China mulls removing obstacle to China-U.S. audit cooperation


A Chinese national flag flies in front of the China Securities Regulatory Commission (CSRC) building on Financial Street in Beijing, China July 9, 2021. REUTERS/Tingshu Wang

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SHANGHAI/BEIJING, April 2 (Reuters) – China on Saturday proposed to revise secrecy rules for offshore listings, removing a legal obstacle to Sino-U.S. cooperation on audit controls while imposing liability on Chinese companies. protect state secrets.

The draft rules, announced by China’s securities watchdog, mark Beijing’s latest attempt to resolve a long-running audit dispute with Washington that could lead to around 270 Chinese companies being delisted from US stock exchanges. in 2024.

Saturday’s proposal removes requirements that on-site inspection of overseas-listed Chinese companies must be carried out primarily by Chinese regulators.

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This could open the door to inspections by US regulators, who demand full access to these companies’ audit working papers, which are stored in China.

The changes will facilitate “cross-border regulatory cooperation, including joint inspections, which will help protect the interests of global investors,” the China Securities Regulatory Commission (CSRC) said in a statement posted on its website.

China is stepping up its efforts to ensure that Chinese companies remain listed in New York.

The commission said on Thursday that Chinese and U.S. regulators had held several rounds of meetings and the two sides were willing to resolve their audit dispute. Read more

But U.S. securities and auditing regulators have pushed back on speculation of an impending audit deal with China. In March, the U.S. Securities and Exchange Commission (SEC) identified 11 U.S.-listed Chinese companies, including Baidu Inc and Yum China (YUM.N), that face delisting risks. Read more

STATE SECRETS

The draft rules clarify that Chinese companies are responsible for information security in overseas listings, reducing the risk of confidential information entering auditors’ working papers unnecessarily, the CSRC said.

“Procedural requirements” are added to the rules, requiring Chinese companies to provide written explanations when providing “sensitive information” to intermediaries, such as underwriters and auditors, although such situations are expected to be “very rare “, based on experience, according to the watchdog.

The CSRC said the rules will offer clear guidance on how to protect state secrets, leading to “orderly” issuance of securities and listing activities by Chinese companies.

Current confidentiality rules, which were issued in 2009 by the CSRC, the State Secrets Office and the Office of Records, are outdated, the CSRC added.

Sources told Reuters last month that Chinese regulators had asked some of the country’s U.S.-listed companies, including Alibaba, Baidu and JD.com, to prepare for more audit disclosures. Read more

In mid-March, Vice Premier Liu He said discussions between Chinese and U.S. regulators on overseas listing issues had progressed and the two sides were working on specific cooperation plans.

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Reporting by Reuters Shanghai and Beijing Newsroom; Editing by William Mallard

Our standards: The Thomson Reuters Trust Principles.

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