
    \21\ We believe that providing this clarification will be
helpful to registrants and that it is a reasonable reading of
Section 2 and Section 3 of the HFCA Act, as without such
clarification a registrant that is owned or controlled by a
governmental entity in the foreign jurisdiction would be unable to
comply with Section 2 of the HFCA Act (Section 104(i)(1)(B) of the
Sarbanes-Oxley Act), but would be expected to continue reporting and
providing disclosure as contemplated by the disclosure requirements
in Section 3 of the HFCA Act.
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Timing Considerations

    Section 104(i)(1)(B) of the Sarbanes-Oxley Act \22\ provides that a
non-inspection year is any year, after the date of enactment of the
HFCA Act, during which: (1) The Commission identifies an issuer as
having retained a registered public accounting firm for the audit
report on its financial statements; (2) That registered public
accounting firm has a branch or office that is located in a foreign
jurisdiction; and (3) The PCAOB is unable to inspect or investigate
completely the registered public accounting firm because of a position
taken by an authority in that foreign jurisdiction. Section 3 of the
HFCA Act requires certain disclosures by a Commission-Identified
Foreign Issuer to appear in an annual report that covers a ``non-
inspection year.'' Similarly, Section 104(i)(2)(B) of the Sarbanes-
Oxley Act \23\ requires the submission to the Commission of
documentation relating to government control of Commission-Identified
Issuers.
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    \22\ Section 104(i)(1)(B) of the Sarbanes-Oxley Act was added by
Section 2 of the HFCA Act.
    \23\ Section 104(i)(2)(B) of the Sarbanes-Oxley Act was added by
Section 2 of the HFCA Act.
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    An annual report requires audited consolidated financial statements
for that year and certain prior periods under 17 CFR 210.3-01 through
3-20 (Article 3 of Regulation S-X) and corresponding provisions of Form
20-F and Form 40-F.\24\ Audited financial statements include an audit
report that must be provided with the financial statements included in
a registrant's annual report.\25\ Therefore, any year in which the
Commission has identified a registrant as having retained a registered
public accounting firm meeting the criteria described above for the
audit report on its financial statements in its most recent annual
report made under the Exchange Act will be deemed a non-inspection
year. The submission requirement under Section 104(i)(2)(B) of the
Sarbanes-Oxley Act and the disclosure requirements under Section 3 of
the HFCA Act, if applicable, would then be required for the annual
report covering such non-inspection year.\26\ For example, if a
registrant is identified based on its Form 10-K filing made in 2022 for
the fiscal year ended December 31, 2021 as being a Commission-
Identified Issuer, then 2022 would be deemed a non-inspection year.
Such registrant would be required to comply with the submission and, if
applicable, the disclosure requirements in its Form 10-K filing
covering the fiscal year ended December 31, 2022, which is required to
be filed in 2023.
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    \24\ See, e.g., Article 3 of Regulation S-X; see also 17 CFR
210.6-01 through 6-11 (Article 6 of Regulation S-X) (for similar
requirements as applied to registered investment companies).
    \25\ Because the disclosure and submission requirements in the
HFCA Act are triggered by the filing of an audit report on the
``financial statements of the covered issuer'' that is prepared by
an audit firm ``retained by the covered issuer,'' we believe it
would be consistent with the language and structure of the statute
to base the non-inspection year determination on registrant's annual
report filings. Although there may be instances in which a
registrant is required to include audited financial statements in
connection with other filings under the Exchange Act, such as Form
8-K (17 CFR 249.308) filings by former shell companies (see Item
2.01(f) of Form 8-K), these filings are typically more analogous to
an initial registration statement and not an ongoing reporting
requirement as contemplated by the reference to Exchange Act
Sections 13 and 15(d) in Section 2 of the HFCA Act.
    \26\ Sarbanes-Oxley Act Section 104(i)(1)(B) (as added by
Section 2 of the HFCA Act) defines a ``non-inspection year'' as a
year ``during which'' the Commission identifies a registrant as
having filed an Exchange Act report that contains an audit report
issued by an audit firm that the PCAOB is unable to inspect or
investigate completely. By contrast, the disclosures required by
Section 3 of the HFCA Act are required in ``each form filed by that
issuer that covers such non-inspection year.''
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    The HFCA Act was enacted on December 18, 2020 and provides for
identification of the issuers required to file reports under Section 13
or 15(d) of the Exchange Act during a year that begins ``after the date
of enactment'' of the HFCA Act. Given this statutory language, a
registrant will not be subject to a non-inspection year determination
for any fiscal year ending on or prior to December 31, 2020, and
accordingly, a registrant will not have to provide either the HFCA
Act's Section 3 disclosure or

the Section 2 submission for those years.
    For fiscal years beginning after December 31, 2020, and once the
PCAOB has made its determinations pursuant to the HFCA Act, the
Commission will identify registrants pursuant to the HFCA Act based on
the PCAOB's determination and on registrants' annual reports. The
Commission will issue appropriate notice once it has established the
process by which it will begin to identify registrants pursuant to the
HFCA Act, and is requesting public comment herein regarding the
appropriate mechanics for determining Commission-Identified Issuers. A
registrant will not be required to comply with the disclosure
requirement or the submission requirement until the Commission
identifies it as having a non-inspection year. Once identified, a
registrant will be required to provide the HFCA Act disclosure in its
annual report for each non-inspection year, i.e., the report covering
the fiscal year in which the registrant was included in the list of
Commission-Identified Issuers.

Request for Comment

    We request and encourage any interested person to submit comments
on any aspect of the interim final amendments, other matters that might
have an impact on the amendments, and any suggestions for further
revisions. When commenting, it would be most helpful if you include the
reasoning behind your position or recommendation. In particular, we
seek comment on the following:

Determination of Commission-Identified Issuers

    1. The Commission is required to identify registrants subject to
the HFCA Act disclosure and submission requirements based on the
PCAOB's determination relating to the registered public accounting firm
that is retained by the registrant and that prepares the registrant's
audit report. We are currently considering what process to use for
identifying registrants (including the process and feasibility of
communicating to those registrants regarding their status) as
Commission-Identified Issuers. We request comment related to this
process on the following:
    a. The HFCA Act requires the Commission to identify covered issuers
that ``retain'' a registered public accounting firm that has a branch
or office that is located in a foreign jurisdiction and that the PCAOB
is unable to inspect or investigate completely because of a position
taken by an authority in that jurisdiction. The HFCA Act does not
define the term ``retain.'' While multiple public accounting firms may
work on the audit of a registrant, for purposes of interpreting and
applying the HFCA Act's provisions, we understand the retained firm to
be the firm that signs an accountant's report on the registrant's
consolidated financial statements that is included in a registrant's
Exchange Act report. We believe this is consistent with the
understanding of the term ``retain'' by the auditing profession. Is our
understanding of the term ``retained'' appropriate in this context?
    b. We are considering making the determination of Commission-
Identified Issuers on an annual basis, not earlier than a date after
the annual report forms for registrants with December 31 fiscal year
ends are due to be filed, given that the majority of registrants have a
calendar year end. The identification would be based on the audit
report contained in a registrant's annual report filed with the
Commission for the most recently completed fiscal year preceding the
date of the Commission determination. Should we establish a single
determination date each year? If so, should we make the determination
on or around May 15? Would some other date, earlier or later in the
year be more helpful to registrants affected by the determination?
Alternatively, should we base the determination on when the PCAOB makes
its determination public? Should we make the determination more often,
such as monthly, quarterly, or semi-annually? Should we instead make
individual determinations on issuer-specific dates, such as the
measurement date for determining accelerated filer status \27\ or a
date linked to the fiscal year end of the registrant?
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    \27\ See 17 CFR 240.12b-2.
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    c. Should we publish a list of Commission-Identified Issuers on our
website? Should Commission-Identified Issuers be identified on EDGAR so
investors may more easily identify which registrants are on the list?
If we publish a list of Commission-Identified Issuers, how should the
Commission address any potential errors in identification relating to a
registrant's status? Should the Commission provide guidance or
prescribe rules relating to disclosure or procedures for identification
of errors relating to a registrant's status?
    d. To facilitate satisfaction of HFCA Act requirements, should we
introduce a structured data tagging requirement pertaining to the
auditor name and jurisdiction on the audit report signed by the
registered public accounting firm in the registrant's Form 10-K, Form
20-F, and Form 40-F? Such tagging would provide machine-readable data
directly from the registrant identifying the audit firm retained by it,
and may therefore facilitate the Commission's determination of the
registrants it should designate as Commission-Identified Issuers. If we
introduced such a requirement, should the information be required to be
tagged in Inline XBRL? Should we instead consider a tagging requirement
to facilitate the determination of Commission-Identified Issuers that
would not specify a particular structured data language to be used?
Would the use of tagging also facilitate the ability of investors and
other interested parties to identify registrants at risk of trading
prohibitions resulting from three consecutive non-inspection years?
What would be the costs associated with introducing a structured data
tagging requirement pertaining to the auditor name and jurisdiction?
Should we introduce this structured data tagging requirement for Form
N-CSR? Is there any circumstance when that tagged information in the
Form N-CSR would differ from the information the Commission already
collects on Form N-CEN (17 CFR 249.330) in a structured data format
regarding a fund's auditor?

