SEC Revisits Foreign Private Issuer Eligibility

I. Executive Summary

On June 4, 2025, the Securities and Exchange Commission (SEC) published a Concept Release on Foreign Private Issuer Eligibility (the Concept Release) inviting public comment on potential amendments to the definition of “foreign private issuer” (FPI). The Concept Release represents a preliminary step in rulemaking; specific proposals for rules may come at a later date. 

FPIs benefit from multiple accommodations to the SEC’s disclosure regime compared to U.S. domestic registrants, reflecting longstanding deference to home country regulation of these companies. In evaluating whether such accommodations remain appropriate given the nature of companies who currently qualify as foreign private issuers and where their securities predominantly trade, the SEC presents market data (including from a December 2024 study by the SEC’s Division of Economic and Risk Analysis).^[1] The SEC data show significant shifts in the FPI landscape since the definition's last revision in 1999, in particular the jurisdictions where FPIs are organized and headquartered. The Concept Release notes that, in 2003, the top two jurisdictions in terms of jurisdiction of incorporation and headquarters were Canada and the United Kingdom. In 2023, the Cayman Islands represented the top jurisdiction of incorporation, and China represented the location in which the largest number of FPIs were headquartered. The SEC also stated that a majority of FPIs now trade predominantly in U.S. markets, and increasing numbers are organized under the laws of jurisdictions with what the SEC characterized as having minimal regulatory oversight of public companies under local corporate law.

Given this evolution in the demographics of FPIs, the SEC seeks to reassess whether the existing FPI definition appropriately balances the protection of investors with the promotion of capital formation. The Concept Release highlights six possible approaches to amending the FPI definition: (i) updating the existing FPI eligibility criteria; (ii) adding a foreign trading volume requirement; (iii) adding a major foreign exchange listing requirement; (iv) requiring that each FPI be incorporated or headquartered in a jurisdiction that the SEC determines to have a robust regulatory and oversight framework; (v) developing robust mutual recognition systems; and (vi) adding an international cooperation arrangement requirement.

The Concept Release solicits public comment within 90 days following publication in the Federal Register on whether current accommodations should continue to apply to foreign issuers that qualify as FPIs or be amended. Any resulting regulatory adjustments could significantly impact any issuers who would no longer qualify as FPIs, subjecting them to the more demanding regime for domestic issuers as early as the first day of the issuer’s following fiscal year, unless the SEC’s adopting release provides additional grace periods. This change would accelerate disclosure obligations and would subject them to, among other things, quarterly reporting, U.S. proxy rules, Regulation FD, and Section 16 of the Securities Exchange Act of 1934 (Exchange Act). Additionally, such issuers would need to present financial statements in accordance with U.S. GAAP. 

Stakeholders are encouraged to submit comments to help the SEC evaluate potential reforms for FPI eligibility.

II. The Current FPI Definition and FPI Accommodations

Any foreign issuer (other than a foreign government) can qualify as an FPI:

• If 50% or less of its outstanding voting securities are held of record directly or indirectly by U.S. residents (U.S. Shareholder Test); or
• If more than 50% of its outstanding voting securities are held of record by U.S. residents, and it has none of the following contacts with the United States: (1) a majority of its executive officers or directors are U.S. citizens or residents; (2) more than 50% of its assets are located in the United States; or (3) its business is administered principally in the United States (collectively, the U.S. Business Contacts Test).^[2]

A flowchart providing application of both the U.S. Shareholder Test and U.S. Business Contacts Test is below as Appendix A.

Benefits of FPI Status

The SEC has recognized that foreign companies face significant challenges when accessing U.S. markets that are inapplicable to U.S. companies. Accordingly, the reporting regime applicable to FPIs has consistently provided regulatory flexibilities to FPIs that aim to balance the need for investor protection with certain accommodations and regulatory relief. In accordance with this framework, FPIs are afforded numerous disclosure, governance, and financial statement accommodations due to the nature of their non-U.S. status and the regulations and reporting requirements imposed on them in their respective domestic jurisdictions. The following chart sets forth some of the accommodations that SEC rules currently afford to FPIs.

III. Is There a Need to Amend the FPI Rules? Data in the Concept Release

Based on its staff's analysis of FPIs filing on Form 20-F between 2003 and 2023, the SEC highlights several key trends that it states may merit revisiting the thresholds for FPI status and who should benefit from the accommodations afforded to FPIs.

