SEC Invites Feedback to Foreign Private Issuer Eligibility Rules

On June 4, 2025, the U.S. Securities and Exchange Commission (SEC) issued a Concept Release, seeking public feedback on whether the nearly half-a-century-old definition of foreign private issuer (FPI) and the reporting accommodations available to FPIs still make sense in today’s global markets and to balance investor protection and capital formation. The 71‑page document poses 69 questions that could culminate in the first rule amendments to the FPI framework since 2008. Comments are due 90 days after the Concept Release appears in the Federal Register.

Reasons for the Re‑Evaluation

The SEC’s data shows that the landscape of FPIs has shifted dramatically over the past two decades. As of 2023, the leading jurisdiction of incorporation of FPIs was the Cayman Islands (33.3%), while China accounted for the largest share of issuer headquarters (22.6%). Back in 2003, Canada, which is recognized for its robust securities regulatory framework, was the dominant home for FPIs, both by place of incorporation and by headquarters location. Before the 2003 amendments, most FPIs were European issuers overseen by their domestic regulators. Today, however, a growing number of issuers locate their headquarters in one country (again, most prominently China) while incorporating elsewhere, most frequently in the Cayman Islands. Compounding the shift, 55% of FPIs now trade their securities exclusively on U.S. exchanges rather than in their home or other foreign markets, raising concerns that such issuers may escape the rigorous disclosure or supervisory regimes the SEC envisioned when it established the current framework.

Chair Paul Atkins, in his statement, mentioned that the global markets have changed significantly in the decades that the SEC has not examined the characteristics of the FPI community and that it is, therefore, only prudent for the SEC to better understand the companies that are using the FPI accommodations today and determine if changes are needed to better protect U.S. investors.

Commissioner Caroline Crenshaw explained in her statement that the current framework was “premised on the expectation that foreign issuers would be subject to meaningful oversight at home,” an assumption that no longer reliably holds, according to the SEC.

In the meantime, Commissioner Mark Uyeda’s statement emphasizes that so far, the different disclosure rules for U.S. issuers and FPIs haven’t caused systemic market problems, that the few FPI issues that do arise tend to stem from fraud and misstatements, and because fraud can occur under any filing regime, rule changes must balance investor protection with the diversification benefits U.S. investors gain from access to foreign securities.

Current FPI Eligibility and Accommodations

Under existing rules, a foreign issuer qualifies as an FPI if, on the last business day of its second fiscal quarter, either:

1. U.S. residents hold 50% or less of its voting shares (shareholder test) or
2. if U.S. residents hold over 50%, the issuer has none of the following contacts with the United States (business contacts test):
   1. a majority of the issuer’s 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.

FPI status unlocks significant reporting accommodations over domestic issuers, such as annual (rather than quarterly) reporting on Form 20‑F, home‑country governance practices in lieu of meeting certain NYSE/Nasdaq listing requirements, exemption from U.S. proxy rules and insider reporting under Section 16, and many others.

Reform Paths the SEC Is Weighing

The Concept Release sketches six non‑exclusive approaches to re‑imagining the FPI framework:

1. Refine the existing criteria for FPI eligibility: Possible changes include lowering the 50% U.S. ownership threshold or making the “principal place of business” test more rigorous.
2. Introduce a foreign trading volume requirement: Another proposition is that an issuer might need a minimum percentage of worldwide trading to occur on at least one non‑U.S. exchange to remain an FPI.
3. Mandate a major foreign exchange listing: Requiring an FPI to maintain a principal trading market on a major overseas exchange that satisfies certain criteria, such as a trading volume requirement, is one of the considerations.
4. Condition FPI status on home‑market regulatory quality: Another proposition is to determine that an issuer would qualify as an FPI only if the SEC determines that its home jurisdiction has a robust regulatory framework and affords U.S. investors adequate protections.
5. Pursue mutual recognition systems: The Concept Release also discusses the possibility of a longer‑term vision in which the FPI accommodations might be tailored for issuers from selected foreign jurisdictions, similar to the approach taken for Canadian issuers under the Multijurisdictional Disclosure System.
6. Seek international cooperation arrangements: Another option the SEC is considering is that an issuer would be an FPI only if it certifies that it is incorporated or headquartered in, and subject to the oversight of, a securities regulator that is a signatory to IOSCO’s Multilateral Memorandum of Understanding (MMoU) or Enhanced MMoU. IOSCO is an association of the world’s securities regulators that develops, implements, and promotes internationally recognized standards for financial markets regulation.

One of the questions the SEC is specifically asking is whether to apply any of these changes prospectively to new FPIs registering for the first time or including all existing FPIs, which would be a critical point for many foreign companies.

The Road Ahead

Although it is far too soon to tell whether the Concept Release will ultimately translate into significant revisions to the FPI framework, it indicates that the SEC is prepared to question the current framework. For foreign and multinational companies, cross‑border investors, and their advisers, the takeaway is that there may be some changes coming that impact their access to U.S. capital markets.