HFCA Act Disclosure Requirement

    2. We are adopting interim final amendments to reflect the
disclosure requirements in Section 3 of the HFCA Act. With respect to
such disclosure requirements, we further request comment on the
following:
    a. The interim final amendments require a registrant to disclose
that, during the period covered by the form, a registered public
accounting firm that the PCAOB is unable to inspect or investigate
completely because of a position taken by an authority in the foreign
jurisdiction has prepared an audit report for the registrant. Should a
registrant that changes from using a non-inspected registered public
accounting firm to an inspected firm be required to affirmatively state
that it no longer retains the identified registered public accounting
firm to audit its financial statements?
    b. The interim final amendments require that the registrant
disclose the name of each official of the CCP who is a member of the
board of directors of the registrant or the operating entity with
respect to the registrant. Should we define what it means to be an
official of the CCP or would further guidance on this requirement be
helpful? For example, would clarification of the phrase ``operating
entity with respect to

the registrant'' be helpful or is the term generally understood?
    c. Do the interim final amendments cover all of the forms in which
disclosure is required by the HFCA Act? Should the amendments cover any
additional forms? If so, which forms and what is the basis for
requiring the disclosure in those forms? For example, should we
consider requiring the disclosure in initial registration statements,
such as 17 CFR 249.210 (Form 10)? Requiring this disclosure in initial
registration statements would provide potential investors in these new
registrants with disclosure related to the risk that these registrants
have retained a registered public accounting firm that may subject the
registrant to the HFCA Act trading prohibition. Alternatively, or in
addition, should we amend Form 8-K to require disclosure by a
registrant of the Commission's determination that the registrant is a
Commission-Identified Issuer? Requiring this disclosure in a Form 8-K
would provide additional notice of the Commission's determination,
prior to the filing of the annual report covering that non-inspection
year. What would be the costs of expanding registrants' disclosure
obligations in these ways?
    d. Are the new disclosure requirements in Item 9C. of Form 10-K,
Item 16I. of Form 20-F, paragraph B.18 of Form 40-F, and paragraphs (i)
and (j) of Item 4 of Form N-CSR sufficiently clear? Is there any
additional guidance or clarity that the Commission can provide to
assist registrants in preparing and providing the disclosure?
    e. Should we consider moving the disclosure requirement in Part II,
Item 9C. of Form 10-K to Regulation S-K? Would the disclosure be more
appropriate in a different part of the Form 10-K, such as in Part III
where the information could be incorporated from the proxy statement?
Similarly, would the disclosure be more appropriate in a different part
of the Form 20-F or Form 40-F?
    f. For registered investment companies, should we locate the
requirements implementing the HFCA Act in another form? For example,
should the Commission locate these requirements in Form N-CEN to cover
unit investment trusts, which do not file audited financial statements
on Exchange Act reporting forms? Would the requirements be more
appropriate in a different part of the Form N-CSR?

HFCA Act Submission Requirement

    3. We are adopting interim final amendments to implement the
submission requirements in Section 104(i)(1)(B) of the Sarbanes-Oxley
Act (as added by Section 2 of the HFCA Act) that track the statutory
language. With respect to such submission requirements, we further
request comment on the following:
    a. The submission requirement for documentation relating to
governmental ownership or control is included in certain annual report
forms (i.e., Form 10-K, Form 20-F, Form 40-F, and Form N-CSR), and
registrants that are Commission-Identified Issuers will need to submit
their documentation to the Commission on or before the due date for the
relevant annual report. Should the submission be made in conjunction
with the registrant's annual report? Should there be a different due
date for the submission? Should we locate the submission requirement in
a different form or rule, such as Form 8-K or Form 6-K (17 CFR
249.306)?
    b. The interim final amendments provide that the submission be made
electronically to the Commission on a supplemental basis. Should the
documentation submitted to the Commission be made publicly available,
should it be retained non-publicly (subject to applicable law), and/or
should the registrant be allowed to request confidential treatment for
some or all of the submission? Alternatively, should the submission be
publicly filed as an exhibit to the form or filed with the Commission
in some other way to make it more accessible?
    c. Should the Commission require specific types of documentation
for satisfying the HFCA Act Section 2 submission requirement? If so,
what specific documentation should be required? Alternatively, is it
appropriate to retain flexibility for registrants to determine what
documentation to provide in order to meet this requirement? If so, is
additional guidance necessary for registrants to determine what
documentation is sufficient to establish that they are not owned or
controlled by a governmental entity in the foreign jurisdiction? Should
we provide a non-exclusive list of documents that could be submitted to
satisfy the submission requirement, such as a legal opinion or a
statement or certification from an officer or director of the company
that it is not controlled by a governmental entity?
    d. Commission-Identified Issuers that are owned or controlled by a
foreign governmental entity are not required to submit documentation to
the Commission. Should we require these Commission-Identified Issuers
to affirmatively state that they are owned or controlled by a foreign
governmental entity?
    4. Should we define particular terms or provide guidance regarding
the use of those particular terms in our form amendments? For example,
should we provide additional definitions or guidance on what is
considered a ``governmental entity''? Is guidance necessary to help
registrants comply with Section 2 and Section 3 of the HFCA Act? For
example, we have provided guidance that the terms ``owned or
controlled,'' ``owned,'' and ``controlling financial interest'' should
be read with reference to how the term ``control'' is used in the
Exchange Act and the existing definition in the Exchange Act rules.
Would additional guidance as to what it means to be ``owned or
controlled,'' ``owned,'' or having a ``controlling financial interest''
be helpful or is the guidance sufficient? Should we make any further
amendments to our rules to address these points? For example, should we
specify the basis of accounting that must be used in making a
``controlling financial interest'' determination? As another example,
for registered investment companies, should the terms ``owned or
controlled,'' ``owned,'' and ``controlling financial interest'' be read
with reference to how the term control is used in the Investment
Company Act and Investment Company Act rules?
    5. The interim final amendments do not require the HFCA Act Section
3 disclosure until an issuer has been identified by the Commission and
in no event would disclosure be required for fiscal years ending on or
before December 31, 2020. Should we provide additional guidance on the
required timing and disclosure? What additional guidance would be
useful?
    6. If a registrant is determined to be a Commission-Identified
Issuer for three consecutive years, Section 2 of the HFCA directs the
Commission to prohibit the securities of the registrant from being
traded in the U.S. market. As mentioned earlier, implementation of such
trading prohibitions will be addressed separately. Are there any
considerations we should take into account while determining how to
best implement the trading prohibition requirements of the HFCA Act?
    With respect to any comments, we note that they are of greatest
assistance if accompanied by supporting data and analysis of the issues
addressed in those comments.

III. Procedural and Other Matters

    If any of the provisions of these rules, or the application thereof
to any person or circumstance, is held to be invalid, such invalidity
shall not affect other provisions or application of such

provisions to other persons or circumstances that can be given effect
without the invalid provision or application.
    Pursuant to the Congressional Review Act,\28\ the Office of
Information and Regulatory Affairs has designated these rules as not a
``major rule,'' as defined by 5 U.S.C. 804(2).
---------------------------------------------------------------------------

    \28\ 5 U.S.C. 801 et seq.
---------------------------------------------------------------------------

    The Administrative Procedure Act (``APA'') generally requires an
agency to publish notice of a rulemaking in the Federal Register and
provide an opportunity for public comment. This requirement does not
apply, however, if the agency ``for good cause finds . . . that notice
and public procedure are impracticable, unnecessary, or contrary to the
public interest.'' \29\ Section 2 of the HFCA Act requires Commission
rulemaking within 90 days of the date of enactment in order to
``establish the manner and form in which a covered issuer shall make a
submission required under paragraph (2)(B).'' Furthermore, Section 3 of
the HFCA Act requires certain disclosure from issuers, and the
amendments to Form 10-K, Form 20-F, Form 40-F, and Form N-CSR clarify
issuers' obligations under the HFCA Act. Because the amendments conform
the specified forms to the requirements of a newly enacted statute and
in light of the 90-day rulemaking directive in Section 2 of the HFCA
Act, the Commission finds that notice and public comment are
impracticable and unnecessary.\30\ While the amendments being adopted
in this release conform the specified forms to the HFCA Act's
requirements, we also are soliciting comment on various related topics
that the Commission may seek to address in subsequent releases,
depending on the public feedback received and other considerations.
---------------------------------------------------------------------------

    \29\ 5 U.S.C. 553(b)(3)(B).
    \30\ The amendment also does not require analysis under the
Regulatory Flexibility Act. See 5 U.S.C. 604(a) (requiring a final
regulatory flexibility analysis only for rules required by the APA
or other law to undergo notice and comment).
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IV. Economic Analysis

A. Introduction and Broad Economic Considerations

    As discussed above, we are amending Form 10-K, Form 20-F, Form 40-
F, and Form N-CSR to implement the disclosure and submission
requirements of the HFCA Act. We are mindful of the costs imposed by,
and the benefits obtained from, our rules. In this section, we analyze
potential economic effects stemming from the amendments.\31\ We analyze
these effects against a baseline that consists of the current
regulatory framework and current market practices.
---------------------------------------------------------------------------