• Geographic and Jurisdictional Realignment: In 2003, the most common FPI jurisdictions in terms of place of incorporation and headquarters were Canada and the United Kingdom. In 2023, issuers incorporated in the Cayman Islands, which grew from 13 FPIs in 2003 to 322 in 2023, were the most prevalent, with mainland China the most common headquarters jurisdiction for FPIs reporting in the United States, growing from 20 FPIs in 2003 to 219 in 2023. The SEC noted a link between these two trends, with a “strong tendency” for China-based Issuers to be incorporated under the laws of the Cayman Islands or British Virgin Islands. In 2023, 48% of FPIs had differing jurisdictions of incorporation and headquarters, up from just 7% in 2003.
• U.S.-Centered Trading Activity: A majority of FPIs now rely almost exclusively on U.S. capital markets for trading. In 2023, for approximately 55% of FPIs, 99% or more of equity trading volume occurred in the United States, effectively making the U.S. their primary or sole trading venue. The SEC's analysis notes, however, that while these “U.S. Exclusive FPIs” represent a majority in number, they tend to be smaller and account for only about 9.2% of the total aggregate market capitalization of all FPIs who file annual reports on Form 20-F (20-F FPIs). The SEC also found that U.S. Exclusive FPIs “have a higher propensity of being incorporated in the Cayman Islands and headquartered in China.”
• Regulatory Mismatch: Based on these trends, the SEC expresses concern that the shift in prevalence of FPI jurisdictions means that many issuers now operate from home countries that “have varying levels of disclosure requirements, including some that rely on the FPI regulatory framework in the United States to be the primary set of regulations governing their issuers.” The SEC is concerned that its accommodations, combined with limited home-country rules, may result in “less information about 20-F FPIs being made available to U.S. investors than in the past.” This situation is expressed in the Concept Release as further compounded by the fact that some foreign regulators exempt issuers from local reporting if they qualify as an FPI in the United States; meaning, in short, that the “SEC's rules and regulations might effectively be providing the primary or sole source of reporting requirements.” The SEC expresses the potential for regulatory arbitrage as at odds with the historical basis for the FPI framework.

The SEC Commissioners reemphasized these issues at the June 4 open meeting during their colloquy with the staff. Chair Atkins called for “balance between accommodation and accountability,” Commissioner Peirce stressed the need to revisit the rationale for FPI accommodations and to ensure that U.S. investors have access to material disclosure regardless of issuer domicile, Commissioner Uyeda advocated for a substantive, “data-driven” regulatory approach, and Commissioner Crenshaw highlighted the risk of U.S. markets becoming part of a global “regulatory loophole.” 

IV. The SEC’s Proposed Approaches and Associated Considerations

The Concept Release outlines six potential, and not mutually exclusive, regulatory responses and solicits feedback through detailed questions. 

1. Modernizing Existing Eligibility Tests 

The SEC is considering whether to update and refine the existing two-part test for FPI status, the U.S. Shareholder Test and the U.S. Business Contacts Test, rather than adding new tests. Potential refinements include lowering the 50% U.S. resident ownership threshold in the shareholder test, which would require more foreign issuers to apply the stricter business contacts test. The SEC is also considering revisions to the business contacts test itself, such as updating the threshold for what percentage of an issuer's assets can be located in the United States.

For this approach, the Concept Release includes questions that seek feedback on whether the current shareholder and business contacts tests remain relevant in today's markets and if they appropriately capture the foreign issuers that should benefit from regulatory accommodations. The SEC asks for comments on whether the threshold for U.S. ownership should be reduced, whether the threshold for U.S. assets should be changed, or whether the citizenship or residency of anyone other than directors and executive officers should be considered, as well as whether other business contacts or citizenship or resident metrics should be incorporated into the test.

2. Foreign Trading-Volume Threshold 

The SEC outlines a second approach that would introduce a foreign trading volume test, requiring FPIs to demonstrate that a certain percentage of their securities' trading volume occurs on a non-U.S. market. This proposal ties into evidence cited in the Concept Release that an increasing number of 20-F FPIs have their equity securities trading “almost entirely in U.S. capital markets.” The SEC posits that issuers with meaningful trading on a non-U.S. market "could be more likely to be subject to home country oversight, disclosure, and other regulatory requirements that merit accommodation.” The Concept Release notes that if a foreign trading volume test is adopted, significant numbers of FPIs could lose their FPI status – for example, non-US trading requirements of 1%, 3%, 15% or 50% would impact 55%, 61%, 66% and 76% of all FPIs, respectively.

In seeking comment, the SEC’s primary inquiries explore the fundamental appropriateness of using a trading volume test to determine eligibility for accommodations. The SEC is asking for input on the specific mechanics of such a test, including what percentage threshold would be appropriate, whether trading volume should be measured in dollars or shares, the proper look-back period for the assessment, and if only trading on certain types of foreign markets should qualify. A significant concern for the SEC is how to design the test to prevent issuers from “gaming” the system, for instance by executing minimal foreign trades simply to meet the threshold.

