After Congress passed the Sarbanes-Oxley Act of 2002 (“SOX”) and established the Public Company Accounting Oversight Board (“PCAOB”), Congress continued to seek ways to safeguard U.S. investors as markets became increasingly global.[1] The Holding Foreign Companies Accountable Act (“HFCAA”), passed in December 2020, builds on the efforts of SOX to protect investors by enhancing the accuracy of corporate disclosures.[2] It extends U.S. oversight standards to foreign issuers and closes a long-standing gap that allowed companies, particularly those based in China, to avoid PCAOB inspection.[3]
The HFCAA directs the Securities and Exchange Commission (“SEC”) to identify companies whose auditors operate in jurisdictions where the PCAOB “is unable to inspect or investigate completely because of a position taken by an authority in that jurisdiction.”[4] If the PCAOB remains unable to inspect an issuer’s auditor for two consecutive years, the SEC must prohibit trading in that company’s securities.[5] Companies must also confirm that they are not owned or controlled by a foreign government and disclose their audit arrangements, as well as any government involvement.[6] Together, these measures tie access to U.S. markets to transparency and audit accountability.
Implementation
The SEC adopted the HFCAA disclosure rule in December 2021, amending Forms 10-K, 20-F, 40-F, and N-CSR to require information about PCAOB inspection access and ownership structure.[7] The SEC explained that:
The new disclosure requirements will increase transparency about the reliability of affected issuers’ financial statements as well as the characteristics of their ownership and control structures. High-quality disclosures, including high-quality financial statements, are a cornerstone of well-functioning capital markets. Such disclosures reduce information asymmetries between investors and issuers, with positive effects on price efficiency and capital allocation.[8]
In practice, these new requirements coincided with the PCAOB’s efforts to expand its international inspection reach. At the time the HFCAA was passed, there were nearly 200 Chinese-based, U.S.-listed issuers.[9] By the end of 2022, the PCAOB reached an agreement with China’s Securities Regulatory Commission (CSRC) and the Ministry of Finance of the People’s Republic of China.[10] According to PCAOB reports, the agreement permitted inspectors to review audit work papers and conduct interviews with personnel from the accounting firm in both China and Hong Kong for the first time.[11] This achievement came as the PCAOB expanded its international oversight, completing inspections in fifty non-U.S. jurisdictions and entering into formal cooperation agreements with regulators in twenty-six non-U.S. jurisdictions.[12]
Nearly five years after its enactment, the HFCAA’s framework remains dynamic. The Act requires ongoing verification of audit accessibility across all jurisdictions.[13] The SEC has noted that if the PCAOB determines in the future that it cannot fully inspect or investigate registered firms in any country, it will once again identify affected issuers and apply the HFCAA’s trading restrictions.[14] This ongoing process reinforces that transparency and cooperation are not static achievements, but ongoing obligations for companies seeking to maintain access to U.S. capital markets.
Transparency and Deterrence
Commentators continue to debate the implications of the HFCAA. On one view, the statute reflects a deliberate effort to close a long-standing regulatory gap and align foreign audit practices with U.S. standards.[15] Some believe that delisting foreign issuers may harm U.S. investors by reducing diversification and directing capital to markets with weaker disclosure standards.[16] Others view deterrence as the statute’s central purpose: it discourages listings from countries that block oversight and pressures them to cooperate with U.S. regulators.[17] Under this reading, the Act reasserts that access to U.S. capital markets requires compliance with U.S. transparency and auditing standards, treating entry as a “privilege not a right”. [18]
While the HFCAA strengthens investor protection, its reach also introduces trade-offs. The law’s enforcement mechanism compels cooperation, but it can also heighten regulatory tension by tying market access to domestic oversight authority. By requiring issuers to meet U.S. inspection standards to maintain their listings, the statute enhances comparability and confidence in financial reporting.[19] At the same time, this conditional framework narrows the space for regulatory comity and invites reciprocal measures by foreign authorities seeking to preserve their own jurisdictional control.[20]
Some firms opted to pursue dual listings in other countries to hedge against potential delisting risk, while others have strengthened disclosure practices to avoid scrutiny.[21] The 2022 PCAOB inspection access agreement exemplifies how enforcement pressure can yield accommodation. In this sense, the HFCAA’s legacy may be less about exclusion than about redefining interdependence. The continued trust placed in U.S. markets depends on this balance: maintaining high standards without closing the door to participation and proving that transparency can serve both national oversight and international confidence.