    \31\ Exchange Act Section 3(f) requires the Commission, when
engaging in rulemaking where it is required to consider or determine
whether an action is necessary or appropriate in the public
interest, to consider, in addition to the protection of investors,
whether the action will promote efficiency, competition, and capital
formation. Further, Exchange Act Section 23(a)(2) requires the
Commission, when making rules under the Exchange Act, to consider
the impact that the rules would have on competition and prohibits
the Commission from adopting any rule that would impose a burden on
competition that is not necessary or appropriate in furtherance of
the purposes of the Exchange Act. Additionally, Section 2(c) of the
Investment Company Act requires us, when engaging in rulemaking that
requires us to consider or determine whether an action is consistent
with the public interest, to also consider, in addition to the
protection of investors, whether the action will promote efficiency,
competition, and capital formation. Although we are adopting
amendments to Form N-CSR to implement the HFCA Act as applied to
registered investment companies, based on recent Form N-CEN filings,
no registered investment company reported having retained a
registered public accounting firm located in a foreign jurisdiction
for the preparation of the company's financial statements. Based on
this data, and Commission staff experience, we estimate that no
registered investment companies will be subject to the requirements
of the interim final amendments upon the rule's adoption.
Accordingly, we do not expect any economic effects associated with
the amendment to Form N-CSR.
---------------------------------------------------------------------------

    As a threshold matter, we note that the amendments discussed in
this economic analysis implement discrete components of the HFCA Act.
Other aspects of the statute, such as the identification of issuers
with non-inspection years and implementation of the trading
prohibitions in Section 2 of the HFCA Act, will be addressed separately
at a later date. Accordingly, the focus of this economic analysis is on
the effects arising from the disclosure and submission requirements in
the HFCA Act. Where possible, we have attempted to quantify the
expected economic effects of the amendments. In some cases, however, we
are unable to quantify these economic effects. Some of the potential
economic effects are inherently difficult to quantify. In some
instances, we lack the information or data necessary to provide
reasonable estimates for the economic effects of the amendments. Where
we cannot quantify the relevant economic effects, we discuss them in
qualitative terms.
    The new disclosure requirements will increase transparency about
the reliability of affected issuers' financial statements as well as
the characteristics of their ownership and control structures. High-
quality disclosures, including high-quality financial statements, are a
cornerstone of well-functioning capital markets.\32\ Such disclosures
reduce information asymmetries between investors and issuers, with
positive effects on price efficiency and capital allocation.\33\
Broadly speaking, academic research shows that increasing the quality
of financial reporting improves price efficiency and reduces an
issuer's cost of capital.\34\
---------------------------------------------------------------------------

    \32\ See, e.g., Christian Leuz & Peter Wysocki, The Economics of
Disclosure and Financial Reporting Regulation, 54 J. Acct. Research
525 (2016); and Anne Beyer, Daniel Cohen, Thomas Lys & Beverly
Walther, The financial reporting environment: Review of the recent
literature, 50 J. Acct. Econ 296 (2010).
    \33\ See, e.g., Douglas W. Diamond & Robert E. Verrecchia,
Disclosure, Liquidity, and the Cost of Capital, 46 J. FIN 1325
(1991).
    \34\ See, e.g., Stephen Brown & Stephen A. Hillegeist, How
Disclosure Quality Affects the Level of Information Asymmetry, 12
Rev. Account. Stud. 443 (2007) (showing how better disclosure
quality reduces information asymmetry); Nilabhra Bhattacharya,
Hemang Desai, & Kumar Venkataraman, Does Earnings Quality Affect
Information Asymmetry? Evidence from Trading Costs, 30 Cont.
Account. Res. 482 (2013) (showing that earnings quality reduces
information asymmetry); Partha Sengupta, Corporate Disclosure
Quality and the Cost of Debt, 73 Account. Rev. 459 (1998) (showing
that high disclosure quality reduces the cost of debt); Christine
Botosan, Disclosure Level and the Cost of Equity Capital, 72 Acc.
Rev. 323 (1997) (finding that disclosure quality reduces the cost of
equity for firms with low analyst coverage); Mark E. Evans,
Commitment and Cost of Equity Capital: An Examination of Timely
Balance Sheet Disclosure in Earnings Announcements, 33 Cont.
Account. Res. 1136 (2016) (finding that ``firms which consistently
disclose balance sheet detail in relatively timely earnings
announcements have lower costs of capital compared to other
firms''); For a survey of financial reporting research, see Anne
Beyer, Daniel A. Cohen, Thomas Z. Lys, & Beverly R. Walther, The
Financial Reporting Environment: Review of the Recent Literature, 50
J. Account. Econ 296 (2010).
---------------------------------------------------------------------------

    Financial reporting quality is in part determined by audit quality.
According to academic studies, PCAOB oversight has led to improvements
in audit quality and to increased investor confidence in the quality of
the audited financial statements.\35\ However, when the PCAOB is unable
to inspect some auditors there is a lack of transparency with respect
to the audit quality provided by such firms. As a result, there is
uncertainty regarding the reliability of the financial information of

issuers audited by firms that are not inspected, which can potentially
lead to suboptimal investment decisions by investors.
---------------------------------------------------------------------------

    \35\ See, e.g., Daniel Aobdia, The Impact of the PCAOB
Individual Engagement Inspection Process--Preliminary Evidence, 93
Account. Rev. 53 (2018) (concluding that ``both audit firms and
clients care about the PCAOB individual engagement inspection
process and, in several instances, gravitate toward the level set by
the Part I Finding bar''); Mark L. DeFond & Clive S. Lennox, Do
PCAOB Inspections Improve the Quality of Internal Control Audits?,
55 J. Account. Res. 591 (2017) (finding evidence consistent with
``PCAOB inspections improving the quality of internal control audits
by prompting auditors to remediate deficiencies in their audits of
internal controls''); Brandon Gipper, Christian Leuz, & Mark
Maffett, Public Oversight and Reporting Credibility: Evidence from
the PCAOB Audit Inspection Regime, 33 Rev. Financ. Stud. 4532
(concluding that ``consistent with an increase in reporting
credibility after the introduction of public audit oversight, we
find that capital market responses to earnings surprises increase
significantly'').
---------------------------------------------------------------------------

    In addition, academic literature provides evidence of varying types
of impact of ownership and control structures on firm value.\36\
Government ownership, in particular, can be related to both risks and
benefits for investors. Evidence in the literature highlights
inefficiencies and expropriation risks as a result of government
ownership or control, whereas other studies provide evidence of easier
access to financing.\37\ Effects from government ownership or control
on firm value may be further amplified when the regulatory environment
in the foreign jurisdiction is weak, and when there is heightened
political risk.\38\
---------------------------------------------------------------------------

    \36\ See, e.g., Andrei Shleifer & Robert Vishny, A survey of
corporate governance, 52 J. Fin. 737 (1997) (discussing both the
theory and empirical evidence on the effect of large shareholders on
firm value).
    \37\ See, e.g., Ginka Borisova, Veljko Fotak, Kateryna Holland &
William Megginson, Government ownership and the cost of debt:
Evidence from government investments in publicly traded firms, 118
J. Fin. Econ. 168 (2015) (showing that during times of firm-specific
or economy-wide distress, the dominant effect of state equity
ownership is a reduction in the cost of debt, consistent with an
implicit debt guarantee of government ownership); Gongmen Chen,
Michael Firth & Liping Xu, Does the type of ownership control
matter? Evidence from China's listed companies, 33 J. Bank. Finance
171 (2009) (finding evidence that the type of government ownership
affects value and performance).
    \38\ See, e.g., Laura Liu, Haibing Shu & John Wei, The impacts
of political uncertainty on asset prices: Evidence from the Bo
scandal in China, 125 J. Fin. Econ 286 (2017) (concluding that
political uncertainty is a priced risk as evidenced by stock price
reactions following the 2012 Bo Xilai political scandal in China;
the study shows amplified effects on prices for state-owned
enterprises and politically connected companies); Bryan Kelly, Lubos
Pastor & Pietro Veronesi, The price of political uncertainty: Theory
and evidence from the option market, 71 J. Fin. 2417 (2016) (finding
that options whose lives span political events tend to be more
expensive, and that such protection is more valuable in a weaker
economy and amid higher political uncertainty).
---------------------------------------------------------------------------

    The required disclosures and submissions will reduce uncertainty
about characteristics that may affect firm value and risk and therefore
could facilitate investors' capital allocation decisions. Some of the
information required to be disclosed under the amendments may be
otherwise available to investors through other sources or overlap with
existing mandated disclosures.\39\ In such cases, we expect the
required disclosures could nevertheless reduce search costs for
investors and potentially enhance investor protection. In addition, the
submission requirement will provide some reassurance to investors that
Commission-Identified Issuers that do not disclose any ownership or
control by governmental entities (in foreign jurisdictions that prevent
PCAOB inspections) are not, in fact, owned or controlled by such
entities.
---------------------------------------------------------------------------

    \39\ See infra section IV.B.1.
---------------------------------------------------------------------------

    The amendments will impose compliance costs on issuers that may
vary based on characteristics of their audit arrangements and ownership
structure. Although these compliance costs, in themselves, may not be
significant for most firms, the costs may nonetheless cause certain
issuers to accelerate their response to other aspects of the HFCA Act,
such as switching audit firms or exiting the U.S. markets altogether.
We do not assess the magnitude of the effects arising from
implementation of other aspects of the HFCA Act, including the trading
prohibition, at this time, as they will depend on the approach taken by
the PCAOB and the Commission to implement those parts of the
statute.\40\ We note, however, that those effects are likely to be much
more significant than the comparatively limited benefits and costs
associated with the current amendments. For similar reasons, our
analysis does not encompass the effects to audit firms of being
identified by the PCAOB as being a firm that it is unable to inspect or
investigate completely.
---------------------------------------------------------------------------

