Potential Changes Ahead: SEC Seeks Input on Foreign Private Issuer Eligibility

Client Alert  |  June 6, 2025

If the SEC were to change the FPI definition substantially, it could have significant consequences for a potentially large number of foreign issuers.

Overview

On June 4, 2025, the U.S. Securities and Exchange Commission (SEC) issued a concept release[1] requesting public comment on the definition of “foreign private issuer” (FPI).[2]  This move comes in response to significant shifts in the FPI landscape, including changes in the jurisdictions of incorporation and headquarters of many FPIs, and a marked increase in the number of FPIs whose securities are traded almost exclusively in U.S. markets.  The SEC is considering whether the current FPI definition and related regulatory accommodations remain fit for purpose, or whether updates are needed to better align with today’s global capital markets and to ensure appropriate investor protections.  If the SEC were to change the FPI definition substantially, it could have significant consequences for a potentially large number of foreign issuers.[3]

As a concept release, this is the first step in a SEC rulemaking process that potentially could lead to the publication of proposed rules and possibly the adoption of final rules.  Foreign issuers accessing or seeking to access the U.S. capital markets should monitor the SEC’s process and consider whether changes to the FPI definition will affect their ability to qualify for FPI status or affect the disclosure and reporting accommodations currently available to FPIs.

Background: The FPI Framework and Its Evolution

The SEC established the initial regulatory framework for foreign issuers in 1935[4] and conducted its latest review in 2008,[5] when there were approximately 900 FPIs.[6]  As of 2023, there were approximately 1,100 FPIs.[7]

The FPI regulatory framework was established to recognize the unique challenges foreign issuers face when accessing U.S. capital markets and becoming subject to different and sometimes competing legal and accounting reporting requirements in their home country and the United States.[8]  To mitigate this effect, the SEC allowed foreign companies with a sufficient nexus to a foreign home country jurisdiction to qualify as an FPI and granted such FPIs a range of accommodations from U.S. securities laws.  These accommodations for FPI registrants include the use of specialized registration and reporting forms, less frequent reporting (with interim reporting on Form 6-K consisting of disclosure required by the issuer’s home country or any stock exchange on which the issuer is listed, or any other disclosure distributed to the issuer’s securityholders),[9] more flexible accounting standards, and exemptions from certain other rules such as the U.S. proxy rules, Regulation FD and Section 16 reporting, and short-swing profit liability.[10]

The current FPI definition was first adopted in 1983 and last amended in 1999,[11] and is based on a combination of U.S. ownership thresholds, and percentages of U.S. management control, U.S. business assets and business contacts with the United States.[12]

In the case of an existing registrant, FPI eligibility is determined annually as of the end of a foreign issuer’s second fiscal quarter.[13]  A foreign issuer filing an initial registration statement under the Securities Act of 1933 or the Securities Exchange Act of 1934 determines its FPI status as of a date within 30 days prior to filing.[14]

Historically, the SEC’s FPI framework was based on the expectation that FPIs would be subject to meaningful disclosure and regulatory oversight in their home countries, and that their securities would primarily trade in foreign markets.  However, the data derived from the SEC’s recent review of the composition of the current FPI population indicates that these assumptions may no longer hold true for a significant portion of the FPI population.[15]

Key Developments in the FPI Population

  • Jurisdictional Shifts: There has been a dramatic change in the jurisdictions of incorporation and headquarters among FPIs. The Cayman Islands is now the most common place of incorporation, while mainland China is the most common headquarters location.  Many FPIs are now incorporated in jurisdictions with limited disclosure requirements, while their operations are based elsewhere.
  • Divergence Between Incorporation and Headquarters: The proportion of FPIs with different jurisdictions for incorporation and headquarters has risen sharply, from 7% in 2003 to 48% in 2023. This trend is particularly pronounced among China-based issuers, many of which are incorporated in the Cayman Islands or British Virgin Islands but are headquartered and operate primarily in China.
  • Increased Reliance on U.S. Markets: A majority of FPIs now have their equity securities traded almost exclusively in U.S. capital markets.  In 2023, 55% of the FPIs that filed Forms 20-F had at least 99% of their global trading volume in the United States, up from 44% in 2014.  These FPIs tend to be smaller in market capitalization but represent a growing share of the FPI population by number.
  • Regulatory Arbitrage Concerns: The SEC notes that some FPIs may be seeking to minimize regulatory costs by incorporating in jurisdictions with minimal disclosure requirements while listing primarily in the United States, potentially reducing the information available to U.S. investors and raising questions about the adequacy of investor protections.

