On June 4, 2025, the Securities and Exchange Commission (SEC) issued a concept release soliciting public comment on potential changes to the definition of foreign private issuer (FPI). FPIs benefit from numerous exceptions to traditionally onerous U.S. disclosure requirements. Narrowing the definition of an FPI would likely require more companies to comply with full U.S. reporting requirements. In that instance, foreign investors may choose to forgo U.S. exchanges.
Current Rule
The FPI framework was designed in 2003 to attract foreign registrants to U.S. markets, give U.S. investors access to foreign companies, and ensure that said U.S. investors retain the protection of U.S. securities laws. The relaxed disclosure and filing requirements afforded to FPIs is an incentive for foreign companies to list on U.S. exchanges.
Companies classified as FPIs currently benefit from the following accommodations:
- Unique registration and reporting forms.
- No quarterly reporting requirements.
- Longer windows to file annual reports.
- Exemption from the proxy rules.
- Exemption from Section 16 reporting requirements.
There are two methods of obtaining FPI status under the current rule, both of which require the registrant to be a nongovernmental foreign issuer.
The first method, the shareholder test, simply requires that 50% or less of the company’s shares are held by U.S. persons.
If more than 50% of shares are held by U.S. persons, FPI status is achievable through the second method, the business contacts test. This method requires that: (1) a majority of the company’s directors and officers are non-U.S. citizens or residents; (2) a majority of the company’s assets are held outside the United States; and (3) the company’s business is principally administered outside the United States.
Rationale for Reconsidering
According to the SEC, this concept release was motivated in large part by significant changes in the FPI population since 2003. When the framework was originated, FPIs were predominantly registered in Canada and the United Kingdom, both of which featured their own substantial regulatory regimes. This is no longer the case. Now, according to the SEC, the greatest percentage of FPI registrants are incorporated in the Cayman Islands (accounting for 33.3% of FPI issuers) and the most common headquarters location is mainland China (accounting for 22.6% of FPI issuers).
When originally adopted, FPIs were almost always dual-listed. This is no longer the case. Accordingly, the SEC has stated that the concept release is motivated by a change in trading patterns surrounding FPIs – critically, most FPIs have over 99% of their securities trading exclusively in the United States. FPIs are not being effectively regulated in any market if they are not being meaningfully regulated in their own domestic markets and the SEC continues to afford them the accommodations granted in 2003.
Potential Regulatory Pathways Under a Revised FPI Regime
The SEC is considering a variety of changes to the FPI regime:
- Updating the Current FPI Eligibility Criteria. Amending the existing bifurcated test, either by lowering the threshold in the shareholder test or revising the business contacts test in one of the ways below.
- Adding a Foreign Trading Volume Requirement. As with Rules 12g3-2(b) and 12h-6, this requirement would eliminate FPIs trading exclusively in the United States and bring back the significance of home country oversight, disclosure, and regulation.
- Adding a Major Foreign Exchange Listing Requirement. Ensuring that FPIs are subject to regulation and requiring the SEC to determine what makes a foreign exchange “major” and establish a system of consistent information sharing with the foreign exchange.
- Expanding the SEC’s Assessment of Foreign Regulations. Requiring FPIs to incorporate in a jurisdiction determined to have a sufficiently robust regulatory and oversight framework.
- This would necessitate substantial efforts by the SEC, including (1) defining what constitutes a “sufficiently robust” regulatory framework; (2) continuously designating and evaluating jurisdictions; and (3) actively collaborating with foreign regulatory authorities.
- Creating Mutual Recognition Systems. Developing SEC-approved jurisdictions systems like the multijurisdictional disclosure system, which allows Canadian and U.S. issuers to conduct cross-border securities offerings primarily by complying with their home country’s securities laws.
- Requiring FPIs to Be Under an International Cooperation Agreement. Limiting FPIs to those incorporated or headquartered in a jurisdiction that is a member of the International Organization of Securities Commissions, which would align FPI eligibility with jurisdictions that participate in established international cooperation and information-sharing frameworks.
Some Key Differences in Disclosure Requirements
| Disclosure Requirements | Person/Facility | Enforcement Discretion Period |
| Annual Reporting |
Form 20-F Provides more flexibility in financial reporting |
Form 10-K |
| Quarterly Reporting |
Not Required | Required Form 10-Q |
| Filing Deadline |
Form 20-F must be filed within four months after the fiscal year-end | Form 10-K must be filed within 60, 75, or 90 days after the fiscal year-end |
| Proxy Rules |
Exempt New rules for proxy cards in contested elections went into effect August 31, 2022 |
Required |
| Regulation Fair Disclosure | Exempt | Subject to Regulation Fair Disclsoure |
| Regulation G | Non-GAAP financial measure disclosures are exempt if certain conditions are met | Non-GAAP financial measure disclosures subject to Regulation G compliance |
| Section 16 Obligations | Exempt | Required Imposes specific reporting and trading obligations on certain insiders of public companies |
| Current Reports |
Furnish current reports on Form 6-K promptly after information is made public | File or furnish on Form 8-K, either within four business days after the event or as otherwise specified in Form 8-K |
Takeaways
There are several privileges that companies currently classified as FPIs may lose if any of the steps contemplated by the concept release are taken. This could increase the competitiveness of U.S. companies and make entry into U.S. markets less attractive for foreign issuers. It would also limit the ability of U.S. investors to diversify their portfolios through foreign investments.
Ultimately, the SEC is likely to amend the FPI definition. Concerns with U.S. capital investments in certain foreign markets similarly justified the recently adopted outbound investment security program and Trump Administration trade policies.
Current FPIs should:
- Review their current FPI status and assess their exposure to any proposed changes in the FPI framework.
- Assess how compliance with traditional disclosure requirements may affect their business.
- Consider whether to submit comments to the SEC, specifically on any costs, burdens, or benefits from the changes under consideration.
The comment period is open until September 8, 2025.
If you have any questions, or would like additional information, please contact one of the attorneys on our Capital Markets & Securities team.
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