    \40\ See, e.g., Section 104(i)(3) of the Sarbanes-Oxley Act as
added by Section 2 of the HFCA Act.
---------------------------------------------------------------------------

B. Baseline

1. Regulatory Baseline
    The disclosures and submissions required by the amendments will
potentially provide the Commission, as well as market participants,
with more readily accessible and comparable information regarding a
number of Commission-Identified Issuers' characteristics, namely: (1)
The extent of ownership or control by a governmental entity in a
jurisdiction where the PCAOB is unable to inspect or investigate
completely because of a position taken by an authority in that
jurisdiction, (2) the use of a registered public accounting firm in
preparation of an audit report that the PCAOB is unable to fully
inspect, (3) the presence and identity of any official of the CCP who
is a member of the board of directors, and (4) the presence and
specific text of any charter of the CCP contained in the registrant's
articles of incorporation (or equivalent organizing document). We
therefore analyze the extent to which such requirements will change
existing regulatory requirements or the current practices of
potentially affected registrants.
    Compliance with the HFCA Act will require disclosures and
submissions pertaining to the ownership or control of a registrant by a
governmental entity in the foreign jurisdiction of the registered
public accounting firm that the PCAOB is unable to inspect or
investigate completely. In practice, many registrants already include
disclosures similar to the information required by the HFCA Act in the
portions of their respective periodic reports pertaining to registrant-
specific risks.\41\ Others provide detailed diagrams to illustrate
their ownership structure within their descriptions of business or
otherwise seek to inform readers of their variable interest entity
(``VIE'') arrangements within the financial statements included in
periodic disclosures.\42\ The levels of detail and specificity
associated with these disclosures vary, however, and the information
often is not easily comparable across filings given that similar
disclosures may not occur within the same item or section of the
report.\43\
---------------------------------------------------------------------------

    \41\ For example, some registrants may provide these disclosures
in response to Item 105 of Regulation S-K [17 CFR 229.105]
(requiring a registrant to disclose a discussion of the material
factors that make an investment in the registrant or offering
speculative or risky).
    \42\ See FASB Interpretation No. 46, Consolidation of Variable
Interest Entities.
    \43\ See, e.g., Justin Hopkins, Mark H. Lang & Jianxin (Donny)
Zhao, The Rise of US-Listed VIEs from China: Balancing State Control
and Access to Foreign Capital, Darden Business School Working Paper
No. 3119912, Kenan Institute of Private Enterprise Research Paper
No. 19-17 (2018), available at http://dx.doi.org/10.2139/ssrn.3119912 (finding that in 42 percent of reviewed year 2013 Forms
10-K, Chinese firms disclose VIE structure, where ``some firms
simply mention the VIE structure in passing, while others explicitly
disclosing the legal risks of the VIE, documenting which specific
subsidiaries utilize the VIE and providing pro forma balance sheets
and income statements for these subsidiaries, as well as summarizing
the specific contracts including the parties and terms''); See also,
Paul Gillis & Michelle R. Lowry, Son of Enron: Investors Weigh the
Risks of Chinese variable Interest Entities, 26 J. Appl. Corp. Fin.
61 (2014).
---------------------------------------------------------------------------

    One notable exception to this variation in disclosures, however, is
the disclosure by registrants of the PCAOB's inability to conduct
inspections of their respective independent audit firms. We observe a
highly similar type and pattern of disclosure regarding the PCAOB's
inability to inspect those firms included in the majority of the
potential Commission-Identified Issuers' Item 3 (for Form 20-F filers)
and Item 1A (for Form 10-K filers) discussion of risk factors.\44\ Such
disclosures are readily

accessible using the keyword search functionality on the Commission's
EDGAR website.\45\ In addition, similar identification of registrants
whose independent auditors were not fully inspected by the PCAOB due to
limitations and restrictions imposed by authorities in foreign
jurisdictions has historically been available via the PCAOB's dedicated
``Public Companies that are Audit Clients of PCAOB-Registered Firms
from Non-U.S. Jurisdictions where the PCAOB is Denied Access to Conduct
Inspections'' web page.\46\
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    \44\ Staff conducted a review of annual report disclosures using
a combination of Intelligize searches and a manual review of select
filings of Forms 10-K and 20-F. Highly similar language describing
the potential risks associated with the PCAOB's inability to conduct
inspections appeared across at least 65% of annual reports filed
within the same year, including reviewed periods that predate the
initial introduction of the HFCA Act legislation in 2019. As no
single audit firm currently serves more than, at maximum, 20% of
potential Commission-Identified Issuers, the inclusion of standard
disclosures across registrants does not appear to be attributable to
the practices of any individual audit firm. See infra note 53 for a
description of the sample identification methodology.
    \45\ Available at https://www.sec.gov/edgar/ search/.
    \46\ Available at https://pcaobus.org/oversight/international/denied-access-to-inspections.
---------------------------------------------------------------------------

    Under the amendments, Commission-Identified Foreign Issuers will
also be required to disclose the presence and identity of any official
of the CCP who is a member of its board of directors in addition to the
percentage of the shares of the issuer owned by governmental entities
in the foreign jurisdiction in which the issuer is incorporated or
otherwise organized and whether governmental entities in the applicable
foreign jurisdiction with respect to that registered public accounting
firm have a controlling financial interest with respect to the issuer.
At present, some of this information may be elicited by Form 10-K
disclosure requirements \47\ or Form 20-F disclosure requirements.\48\
Because Form 10-K, Part III disclosures may be incorporated by
reference from the registrant's definitive proxy statement if filed
within 120 days of the related Form 10-K fiscal year end, or
alternatively filed as a Form 10-K amendment by the same 120 day
deadline, such disclosures are not currently uniformly present in the
annual report filings of the potentially affected issuers. Moreover,
there are currently no requirements that such disclosures must include
the political party affiliation of those responsible for registrants'
management and oversight, including but not limited to members of the
board. Nor is there a requirement to systematically disclose the
identity and ownership stake of any person or group of persons--
including government entities--who directly or indirectly acquire or
have beneficial ownership of less than five percent of a class of a
Commission-Identified Issuer's securities.
---------------------------------------------------------------------------

    \47\ See 17 CFR 229.401 (Item 401 of Regulation S-K), 17 CFR
229.403 (Item 403 of Regulation S-K), and 17 CFR 229.404 (Item 404
of Regulation S-K), required under Items 10, 12 and 13 of Form 10-K.
Item 401 of Regulation S-K requires disclosure relating to the
identification of directors and a brief description of their
business experience; Item 403 of Regulation S-K requires disclosure
with respect to any person or group that beneficially owns more than
five percent of any class of the registrant's voting securities, as
well as ownership information of executive officers and directors of
the registrant; and Item 404 of Regulation S-K requires disclosure
of transactions between the registrant and related persons, such as
officers, directors and significant shareholders.
    \48\ See Items 6 and 7 of Form 20-F. Item 6 of Form 20-F
requires disclosure relating to the identification and share
ownership of directors and senior management; Item 7 of Form 20-F
requires disclosure with respect to beneficial owners of more than
five percent of any class of the registrant's voting securities,
disclosure with respect to related party transactions, as well as
disclosure of whether the company is directly or indirectly owned or
controlled by another corporation or foreign government and the
nature of that control.
---------------------------------------------------------------------------

    Finally, under the amendments, Commission-Identified Foreign
Issuers will be required to state whether the articles of incorporation
of the issuer (or equivalent organizing document) contains any charter
of the CCP, including the text of any such charter. While periodic
reporting requirements currently instruct registrants to include a
complete copy of the articles of incorporation and bylaws as an exhibit
to the annual report,\49\ there are no requirements to identify the
political or textual origins of any portion of a registrant's articles
of incorporation. In practice, given that a registrant may simply
indicate in its annual report exhibit index that such articles are
incorporated by reference,\50\ few filers include the full text of such
articles, bylaws, or charters in annual report filings after initially
doing so at the time of IPO registration. Similarly, amended or revised
versions of the registrant's articles of incorporation and bylaws are
generally not included in the annual report filing, but are
incorporated by reference as well. In these cases, locating the
submission to which the registrant's complete and most recent version
of its articles of incorporation are attached in their entirety
requires a search and review of the registrant's current reports (on
Forms 8-K or 6-K).\51\ Therefore, under current regulatory requirements
and in practice, the majority of annual reports filed by potential
Commission-Identified Foreign Issuers do not include, neither in part
nor in complete form, the registrant's articles of incorporation, from
which the reader might assess the presence or absence of text from the
charter of the CCP.
---------------------------------------------------------------------------

    \49\ See Item 19, Instruction 1 of Form 20-F and 17 CFR
229.601(b)(3)(i).
    \50\ See 17 CFR 240.12b-23(c).
    \51\ The requirement to submit a Form 6-K in such cases by
registrants that use Form 20-F to file annual reports depends upon
the current reporting requirements of the relevant foreign
jurisdiction. Because potential Commission-Identified Issuers
domiciled, incorporated, or organized in China are required by
Chapter 5 Article 27 of the Regulations of the People's Republic of
China on Administration of Company Registration to file a complete
copy of the revised articles within 30 days of such changes, a
similar requirement to promptly furnish a Form 6-K including the
complete revised articles of incorporation also applies. This
document may then be incorporated by reference in the registrant's
subsequent annual reports. Analogous requirements for registrants
using domestic forms are outlined in Form 8-K, Item 5.03.
---------------------------------------------------------------------------