Conclusion
The HFCAA builds on the Sarbanes-Oxley Act of 2002 by making audit transparency a condition for entry into U.S. capital markets. Its effectiveness depends on sustained cooperation between the PCAOB and foreign regulators. Still, the law has already changed expectations. It defines market access not as a privilege but as a responsibility. The HFCAA has transformed transparency into a policy tool, one that combines disclosure, deterrence, and reaffirms the United States’ commitment to protecting investors.
[1] See Sarbanes-Oxley Act of 2002, Pub. L. No. 107-204, 116 Stat. 745.
[2] See Holding Foreign Companies Accountable Act of 2020, Pub. L. No. 116-222, 134 Stat. 1063.
[3] E.g., Robert Ruelas, A New Era of Accountability? The Holding Foreign Companies Accountable Act’s Pursuit of Regulatory Equality, 45 Nw. J. Int’l L. & Bus. 79, 94 (2024), https://scholarlycommons.law.northwestern.edu/njilb/vol45/iss1/3.
[4] Holding Foreign Companies Accountable Act Disclosure, Exchange Act Release No. 34-93701, File No. S7-03-21 (Dec. 2, 2021), https://www.sec.gov/files/rules/final/2021/34-93701.pdf.
[5] Jesse M. Fried & Tamar Groswald-Ozery, The Holding Foreign Companies Accountable (HFCA) Act: A Critique, 14 Harv. Bus. L. Rev. 257, 258 (2024), https://journals.law.harvard.edu/hblr/wp-content/uploads/sites/87/2024/10/01_HLB_14_2_Jesse-M.-Fried-Tamar-Groswald-Ozery-2.pdf.
[6] Id. at 277; HFCAA § 2(i)(2)(B), 15 U.S.C. § 7214(i)(2)(B).
[7] Holding Foreign Companies Accountable Act Disclosure, supra note 4.
[8] Id.
[9] See, e.g., Ruelas, supra note 3, at 82.
[10] Mayer Brown LLP, Market Trends 2024/25: Disclosure on the Holding Foreign Companies Accountable Act (Apr. 14, 2025), https://www.mayerbrown.com/en/insights/publications/2025/04/market-trends-disclosure-on-the-holding-foreign-companies-accountable-act (last visited Nov. 2, 2025).
[11] Jesse M. Fried & Tamar Groswald-Ozery, supra note 5, at 258-259; Pub. Co. Acct. Oversight Bd., Fact Sheet: PCAOB Secures Complete Access to Inspect, Investigate Chinese Firms for the First Time in History (Dec. 15, 2022), https://pcaobus.org/news-events/news-releases/news-release-detail/fact-sheet-pcaob-secures-complete-access-to-inspect-investigate-chinese-firms-for-first-time-in-history.
[12] See, e.g., Ruelas, supra note 3, at 84.
[13] See SEC, Division of Corporation Finance and Division of Trading and Markets, Staff Statement on the Holding Foreign Companies Accountable Act and the Consolidated Appropriations Act, 2023 (Apr. 6, 2023), https://www.sec.gov/newsroom/speeches-statements/statement-hfcaa-040623.
[14] Id.
[15] See Ruelas, supra note 3, at 88.
[16] See Fried & Groswald-Ozery, supra note 5, at 274.
[17] See Pub. Co. Acct. Oversight Bd., Fact Sheet: PCAOB Secures Complete Access to Inspect, Investigate Chinese Firms for the First Time in History, (Dec. 15, 2022), https://pcaobus.org/news-events/news-releases/news-release-detail/fact-sheet-pcaob-secures-complete-access-to-inspect-investigate-chinese-firms-for-first-time-in-history.
[18] Id.
[19] See Ruelas, supra note 3, at 96-98.
[20] Id.
[21] See Ruelas, supra note 3, at 93.
