Regulation.
What Is the HOLDEN Act?
The HOLDEN Act, also known as the Holding Foreign Companies Accountable Act, is a piece of legislation that was signed into law by former President Donald Trump in December 2020. The act aims to increase transparency and accountability for foreign companies listed on US stock exchanges, particularly those based in China. In this article, we will explore the purpose of the HOLDEN Act, its key provisions, and how it affects financial institutions.
Purpose of the HOLDEN Act
The primary purpose of the HOLDEN Act is to protect American investors from potential fraud and other risks associated with foreign companies listed on US stock exchanges. The act requires foreign companies to comply with the same auditing and disclosure standards as US companies, and to allow US regulators to access their audit reports. This is particularly relevant for Chinese companies, as many of them have been accused of not disclosing important information to investors and of being subject to government influence.
Key provisions of the HOLDEN Act
The HOLDEN Act has several key provisions that are designed to increase transparency and accountability for foreign companies listed on US stock exchanges. These include:
- Requiring foreign companies to comply with the same auditing and disclosure standards as US companies.
- Requiring foreign companies to provide certain information to the Public Company Accounting Oversight Board (PCAOB), which is responsible for overseeing the audits of public companies.
- Prohibiting the listing of any foreign company on a US stock exchange if the PCAOB is unable to inspect its audit reports for three consecutive years.
- Requiring companies to disclose whether they are owned or controlled by a foreign government, and to disclose any transactions between the company and its affiliates and the Chinese Communist Party.
How the HOLDEN Act affects financial institutions
The HOLDEN Act has significant implications for financial institutions that deal with foreign companies listed on US stock exchanges. These institutions will need to ensure that the companies they deal with are compliant with the new regulations, and may need to make changes to their due diligence and risk management processes. The act may also lead to increased costs for these institutions, as they will need to invest in additional resources to comply with the new regulations.
Penalties for violating the HOLDEN Act
The HOLDEN Act imposes significant penalties for companies that violate its provisions. Companies that are found to be non-compliant may be delisted from US stock exchanges, and their executives may be subject to fines and other penalties. In addition, the act allows the Securities and Exchange Commission (SEC) to require companies to disclose additional information to investors, and to prohibit certain individuals from serving as officers or directors of public companies.
Criticisms of the HOLDEN Act
The HOLDEN Act has been criticized by some as being overly broad and potentially damaging to US-China relations. Critics argue that the act could lead to the delisting of many Chinese companies from US stock exchanges, which could have negative economic consequences for both countries. In addition, some have argued that the act may be unconstitutional, as it could be seen as interfering with the ability of foreign governments to regulate their own companies.
Future implications of the HOLDEN Act
The HOLDEN Act is likely to have significant implications for US-China relations and for the global financial system more broadly. It remains to be seen how many Chinese companies will be affected by the act, and whether the Chinese government will take retaliatory measures in response. The act may also lead to increased scrutiny of other foreign companies listed on US stock exchanges, and could serve as a model for other countries looking to increase transparency and accountability in their financial markets.
Conclusion: the impact of the HOLDEN Act on financial regulation
The HOLDEN Act represents a significant shift in the regulation of foreign companies listed on US stock exchanges. By requiring these companies to comply with the same auditing and disclosure standards as US companies, the act aims to increase transparency and accountability and to protect American investors from potential fraud and other risks. However, the act has also been criticized for being overly broad and potentially damaging to US-China relations. The long-term implications of the act are uncertain, but it is likely to have significant implications for financial institutions and for the global financial system more broadly.
The HOLDEN Act is a complex piece of legislation with significant implications for financial institutions and for US-China relations. As the act is implemented and its provisions are enforced, it will be important for financial institutions to stay up-to-date with the latest developments and to ensure that they are compliant with the new regulations. Ultimately, the success of the HOLDEN Act will depend on its ability to increase transparency and accountability without unduly harming US-China relations or the global financial system.