2. Affected Parties \52\
---------------------------------------------------------------------------

    \52\ As noted above, the amendments may accelerate responses to
other aspects of the HFCA Act, such as switching audit firms or
exiting the U.S. markets altogether. These responses could impact
parties beyond those identified below (e.g., audit firms). For
purposes of this economic analysis, we focus on those parties
affected by the discrete aspects of the HFCA Act being implemented
in this rulemaking.
---------------------------------------------------------------------------

a. Registrants
    Registrants subject to periodic reporting requirements under the
Exchange Act will not be affected by the amendments unless and until
they are Commission-Identified Issuers. Commission identification of
such issuers is in turn contingent upon initial identification of
affected registered public accounting firms that are retained by
registrants with periodic disclosure obligations. Based upon a review
of such registrants in calendar year 2020, we identified 273
registrants for whom future identification as a Commission-Identified
Issuer could be possible on the basis of current facts and
circumstances.\53\ Of these potential Commission-Identified Issuers
candidates, 18.2 percent filed annual disclosures using Form 10-K while
78.2 percent are Form 20-F filers. No filings submitted by potential
candidates were made using Forms 40-F or N-CSR. Among filers,
approximately 22 percent were incorporated in the United States while
78 percent were incorporated in foreign jurisdictions, including 4.8
percent who self-disclosed to be state-

owned enterprises. These registrants' securities are either listed on a
national exchange (88.7 percent), OTC-listed (9.9 percent), or report
no U.S. listing (1.5 percent).\54\
---------------------------------------------------------------------------

    \53\ Analysis is based on staff review of data obtained from the
PCAOB (see supra note 46), Audit Analytics, manual review of all
annual reports filed by foreign issuers using Forms 20-F, 40-F, or
an amendment thereto in calendar year 2020, and review of securities
registered in calendar year 2020 by foreign issuers. This analysis
may potentially be viewed as an upper bound on the future number of
registrants that may be affected by the HFCA requirements as clients
of those firms previously identified by the PCAOB.
    \54\ Using a more conservative approach that looked only to
registrants with at least one annual report filed after the
introduction of the HFCA Act, we further estimated that in calendar
year 2020, 194 registrants submitted an annual report (Form 10-K,
20-F, or an amendment) whose auditor was previously identified by
the PCAOB (see supra note 46) as a registered firm from a non-U.S.
jurisdiction where necessary access to conduct oversight was denied
due to a position taken by local authorities. Based on our
historical analysis of these registrants, 18 percent submitted
annual reports using a domestic form while 82 percent and 0 percent
submitted their annual reports via foreign filings Form 20-F and
Form 40-F respectively. Based on the same population of registrants,
we estimate that approximately three percent of potentially affected
registrants disclosed their securities as listed on two or more
foreign exchanges, approximately nine percent listed on only one
foreign exchange, while approximately 79 percent only disclosed
listing on a U.S. national exchange. Of these registrants, 13 (six
percent) self-identified in their 2020 disclosures as state-owned
enterprises.
---------------------------------------------------------------------------

b. Investors
    The amendments may impact both current investors in affected
registrants as well as potential investors that may consider investing
in these registrants in the future. As mentioned above, at least some
of the information elicited by the required disclosures is likely to
already be available to investors through various existing channels but
at varying costs. As such, we expect that the required disclosures are
likely to affect mostly retail investors who directly invest or
consider investing in affected registrants since it may be more costly
for these investors to obtain such information absent the required
disclosures. Institutional or other sophisticated investors may also be
impacted by the amendments; however, we expect that such impact might
be limited given their resources to obtain the required information
from other sources, when such sources are available.

C. Economic Effects

1. Benefits and Costs of HFCA Act Disclosure Requirements
    For Commission-Identified Foreign Issuers, the amendments will
require specific disclosures to be made in these registrants' annual
reports.\55\ In general, as discussed above, the required disclosures
elicit information that the academic literature shows is value-relevant
to investors. As such, we expect the required disclosures to be
beneficial to investors since they are likely to reduce search costs
when the information in the required disclosure is otherwise available
through other sources or existing disclosures, and also potentially
provide investors with information about aspects of these registrants'
governance characteristics that otherwise might not be available or
relatively costly to obtain. We do not expect significant compliance
costs for Commission-Identified Foreign Issuers given that these
registrants likely already possess the information required by the
amendment; however, registrants may incur additional compliance costs
if the required information is not readily accessible to them or needs
to be formatted for the required disclosure.
---------------------------------------------------------------------------

    \55\ See supra Section II. Disclosure Requirements for a
detailed description of the disclosure requirements mandated by
Section 3 of the HFCA Act.
---------------------------------------------------------------------------

a. Investors
    The amendments will require disclosure that a registered public
accounting firm that the PCAOB is unable to inspect or investigate
completely because of a position taken by an authority in the foreign
jurisdiction has issued an audit report for the registrant. The
disclosure will provide transparency about the inspection status of the
engaged audit firm. As discussed above, the academic literature
provides evidence that the PCAOB's oversight has led to improvements in
audit quality and financial reporting quality, for both domestic and
foreign issuers. The inability of the PCAOB to inspect the auditors of
these registrants could generate uncertainty regarding their financial
reporting quality. Thus, to the extent this information is new to
investors,\56\ we expect the specific required disclosure to
potentially facilitate investors' capital allocation decisions. We
further expect that the presentation of such information in a
standardized form in the annual report is likely to be helpful to
investors by reducing their search costs.
---------------------------------------------------------------------------

    \56\ See supra Section IV.B.1 for a description of current
practice and regulatory requirements regarding disclosure of the
registrant's auditor inspection status.
---------------------------------------------------------------------------

    The amendments will require disclosure of the percentage of the
shares of the registrant owned by a government in the foreign
jurisdiction. As discussed above, government ownership is information
that is likely to facilitate investors' capital allocation decisions.
For example, disclosure of government ownership may allow investors to
better assess potential political risks/effects related to government
ownership in the foreign jurisdiction that may influence the value of
their investment. These benefits would be limited to the extent that
affected registrants already provide disclosure relevant to assessing
such risks.
    In addition to the disclosure of ownership though equity holdings,
the amendments will require affected registrants to disclose whether a
governmental entity has a controlling financial interest in the
registrant. We expect such disclosure may benefit investors as it could
provide information about other mechanisms, besides direct equity
ownership, such as control through a pyramidal ownership structure that
might allow a governmental entity to influence registrants' operational
and other decisions, thus providing additional insight into potential
risks to investors that might arise from such control/ownership
structures.\57\
---------------------------------------------------------------------------

    \57\ See, e.g., Jesse Fried & Ehud Kamar, Alibaba: A Case Study
of Synthetic Control, ECGI Working Paper Series in Law, Paper No
533/2020 (2020) (concluding that control of a firm can be exerted
not only though equity, but rather a mixture of employment,
contractual, and commercial arrangements).
---------------------------------------------------------------------------

    The amendments also require disclosure of board members'
affiliations with the CCP and whether the articles of incorporation of
the registrant (or equivalent organizing document) includes any charter
of the CCP, including the text of any such charter. These disclosures
will enhance existing information on the composition of the board and
could increase insight into its quality and the related consequences
for firm value. One study shows that the degree of a board's political
affiliation in China is related to firm value, and this varies based on
facts and circumstances.\58\ For example, political affiliation of
members of the board may imply that the incentives of such board
members do not align with shareholders' interests, which in turn may
affect registrants' decisions with potentially negative consequence for
the registrants' value. Under different circumstances, politically
connected board members may facilitate the execution of financing
transactions for the registrant. To the extent that these disclosures
may benefit investors by facilitating their efforts to evaluate
characteristics of registrants that may have an impact on the value of
their investments, these specific disclosures

may facilitate investors' capital allocation decisions and potentially
increase investor protection.
---------------------------------------------------------------------------

    \58\ See Lihong Wang, Protection or expropriation: Politically
connected independent directors in China, 55 J. Bank. Fin. 92 (2015)
(using a sample of Chinese listed firms over the 2003-2012 period,
the study finds that the presence of politically connected
independent directors is related to increased firm value for private
firms, but related to lower firm value for state-owned enterprises
(``SOEs''). The study also finds increased related-party
transactions for Chinese listed firms with politically connected
independent directors).
---------------------------------------------------------------------------

b. Registrants
    The required disclosures are likely to impose some compliance costs
on Commission-Identified Foreign Issuers. We do not expect these
compliance costs to be significant since these registrants likely
already possess the information required by the amendments. However, to
the extent that such information is not readily accessible or needs to
be formatted to comply with the required disclosure, we expect
potential additional costs to these registrants.\59\
---------------------------------------------------------------------------

    \59\ For the purpose of the Paperwork Reduction Act, we estimate
that affected registrants will incur on average one burden hour to
prepare and review the information needed for the HFCA Act Section 3
disclosure requirements; see infra Section V.C.
---------------------------------------------------------------------------

    The required disclosures may impact the cost of capital for some
affected registrants. As discussed above, empirical evidence suggests
that the information elicited by the required disclosures is, in
general, related to potential risks and more broadly to firm value.\60\
We discuss the potential impact of the required disclosures on affected
registrants' cost of capital further below, but note that the magnitude
of any such impact is likely to be moderated depending on the extent
information is otherwise available to investors.
---------------------------------------------------------------------------