3. Listing on a “Major Foreign Exchange” 

This approach would require an FPI to be listed on a “major foreign exchange.” The SEC suggests this could “help to ensure that FPIs are subject to meaningful regulation and oversight in a foreign market.” This, of course, raises the question of what constitutes a “major foreign exchange.” The SEC notes that it could maintain a list of qualifying exchanges based on specific criteria, such as corporate governance standards, reporting requirements, and enforcement authority. This could be done automatically for exchanges meeting the criteria or through a formal application process.

The Concept Release asks a number of questions on this approach that seek feedback on how to define what constitutes a “major” exchange and what specific criteria should be used in the evaluation. The SEC is seeking input on whether the determination should be based on quantitative metrics like market capitalization and trading volume, or on qualitative standards like the stringency of an exchange's disclosure, corporate governance, and enforcement rules. The SEC also asks how to handle exchanges that offer multiple listing tiers with varying requirements, whether FPIs would leave the U.S. capital markets if forced to dual list on a “major” exchange and how to manage the significant operational burden of assessing and monitoring foreign exchanges.

4. Equivalence Assessment of Foreign Regulation 

The SEC is exploring a fourth approach where FPI status would be contingent on the issuer being incorporated or headquartered in a jurisdiction that the SEC has formally determined to have a “robust regulatory and oversight framework.” Furthermore, the issuer would need to be “subject to such securities regulations and oversight without modification or exemption.” This approach would require the SEC to assess foreign regulatory regimes, considering factors like annual reporting requirements, audit standards, liability provisions, and the effectiveness of local enforcement. The release acknowledges this would require significant time and resources from SEC staff. 

The SEC's primary questions on this approach center on the feasibility and standards for such an assessment. The SEC is asking for feedback on whether it is possible to develop objective criteria to evaluate foreign regulatory regimes and what key requirements a jurisdiction must have to be deemed sufficient for investor protection. Further inquiries focus on how to treat issuers that receive exemptions or waivers from their home country regulators and how the SEC could manage the considerable burden of continuously assessing foreign legal frameworks and the potential market disruption if a jurisdiction's status changes.

5. Expanding Mutual-Recognition Frameworks 

Another potential path is to develop or expand systems of mutual recognition, similar to the existing Multijurisdictional Disclosure System (MJDS) with Canada. Under such a system, the SEC would establish reciprocal agreements with select foreign jurisdictions, allowing their issuers to use disclosure documents prepared under home country regulations to satisfy U.S. requirements. This approach is “premised upon principles of mutual benefit and reciprocity,” where participating jurisdictions would have comparable, though not necessarily identical, investor protection standards to those in the United States.

With this approach, the SEC pointedly wants to gauge the appetite for and structure of new mutual recognition systems. The SEC seeks input on whether the Canadian MJDS serves as a good model, which other jurisdictions would be suitable candidates, and what criteria should be used to judge if a foreign regulatory regime provides comparable investor protections. The questions acknowledge the significant time and diplomatic effort that would be required to negotiate and maintain these agreements.

6. International Cooperation Arrangement Requirement 

Finally, the SEC is considering making FPI eligibility conditional on the issuer's home country securities regulator being a signatory to the International Organization of Securities Commissions (IOSCO) Multilateral Memorandum of Understanding (MMoU)^[3] or its enhanced companion (EMMoU). These agreements express a regulator's “intent and legal authority to assist other MMoU members in enforcement matters, including the sharing of information.” While this would bolster cross-border enforcement cooperation, the SEC notes that being an MMoU signatory is “not a proxy for robust disclosure rules in the FPI's home country,” suggesting this requirement would likely complement other regulatory responses. 

The SEC's principal inquiries question whether making MMoU signatory status a condition of FPI eligibility would meaningfully enhance investor protection. The Commission is seeking feedback on the limitations of such a requirement, given that the MMoU is focused on enforcement cooperation rather than substantive disclosure standards. Further questions probe whether the more stringent EMMoU should be required and whether issuers should have to certify annually that their home jurisdiction remains a signatory in good standing.

V. Conclusion, Next Steps and Areas For Comment         

The Concept Release, which received unanimous SEC commissioner support, signals a reevaluation of the decades-old regulatory framework for non-U.S. issuers. Prompted by its own analysis showing that most FPIs now trade primarily in U.S. markets and are increasingly incorporated in jurisdictions with different disclosure requirements, the SEC is questioning whether the foundational assumptions behind FPI accommodations remain valid. Rather than proposing a specific rule, the SEC has initiated a broad dialogue, inviting public comment on over 65 questions and any aspect of foreign issuer regulation needing improvement. 