Members of Congress and other stakeholders beyond the SEC have questioned whether the present regime creates an uneven playing field for certain foreign companies relative to U.S. reporting companies who are not able to benefit from the same accommodations, and have proposed legislation aimed at curbing perceived abuses.[16]

Potential Regulatory Responses Under Consideration

The SEC is seeking feedback on a range of possible approaches to updating the FPI definition and related accommodations, including:

  1. Updating Existing Eligibility Criteria
    • Lowering the U.S. ownership threshold or revising the business contacts test to better capture issuers with significant ties to the United States.
  1. Introducing a Foreign Trading Volume Requirement
    • Requiring FPIs to maintain a minimum percentage of trading volume outside the United States to retain FPI status.
    • The SEC is considering various thresholds (e.g., 1%, 3%, 5%, 10%, 15%, 50%) and has provided data on how many current FPIs would be affected at each level.
  1. Requiring Listing on a Major Foreign Exchange
    • Mandating that FPIs be listed on a “major” foreign exchange, with the SEC defining which exchanges qualify based on criteria such as market size, governance standards, and disclosure requirements.
  1. SEC Assessment of Foreign Regulation
    • Limiting FPI status to issuers incorporated or headquartered in jurisdictions with robust regulatory and oversight frameworks, as determined by the SEC.
  1. Mutual Recognition Systems
    • Expanding mutual recognition arrangements (similar to the U.S.-Canada MJDS[17]) to other jurisdictions with comparable investor protection standards.
  1. International Cooperation Arrangement Requirement
    • Conditioning FPI status on the issuer’s home country securities authority being a signatory to international information-sharing agreements, such as the International Organization of Securities Commissions Enhanced Multilateral Memorandum of Understanding Concerning Consultation, Cooperation, and the Exchange of Information.[18]

Business Implications

  • Regulatory Uncertainty: Companies currently relying on FPI status—especially those incorporated in jurisdictions with limited disclosure requirements or trading primarily in the United States—face potential changes to their reporting obligations and compliance costs.
  • Competitive Dynamics: The SEC is considering whether the current framework creates an uneven playing field between domestic issuers and FPIs, particularly those with limited home country oversight.
  • Market Access: Changes to the FPI definition could prompt some issuers to reconsider their U.S.listings or seek alternative markets, potentially impacting U.S. investor access to foreign securities.
  • Transition and Compliance: The SEC is seeking input on transition periods, potential accommodations for affected issuers, and the costs and complexities of moving from IFRS or home country GAAP to U.S.GAAP.

Commissioners Comments

Below are links to the full statements of several SEC Commissioners regarding the concept release and potential changes to the FPI definition:

Next Steps

Businesses with cross-border operations, FPI registrants in the United States (including those with classes of securities listed on a U.S. stock exchange), and investors in FPI securities should closely monitor this process and consider participating in the comment period to help shape the future regulatory landscape for FPIs.

The SEC is inviting comments on all aspects of the FPI definition and potential regulatory responses, including the costs, benefits, and competitive impacts of any changes.  Comments are due within 90 days of publication in the Federal Register.  Comments may be submitted: (1) using the SEC’s comment form at https://www.sec.gov/rules/submitcomments.htm; (2) via e-mail to rule-comments@sec.gov (with “File Number S7-2025-01” on the subject line); or (3) via mail to Vanessa A. Countryman, Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.  All submissions should refer to File Number S7-2025-01.

[1]  Concept Release on Foreign Private Issuer Eligibility, Release Nos. 33-11376; 34-103176 (June 4, 2025), available at https://www.sec.gov/files/rules/concept/2025/33-11376.pdf.

[2]  A “foreign private issuer” is currently defined as a foreign issuer (i.e., an issuer which is a foreign country, a national of any foreign country or a corporation or other organization incorporated or organized under the laws of any foreign country) other than a foreign government (i.e., the government of any foreign country or of any political subdivision of a foreign country) except an issuer that as of the last business day of its most recently completed second fiscal quarter has more than 50% of its outstanding voting securities directly or indirectly held of record by U.S. residents and for which any of the following is true: (i) a majority of its executive officers or directors are citizens or residents of the United States, (ii) more than 50% of its assets are located in the United States, or (iii) its business is administered principally in the United States.  See 17 CFR § 230.405; 17 CFR § 240.3b-4.