    \60\ See supra section IV.A.
---------------------------------------------------------------------------

    The required disclosure regarding the use of a non-inspected firm
to audit the registrant's annual report, which will now be required in
a standardized manner, may lead investors to re-evaluate potential
risks related to financial reporting quality due to the inability of
the PCAOB to inspect the auditors of these registrants. Academic
literature shows that PCAOB oversight is broadly related to
improvements of audit quality, and also investor perceptions of such
audit quality.\61\ As described above, many registrants already
disclose, and also provide a discussion of, the risks or decreased
benefits associated with using a non-inspected auditor.\62\ Given the
extent to which information specifically required in the new
disclosures overlaps with disclosures already observed in practice, in
addition to the information being available from other sources such as
the PCAOB, we expect the impact of these specific required disclosures
on affected registrants' cost of capital to be small.
---------------------------------------------------------------------------

    \61\ See supra section IV.A.
    \62\ See supra section IV.B.1.
---------------------------------------------------------------------------

    Section 3 of the HFCA Act also requires registrants to disclose
information in a standardized manner in annual reports about their
ownership and control structures, including the magnitude of direct
equity ownership by a government in non-cooperating foreign
jurisdictions and the degree of control a government in the non-
cooperating jurisdiction may exert on the registrant through channels
other than ownership. As described above, government ownership and
control is likely to have an impact on the registrant's decision-making
processes, and such impact is likely to vary under facts and
circumstances.\63\ The required disclosures may affect registrants'
cost of capital insofar as the information disclosed triggers a re-
assessment of the affected registrant's exposure to governmental
ownership or control.
---------------------------------------------------------------------------

    \63\ See supra section IV.A.
---------------------------------------------------------------------------

    The amendments also will require registrants to disclose
information about potential additional links to the CCP. Such
disclosure is likely to be informative of the registrant's governance,
and may also lead investors to re-assess potential political risks that
may not have been previously known through existing registrants'
disclosures. For example, such links between the registrant and the CCP
may indicate increased political influence on registrants' decision-
making processes and consequent impacts on registrants' value. While
some, but not all, of the information in the required disclosures may
already be publicly available through disclosures in forms other than
in annual reports, the content of such disclosures may not be
standardized across registrants. We expect these specific disclosures
may potentially impact registrants' cost of capital, particularly for
registrants about which such information is not otherwise known by the
market.
2. Benefits and Costs of HFCA Act Submission Requirement
    The amendments implementing the submission requirement of Section
104(i)(1)(B) of the Sarbanes-Oxley Act (as added by Section 2 of the
HFCA Act) provide that a Commission-Identified Issuer that is not owned
or controlled by a foreign governmental entity in a foreign
jurisdiction that prevents PCAOB inspections must submit documentation
to the Commission that establishes that the registrant is not so owned
or controlled. As discussed above, the amendments specify that if an
affected registrant is owned or controlled by a foreign governmental
entity, it will not be required to submit such documentation. We
estimate in the baseline that a large majority of current registrants
that are potential future Commission-Identified Issuers are also
foreign issuers that will be subject to the disclosures required by
Section 3 of the HFCA Act. Therefore, we expect the submission
requirement to serve as a complement to these required disclosures.
a. Investors
    We anticipate that requiring Commission-Identified Issuers to
provide documentation to support a lack of foreign control will provide
further reassurance to investors that the registrants' disclosures in
this regard are materially accurate and complete. In particular,
because the submission requirement generally would apply to those
Commission-Identified Issuers who otherwise do not disclose that they
are owned or controlled by a foreign governmental entity, this
requirement will provide some reassurance to investors that such
control does not exist. We believe that greater certainty about which
Commission-Identified Issuers lack governmental ownership and control
may improve investors' assessments of the risks of investing in
Commission-Identified Issuers' securities. If the submitted
documentation is made publicly available, we expect the reassurance
benefit to be larger than if the submission is retained non-publicly by
the Commission. Because affected registrants will have flexibility to
determine the specific types of documentation to submit to the
Commission, if the submitted documentation is made publicly available,
we expect the magnitude of the reassurance benefit to depend on the
nature of information issuers submit. We generally expect this
reassurance benefit to be limited given the HFCA Act's required Section
3 disclosure and other information about ownership and control required
by existing Commission rules.\64\
---------------------------------------------------------------------------

    \64\ See supra section IV.B.1 for a description of current
regulatory requirements regarding disclosure of ownership and
control more generally.
---------------------------------------------------------------------------

    Because we expect the submission requirement to impose (on average)
only minor compliance costs on affected registrants and no other
significant costs, we also do not generally expect any significant
negative effects on investors from this requirement, such as a
reduction in the prices of affected registrants' securities they
currently own.
b. Registrants
    Commission-Identified Issuers who lack ownership or control by a
governmental entity in the foreign

jurisdiction of the registered public accounting firm that the PCAOB is
unable to inspect or investigate completely will incur some direct
compliance costs related to producing the documentation they will be
required to submit to the Commission. The magnitude of these compliance
costs will depend on how easily the affected registrants can produce
documentation to satisfy the submission requirement. The amendments do
not specify particular types of documentation that can or must be
submitted to satisfy this requirement. Affected registrants will thus
have flexibility to determine how best to establish that they are not
owned or controlled by a foreign governmental entity. This should help
limit compliance costs, as registrants will be able to produce
documentation that is suited to their particular circumstances. At the
same time, at least as an initial matter, uncertainty about the scope
of the requirement could lead some registrants to seek additional
advice from attorneys and other advisers, which could marginally
increase compliance costs. Overall, because we expect that affected
registrants will have information readily available about their
ownership structures and controlling parties, we expect the direct
compliance costs associated with this requirement will be minor.\65\
---------------------------------------------------------------------------

    \65\ For the purpose of the Paperwork Reduction Act, we estimate
that affected registrants will incur on average one burden hour to
prepare and review the information needed for the HFCA Act Section 2
submission requirements; see infra Section V.C.
---------------------------------------------------------------------------

3. Impact on Efficiency, Competition, and Capital Formation
    As discussed above, the required disclosures may provide new or
more easily accessible information about whether registrants have
retained non-inspected registered auditors and whether such registrants
are owned or controlled by governmental entities of the foreign
jurisdictions that prevent PCAOB inspections. To the extent this
disclosed information is new or reduces search costs, we expect it
could potentially reduce information asymmetries in securities markets,
thereby improving price efficiency and helping investors achieve more
efficient portfolio allocations. Overall, we believe that any
efficiency gains will be modest since the potential increase in
informational content and reduction in search costs to investors is
likely to be limited given existing disclosures.
    To the extent the amendments will reduce information asymmetries,
affected registrants may experience a change in cost of capital (either
a reduction or an increase is possible, depending on circumstances),
which may in turn affect capital formation. However, similar to any
effects on efficiency, we expect such capital formation effects to be
small in aggregate. Likewise, we do not expect the amendments to
significantly impact overall competition, based on the expected low
compliance costs for registrants and the expected limited incremental
impact on investors' information environment. However, we do not rule
out that there could be instances where the required disclosures
provide new information about some registrants that could potentially
impact (either positively or negatively) their individual competitive
situation due to investors' reassessment of such registrants' risk and
prospects.

V. Paperwork Reduction Act

A. Background

    Certain provisions of Form 10-K and Form 20-F that will be affected
by the interim final amendments contain ``collection of information''
requirements within the meaning of the Paperwork Reduction Act of 1995
(``PRA'').\66\ The Commission is submitting the interim final
amendments to the Office of Management and Budget (``OMB'') for review
in accordance with the PRA.\67\ The titles for the collections of
information are:
---------------------------------------------------------------------------

    \66\ 44 U.S.C. 3501 et seq. As noted in Section IV above, based
on recent Form 40-F filings, no Form 40-F registrants reported
having retained a registered public accounting firm located in a
foreign jurisdiction, and therefore we estimate that no Form 40-F
registrants will be subject to the requirements of the interim final
amendments upon their adoption. Accordingly, we are not making any
revisions to the PRA burden estimates for Form 40-F at this time.
Additionally, as noted above, based on recent Form N-CEN filings, no
registered investment company reported having retained a registered
public accounting firm located in a foreign jurisdiction, and
therefore we estimate that no registered investment companies will
be subject to the requirements of the interim final amendments upon
their adoption. Accordingly, we are not making any revisions to the
PRA burden estimates for Form N-CSR at this time. See supra note 33.
    \67\ 44 U.S.C. 3507(d) and 5 CFR 1320.11.
---------------------------------------------------------------------------

    ``Form 10-K'' (OMB Control No. 3235-0063); and
    ``Form 20-F'' (OMB Control No. 3235-0288).
    An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information requirement unless it
displays a currently valid OMB control number. Compliance with the
information collections is mandatory. Responses to the information
collections are not kept confidential and there is no mandatory
retention period for the information disclosed. The affected forms were
adopted under the Exchange Act and set forth the disclosure
requirements for annual reports filed by registrants to help investors
make informed investment decisions. The hours and costs associated with
preparing and filing the forms constitute reporting and cost burdens
imposed by each collection of information.

B. Summary of the Amendments

    As described in more detail above, we are adopting interim final
amendments to implement the disclosure and submission requirements of
the HFCA Act. The amendments will require certain disclosure from
foreign issuers relating to foreign jurisdictions that prevent PCAOB
inspections and require all registrants to submit documentation to the
Commission establishing that such a covered issuer is not owned or
controlled by a governmental entity in that foreign jurisdiction.