The potential consequences are significant. Should the SEC amend the FPI definition, companies reclassified as domestic issuers would face a shift in compliance obligations, losing accommodations and becoming subject to, among other things, U.S. GAAP, accelerated filing deadlines, U.S. proxy rules, Regulation FD, and the stringent beneficial ownership reporting and short-swing profit liability provisions of Section 16. The impact could extend beyond currently registered companies to non-reporting foreign issuers traded on U.S. OTC markets relying on exemptions contingent on FPI status.^[4] Furthermore, an unexpected outcome of the changes for companies that lose their FPI status may be increased enforcement interest as they will be required to provide additional disclosure more quickly and more often. That increased disclosure may be the source of new investigations while also providing new types and sources of evidence that can be reached domestically, like audit work papers.

The 90-day comment period provides an opportunity for FPIs, exchanges, and other stakeholders to provide feedback on whether FPI eligibility rules need revision, what any changes should look like, and the costs, benefits, and tradeoffs of any reforms. Commenters need not address all or any of the 65 questions in the Concept Release and may provide data or other feedback on any part of the FPI eligibility criteria, FPI regulation, and FPI markets.

Comments may help the SEC specify with greater precision the problem it is trying to solve and the FPIs and jurisdictions that may be affected. The Concept Release focused heavily on data related to companies headquartered in China, companies organized in the Cayman Islands, the overlap between those two categories, and China-based issuers whose securities trade exclusively in the United States. 

However, FPIs headquartered or organized under the laws of other jurisdictions also would be affected by the regulatory approaches that the SEC outlined. For example, Israel represents the number two country in the Concept Release data in terms of number of FPIs for jurisdiction of headquarters, jurisdiction of organization, and jurisdiction for FPIs whose securities trade exclusively in the United States. Some of the Concept Release’s concerns with home country regulation also focused on Israel.^[5]

Comments might also examine the tradeoffs of changing the FPI definition in terms of subjecting subgroups of FPIs to each new rule from which they now have accommodations, including being subject to U.S. GAAP, quarterly reporting, 8-K reporting, Regulation FD, proxy rules, and Section 16. The Concept Release did not contain a cost-benefit analysis for newly applying each of these rules to a given group of FPIs. 

Comments could examine other issues, including:

• evidence of whether, in fact, the FPI eligibility criteria applied to the current population of FPIs in fact results in inadequate disclosure and investor protections or even less disclosure and protections compared to the rules as applied in 1983;
• whether FPIs might delist or deregister in the United States because of prospective rule changes or conduct more exempt offerings;
• whether foreign issuers may not seek new listings in the United States and other impacts on the competitiveness of U.S. capital markets;
• impacts on U.S. investors, including whether they would have reduced investment opportunities; and
• whether registrants losing FPI status should have a transition period for preparing financial statements in accordance with U.S. GAAP and for other rules applicable to domestic registrants.

If you have questions on any aspect of this memo or the Concept Release or would like to discuss submitting a comment, please reach out to any of the partners listed as authors.

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Appendix A

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[1] Evan Avila and Mattias Nilsson, Trends in the Foreign Private Issuer Population 2003-2023: A Descriptive Analysis of Issuers Filing Annual Reports on Form 20-F (Dec. 2024) (the “FPI Trends White Paper”), available at https://www.sec.gov/files/dera_wp_fpi-trends-2412.pdf). 

[2] To qualify for FPI treatment, a company must determine whether it meets either the U.S. Shareholder Test or U.S. Business Contacts Test within 30 days of the first public filing of its initial public offering registration statement. Following the SEC’s declaration of the registration statement’s effectiveness, the company will be required to test its FPI status on the last day of its second fiscal quarter of each year. If, following any test, the company is determined to not be an FPI, it will be required to comply with all rules and regulations applicable to U.S. domestic companies beginning on the first day of its following fiscal year.

[3] The full text of the MMoU is available at https://www.iosco.org/library/pubdocs/pdf/IOSCOPD386.pdf; the full text of the EMMoU is available at https://www.iosco.org/about/pdf/Text-of-the-EMMoU.pdf. As of Feb. 2025, there are 136 authorities that are members of the MMoU (the full list is available at https://www.iosco.org/v2/about/?subSection=mmou&subSection1=signatories) and 27 authorities that have signed the EMMoU (the full list is available at https://www.iosco.org/v2/about/?subSection=emmou&subSection1=signatories). 

[4] Changes to the definition of “foreign private issuer” would impact the availability of the 12g3-2(b) exemption from Section 12(g) reporting, which is only applicable to foreign private issuers. 

[5] The Concept Release includes the following statements: “Some jurisdictions provide issuers organized under their laws or listed on their exchanges with exemptions from their disclosure requirements or other regulatory accommodations if the issuers qualify as FPIs under U.S. securities laws. For example, the Israel Securities Authority exempts such issuers from certain home country reporting requirements and instead permits them to report according to the laws of the jurisdiction of their primary listing.”