[3]  As used herein, any reference to a “foreign issuer” means an entity, other than a foreign government, organized under the laws of any non-U.S. jurisdiction.

[4]  See supra note 1, n.13.

[5]  See Foreign Issuer Reporting Enhancements, Release No. 33-8959 (Sept. 23, 2008) [73 FR 58300 (Oct. 6, 2008)], available at https://www.sec.gov/files/rules/final/2008/33-8959fr.pdf.

[6]  See 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 (Revised May 2025)), available at https://www.sec.gov/files/dera_wp_fpi-trends-2412.pdf.

[7]  Id.

[8]  See supra note 1, n.13.

[9]  The reporting obligations of an FPI registrant are in contrast to the interim, quarterly and annual reporting requirements for non-FPI registrants, which are based on specific items of disclosure mandated in the relevant Form 8-K, Form 10-Q and Form 10-K.  While both Nasdaq and the New York Stock Exchange require listed companies (including FPIs) to timely disclose any material information likely to affect the market price for their listed securities, those rules do not mandate the specific financial and other disclosure that would also apply to a non-FPI registrant that is required to file interim and quarterly reports on Form 8-K and Form 10-Q.  For more details on the FPI reporting obligations, see Form 6-K, General Instructions, U.S. Securities and Exchange Commission (Revised February 2025), available at https://www.sec.gov/files/form6-k.pdf.

[10]  See supra note 1 at § II.B for an outline of the accommodations afforded to FPIs.

[11]  See supra note 1, n.101.

[12]  See supra note 2.

[13]  Id.

[14]  See supra note 1, n.101.

[15]  See supra note 1, at §§ II.A, and III.C.1.

[16]  See Holding Foreign Insiders Accountable Act, S. 2542, 118th Cong. (2024), available here; Press Release, Sen. Chris Van Hollen, Van Hollen, Kennedy Introduce Bipartisan Bill to Deter Executives of Foreign Companies from Insider Trading at the Expense of American Investors (June 13, 2024), available here.

[17]  Notably, the concept release does not seek comments on the MJDS.  Rather, the SEC appears to generally be positing the MJDS as a mutual recognition model to consider as an alternative.  See supra note 1, n.100.

[18]  See International Organization of Securities Commissions, Enhanced Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (2016), available at https://www.iosco.org/about/pdf/Text-of-the-EMMoU.pdf.

The following Gibson Dunn lawyers prepared this update: J. Alan Bannister, Mellissa Campbell Duru, James J. Moloney, Eric Scarazzo, Rodrigo Surcan, and Chad Kang.

Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments.  To learn more, please contact the Gibson Dunn lawyer with whom you usually work in the firm’s Capital Markets or Securities Regulation & Corporate Governance practice groups, or the following authors and practice group leaders:

Alan Bannister – New York (+1 212.351.2310, abannister@gibsondunn.com)

Mellissa Campbell Duru – Washington, D.C. (+1 202.955.8204, mduru@gibsondunn.com)

James J. Moloney – Orange County (+1 949.451.4343, jmoloney@gibsondunn.com)

Eric Scarazzo – New York (+1 212.351.2389, escarazzo@gibsondunn.com)

Rodrigo Surcan – New York (+1 212.351.5329, rsurcan@gibsondunn.com)

Chad Kang – Orange County (+1 949.451.3891, ckang@gibsondunn.com)

Capital Markets:

Andrew L. Fabens – New York (+1 212.351.4034, afabens@gibsondunn.com)

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Stewart L. McDowell – San Francisco (+1 415.393.8322, smcdowell@gibsondunn.com)

Peter W. Wardle – Los Angeles (+1 213.229.7242, pwardle@gibsondunn.com)

Securities Regulation & Corporate Governance:

Elizabeth Ising – Washington, D.C. (+1 202.955.8287, eising@gibsondunn.com)

Thomas J. Kim – Washington, D.C. (+1 202.887.3550, tkim@gibsondunn.com)

James J. Moloney – Orange County (+1 949.451.4343, jmoloney@gibsondunn.com)

Lori Zyskowski – New York (+1 212.351.2309, lzyskowski@gibsondunn.com)

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