C. Burden and Cost Estimates Related to the Amendment

    We anticipate that new disclosure and submission requirements will
increase the burdens and costs for these registrants. We derived our
burden hour and cost estimates by estimating the average amount of time
it would take a registrant to prepare and review the required
disclosure and submission, as well as the average hourly rate for
outside professionals who assist with such preparation. In addition,
our burden estimates are based on several assumptions.
    For the HFCA Act Section 3 disclosure requirements we estimated the
number of affected registrants by determining the number of foreign
issuer registrants that retained registered public accounting firms
that issued an audit report and are located in a jurisdiction where
obstacles to PCAOB inspections exist. For the Section 104(i)(1)(B) of
the Sarbanes-Oxley Act (as added by Section 2 of the HFCA Act)
submission requirements we estimated the number of affected registrants
by determining the number of registrants that retained registered
public accounting firms that issued an audit report and are located in
a jurisdiction where obstacles to PCAOB inspections exist. Based on
these estimates, for purposes of the PRA, we estimate that there will
be:
     No affected Form 10-K filers for the HFCA Act Section 3
disclosure requirements and 55 affected filers for the Section
104(i)(1)(B) of the Sarbanes-Oxley Act submission requirement; and
     Two hundred twenty affected Form 20-F filers for the HFCA
Act Section 3

disclosure requirements and 206 affected filers for the Section
104(i)(1)(B) of the Sarbanes-Oxley Act submission requirement.\68\
---------------------------------------------------------------------------

    \68\ See supra Section IV.B.2.A. Based on the data and analysis
described in Section IV above, for purposes of the PRA we estimate
that approximately 275 registrants may be affected by the rules, of
which we estimate 20 percent are U.S. registrants that file on Form
10-K (55 registrants) and 80 percent are foreign issuers that file
on Form 20-F (220 registrants). For purposes of the HFCA Act Section
3 disclosure requirement, we estimate that only foreign filers
filing on Form 20-F will be required to provide the disclosure (220
registrants). For purposes of the Section 104(i)(1)(B) of the
Sarbanes-Oxley Act submission requirement, we estimate that
approximately five percent of the affected registrants are state-
owned entities and will not be required to prepare the submission.
As a result, we estimate that U.S. registrants that file on Form 10-
K (55 registrants) and foreign issuers that file on Form 20-F but
are not state-owned entities (206) will be required to provide the
submission.
---------------------------------------------------------------------------

    Commission-Identified Issuers will generally have information
readily available about their audit arrangements, ownership structures,
and controlling parties. Therefore we estimate that the average
incremental burden for an affected registrant to prepare the submission
would be 1 hour and for an affected registrant that is a foreign issuer
to prepare the disclosure would be 1 hour. These estimates represent
the average burdens for all affected registrants, both large and small.
In deriving our estimates, we recognize that the burdens will likely
vary among individual registrants based on a number of factors,
including the size and complexity of their operations. We believe that
some registrants will experience costs in excess of this average and
some registrants may experience less than the average costs.
    The table below shows the total annual compliance burden, in hours
and in costs, of the collection of information resulting from the
interim final amendments.\69\ The burden estimates were calculated by
multiplying the estimated number of responses by the estimated average
amount of time it would take a registrant to prepare and review the
required information. The portion of the burden carried by outside
professionals is reflected as a cost, while the portion of the burden
carried by the registrant internally is reflected in hours. For
purposes of the PRA, we estimate that 75 percent of the burden of
preparation of Form 10-K and Form 20-F is carried by the registrant
internally and that 25 percent of the burden of preparation is carried
by outside professionals retained by the registrant at an average cost
of $400 per hour.\70\
---------------------------------------------------------------------------

    \69\ The table's estimated number of responses aggregates the
responses for both the disclosure requirement and the submission
requirement. Some registrants will be counted twice, once for each
response. For convenience, the estimated hour and cost burdens in
the table have been rounded to the nearest whole number.
    \70\ We recognize that the costs of retaining outside
professionals may vary depending on the nature of the professional
services, but for purposes of this PRA analysis we estimate that
such costs will be an average of $400 per hour. This estimate is
based on consultations with several registrants, law firms and other
persons who regularly assist registrants in preparing and filing
periodic reports with the Commission.

                                        Table 1--Incremental Paperwork Burden Under the Interim Final Amendments.
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             Estimated
                                                             number of      Incremental        Total                       Professional    Professional
                                                             affected      burden hours/    incremental     Company 75%         25%            costs
                                                             responses         form        burden hours
                                                                     (A)             (B)     (C) = (A) *     (D) = (C) *     (E) = (C) *     (F) = (E) *
                                                                                (B)            0.75            0.25            $400
--------------------------------------------------------------------------------------------------------------------------------------------------------
Form 10-K (submission)..................................              55               1              55              41              14          $5,600
Form 20-F (submission)..................................             206               1             206             155              52          20,800
Form 20-F (disclosure)..................................             220               1             220             165              55          22,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

Request for Comment

    We request comments in order to evaluate: (1) Whether the
collection of information is necessary for the proper performance of
the functions of the agency, including whether the information would
have practical utility; (2) the accuracy of our estimate of the burden
of the collection of information; (3) whether there are ways to enhance
the quality, utility and clarity of the information to be collected;
and (4) whether there are ways to minimize the burden of the collection
of information on those who are to respond, including through the use
of automated collection techniques or other forms of information
technology.\71\ Specifically, we request comment on the estimated
number or percentage of affected registrants.
---------------------------------------------------------------------------

    \71\ We request comment pursuant to 44 U.S.C. 3506(c)(2)(B).
---------------------------------------------------------------------------

    Any member of the public may direct to us any comments concerning
the accuracy of these burden estimates and any suggestions for reducing
these burdens. Persons who desire to submit comments on the collection
of information requirements should direct their comments to the Office
of Management and Budget, Attention: Desk Officer for the Securities
and Exchange Commission, Office of Information and Regulatory Affairs,
Washington, DC 20503, and send a copy of the comments to Vanessa A.
Countryman, Secretary, Securities and Exchange Commission, 100 F Street
NE, Washington, DC 20549, with reference to File No. S7-03-21. Requests
for materials submitted to the OMB by us with regard to these
collections of information should be in writing, refer to File No. S7-
03-21 and be submitted to the Securities and Exchange Commission,
Office of FOIA Services, 100 F Street NE, Washington DC 20549.
    Because the OMB is required to make a decision concerning the
collections of information between 30 and 60 days after publication, a
comment to the OMB is best assured of having its full effect if the OMB
receives it within 30 days of publication.

VI. Statutory Authority

    The amendments contained in this release are being adopted under
the authority set forth in Sections 2 and 3 of the HFCA Act, Section
104 of the Sarbanes-Oxley Act, Sections 3, 12, 13, 15(d), and 23(a) of
the Exchange Act, and Sections 8(b), 24(a), 30(a), and 38(a) of the
Investment Company Act.

List of Subjects

17 CFR Part 249

    Reporting and recordkeeping requirements, Securities.

17 CFR Parts 274

    Investment companies, Reporting and recordkeeping requirements,
Securities.

Text of Rule Amendments

    In accordance with the foregoing, the Commission amends title 17,
chapter II of the Code of Federal Regulations as follows:

PART 249--FORMS, SECURITIES EXCHANGE ACT OF 1934

0
1. The general authority citation for part 249 and sectional authority
citation for Sec.  249.220f are revised to read as follows:

    Authority: 15 U.S.C. 78a et seq. and 7201 et seq.; 12 U.S.C.
5461 et seq.; 18 U.S.C. 1350; Sec. 953(b) Pub. L. 111-203, 124 Stat.
1904; Sec. 102(a)(3) Pub. L. 112-106, 126 Stat. 309 (2012), Sec. 107
Pub. L. 112-106, 126 Stat. 313 (2012), Sec. 72001 Pub. L. 114-94,
129 Stat. 1312 (2015), and secs. 2 and 3 Pub. L. 116-222, 134 Stat.
1063 (2020), unless otherwise noted.
    Section 249.220f is also issued under secs. 3(a), 202, 208, 302,
306(a), 401(a), 401(b), 406 and 407, Pub. L. 107-204, 116 Stat. 745,
and secs. 2 and 3, Pub. L. 116-222, 134 Stat. 1063.
* * * * *

0
2. Amend Form 20-F (referenced in Sec.  249.220f) by adding new Item
16I. to read as follows:

    Note:  The text of Form 20-F does not, and this amendment will
not, appear in the Code of Federal Regulations.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 20-F

* * * * *

PART II

* * * * *
Item 16I. Disclosure Regarding Foreign Jurisdictions that Prevent
Inspections.
    (a) A registrant identified by the Commission pursuant to Section
104(i)(2)(A) of the Sarbanes-Oxley Act of 2002 (15 U.S.C.
7214(i)(2)(A)) as having retained, for the preparation of the audit
report on its financial statements included in the Form 20-F, a
registered public accounting firm that has a branch or office that is
located in a foreign jurisdiction and that the Public Company
Accounting Oversight Board has determined it is unable to inspect or
investigate completely because of a position taken by an authority in
the foreign jurisdiction must electronically submit to the Commission
on a supplemental basis documentation that establishes that the
registrant is not owned or controlled by a governmental entity in the
foreign jurisdiction. The registrant must submit this documentation on
or before the due date for this form. A registrant that is owned or
controlled by a foreign governmental entity is not required to submit
such documentation.
    (b) A registrant that is a foreign issuer, as defined in 17 CFR
240.3b-4, identified by the Commission pursuant to Section 104(i)(2)(A)
of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7214(i)(2)(A)) as having
retained, for the preparation of the audit report on its financial
statements included in the Form 20-F, a registered public accounting
firm that has a branch or office that is located in a foreign
jurisdiction and that the Public Company Accounting Oversight Board has
determined it is unable to inspect or investigate completely because of
a position taken by an authority in the foreign jurisdiction, for each
year in which the registrant is so identified, must disclose:
    (1) That, for the immediately preceding annual financial statement
period, a registered public accounting firm that the PCAOB was unable
to inspect or investigate completely, because of a position taken by an
authority in the foreign jurisdiction, issued an audit report for the
registrant;
    (2) The percentage of shares of the registrant owned by
governmental entities in the foreign jurisdiction in which the
registrant is incorporated or otherwise organized;
    (3) Whether governmental entities in the applicable foreign
jurisdiction with respect to that registered public accounting firm
have a controlling financial interest with respect to the registrant;
    (4) The name of each official of the Chinese Communist Party who is
a member of the board of directors of the registrant or the operating
entity with respect to the registrant; and
    (5) Whether the articles of incorporation of the registrant (or
equivalent organizing document) contains any charter of the Chinese
Communist Party, including the text of any such charter.
Instruction to Item 16I:
    Item 16I only applies to annual reports, and not to registration
statements on Form 20-F.
* * * * *
0
3. Amend Form 40-F (referenced in Sec.  249.240f) by adding new
paragraph B.18. to read as follows:

    Note: The text of Form 40-F does not, and this amendment will
not, appear in the Code of Federal Regulations.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 40-F

* * * * *

GENERAL INSTRUCTIONS

* * * * *

B. Information To Be Filed on This Form

    (18) Disclosure Regarding Foreign Jurisdictions that Prevent
Inspections.
    (a) A registrant identified by the Commission pursuant to Section
104(i)(2)(A) of the Sarbanes-Oxley Act of 2002 (15 U.S.C.
7214(i)(2)(A)) as having retained, for the preparation of the audit
report on its financial statements included in the Form 40-F, a
registered public accounting firm that has a branch or office that is
located in a foreign jurisdiction and that the Public Company
Accounting Oversight Board has determined it is unable to inspect or
investigate completely because of a position taken by an authority in
the foreign jurisdiction must electronically submit to the Commission
on a supplemental basis documentation that establishes that the
registrant is not owned or controlled by a governmental entity in the
foreign jurisdiction. The registrant must submit this documentation on
or before the due date for this form. A registrant that is owned or
controlled by a foreign governmental entity is not required to submit
such documentation.
    (b) A registrant that is a foreign issuer, as defined in 17 CFR
240.3b-4, identified by the Commission pursuant to Section 104(i)(2)(A)
of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7214(i)(2)(A)) as having
retained, for the preparation of the audit report on its financial
statements included in the Form 40-F, a registered public accounting
firm that has a branch or office that is located in a foreign
jurisdiction and that the Public Company Accounting Oversight Board has
determined it is unable to inspect or investigate completely because of
a position taken by an authority in the foreign jurisdiction, for each
year in which the registrant is so identified, must disclose:
    (i) That, for the immediately preceding annual financial statement
period, a registered public accounting firm that the PCAOB was unable
to inspect or investigate completely, because of a position taken by an
authority in the foreign jurisdiction, issued an audit report for the
registrant;
    (ii) The percentage of shares of the registrant owned by
governmental entities in the foreign jurisdiction in

which the registrant is incorporated or otherwise organized;
    (iii) Whether governmental entities in the applicable foreign
jurisdiction with respect to that registered public accounting firm
have a controlling financial interest with respect to the registrant;
    (iv) The name of each official of the Chinese Communist Party who
is a member of the board of directors of the registrant or the
operating entity with respect to the registrant; and
    (v) Whether the articles of incorporation of the registrant (or
equivalent organizing document) contains any charter of the Chinese
Communist Party, including the text of any such charter.

     Note to paragraph (18) of General Instruction B: Instruction
(B)(18) only applies to annual reports, and not to registration
statements on Form 40-F.

* * * * *
0
4. Amend Form 10-K (referenced in Sec.  249.310) by adding new Item 9C.
to Part II to read as follows:

    Note: The text of Form 10-K does not, and this amendment will
not, appear in the Code of Federal Regulations.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

* * * * *

Part II

* * * * *
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent
Inspections.
    (a) A registrant identified by the Commission pursuant to Section
104(i)(2)(A) of the Sarbanes-Oxley Act of 2002 (15 U.S.C.
7214(i)(2)(A)) as having retained, for the preparation of the audit
report on its financial statements included in the Form 10-K, a
registered public accounting firm that has a branch or office that is
located in a foreign jurisdiction and that the Public Company
Accounting Oversight Board has determined it is unable to inspect or
investigate completely because of a position taken by an authority in
the foreign jurisdiction must electronically submit to the Commission
on a supplemental basis documentation that establishes that the
registrant is not owned or controlled by a governmental entity in the
foreign jurisdiction. The registrant must submit this documentation on
or before the due date for this form. A registrant that is owned or
controlled by a foreign governmental entity is not required to submit
such documentation.
    (b) A registrant that is a foreign issuer, as defined in 17 CFR
240.3b-4, identified by the Commission pursuant to Section 104(i)(2)(A)
of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7214(i)(2)(A)) as having
retained, for the preparation of the audit report on its financial
statements included in the Form 10-K, a registered public accounting
firm that has a branch or office that is located in a foreign
jurisdiction and that the Public Company Accounting Oversight Board has
determined it is unable to inspect or investigate completely because of
a position taken by an authority in the foreign jurisdiction, for each
year in which the registrant is so identified, must disclose:
    (1) That, for the immediately preceding annual financial statement
period, a registered public accounting firm that the PCAOB was unable
to inspect or investigate completely, because of a position taken by an
authority in the foreign jurisdiction, issued an audit report for the
registrant;
    (2) The percentage of shares of the registrant owned by
governmental entities in the foreign jurisdiction in which the
registrant is incorporated or otherwise organized;
    (3) Whether governmental entities in the applicable foreign
jurisdiction with respect to that registered public accounting firm
have a controlling financial interest with respect to the registrant;
    (4) The name of each official of the Chinese Communist Party who is
a member of the board of directors of the registrant or the operating
entity with respect to the registrant; and
    (5) Whether the articles of incorporation of the registrant (or
equivalent organizing document) contains any charter of the Chinese
Communist Party, including the text of any such charter.
0
5. Amend Form N-CSR (referenced in Sec. Sec.  249.331 and 274.128) by
adding new paragraphs (i) and (j) to Item 4 to read as follows:

    Note: The text of Form N-CSR does not, and this amendment will
not, appear in the Code of Federal Regulations.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM N-CSR

* * * * *
Item 4. Principal Accountant Fees and Services
* * * * *
    (i) A registrant identified by the Commission pursuant to Section
104(i)(2)(A) of the Sarbanes-Oxley Act of 2002 (15 U.S.C.
7214(i)(2)(A)), as having retained, for the preparation of the audit
report on its financial statements included in the Form N-CSR, a
registered public accounting firm that has a branch or office that is
located in a foreign jurisdiction and that the Public Company
Accounting Oversight Board has determined it is unable to inspect or
investigate completely because of a position taken by an authority in
the foreign jurisdiction must electronically submit to the Commission
on a supplemental basis documentation that establishes that the
registrant is not owned or controlled by a governmental entity in the
foreign jurisdiction. The registrant must submit this documentation on
or before the due date for this form. A registrant that is owned or
controlled by a foreign governmental entity is not required to submit
such documentation.
    (j) A registrant that is a foreign issuer, as defined in 17 CFR
240.3b-4, identified by the Commission pursuant to Section 104(i)(2)(A)
of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7214(i)(2)(A)), as having
retained, for the preparation of the audit report on its financial
statements included in the Form N-CSR, a registered public accounting
firm that has a branch or office that is located in a foreign
jurisdiction and that the Public Company Accounting Oversight Board has
determined it is unable to inspect or investigate completely because of
a position taken by an authority in the foreign jurisdiction, for each
year in which the registrant is so identified, must disclose:
    (1) That, for the immediately preceding annual financial statement
period, a registered public accounting firm that the PCAOB was unable
to inspect or investigate completely, because of a position taken by an
authority in the foreign jurisdiction, issued an audit report for the
registrant;
    (2) The percentage of shares of the registrant owned by
governmental entities in the foreign jurisdiction in which the
registrant is incorporated or otherwise organized;
    (3) Whether governmental entities in the applicable foreign
jurisdiction with respect to that registered public accounting firm
have a controlling financial interest with respect to the registrant;
    (4) The name of each official of the Chinese Communist Party who is
a member of the board of directors of the registrant or the operating
entity with respect to the registrant; and

    (5) Whether the articles of incorporation of the registrant (or
equivalent organizing document) contains any charter of the Chinese
Communist Party, including the text of any such charter.
* * * * *

    By the Commission.

    Dated: March 18, 2021.
Vanessa A. Countryman,
Secretary.
[FR Doc. 2021-06292 Filed 4-2-21; 8:45 am]
BILLING CODE 8011-01-P