On June 4, 2025, the Securities and Exchange Commission (SEC) issued a concept release soliciting public input on whether the definition of foreign private issuer (FPI) should be amended, particularly given the significant changes in the population of FPIs since 2003.
The public comment period will remain open for 90 days following publication of the SEC’s concept release in the Federal Register. Any changes to the SEC’s current rules, including as a result of public feedback to the concept release, will require the SEC to propose new or revised rules, solicit public comments and then adopt final rules.
Overview
Current FPI Definition
Over the years, the SEC has implemented a number of specific accommodations from which eligible FPIs may currently benefit as compared to domestic issuers. Currently, a foreign issuer (other than a foreign government) can qualify as an FPI if:
- for U.S. ownership threshold, 50% or less of its outstanding voting securities are held of record directly or indirectly by U.S. residents; or
- for U.S. business contacts, more than 50% of its outstanding voting securities are held of record directly or indirectly by U.S. residents, and none of the following circumstances apply:
- the majority of its executive officers or directors are U.S. citizens or residents,
- more than 50% of the foreign issuer’s assets are located in the U.S., or
- the foreign issuer’s business is administered principally in the U.S.
Changes in FPI Population
In a public statement, SEC Chair Paul Atkins noted that it had been several decades since the SEC last examined the characteristics of FPIs. Therefore, the SEC staff recently conducted a broad review of FPIs that were subject to reporting obligations under the Securities Exchange Act of 1934, as amended, from 2003 to 2023, examining their:
- Jurisdictions of incorporation and headquarters
- Global market capitalizations
- Trading volumes
- Other characteristics
Based on the data and parameters used by the SEC, the review revealed significant changes in FPIs’ jurisdictions of incorporation and headquarters since 2003. In fiscal year 2003, the United Kingdom and Canada were the most common jurisdictions of incorporation and headquarters among FPIs that filed annual reports on Form 20-F (20-F FPIs). In contrast, in fiscal year 2023, the Cayman Islands was the most common jurisdiction of incorporation, and China was the most common jurisdiction for headquarters.
The SEC noted that despite the Cayman Islands representing the jurisdiction of incorporation of over 30% of 20-F FPIs, the aggregate global market capitalization for the 20-F FPIs incorporated in the Cayman Islands represents around 11.6% of the aggregate global market capitalization of all 20-F FPIs.
The SEC staff also found the global trading of 20-F FPIs’ equity securities has become increasingly concentrated in U.S. capital markets between 2014 and 2023. In fiscal year 2023, approximately 55% of 20-F FPIs traded almost exclusively1 in U.S. capital markets, compared to 44% in fiscal year 2014.
Potential Regulatory Responses
As described in the concept release, the current regulatory accommodations for FPIs were based, in part, on the expectation that most FPIs would be subject to meaningful disclosure and other regulatory requirements in their home country jurisdictions. However, in the SEC’s view, this is not the case for a significant number of FPIs today. According to the SEC, the changes in the characteristics of the FPI population reflected in the SEC’s analysis raise questions about whether the current FPI definition is appropriately tailored.
As a result, the concept release seeks public input on several possible approaches to amending the FPI definition to better ensure the definition is appropriately tailored to reflect the current FPI population, as summarized below.
Requests for Comment
- FPI eligibility criteria. Whether the FPI definition’s bifurcated test should be updated, such as by (i) decreasing the U.S. ownership threshold from 50% to a lower percentage or (ii) adding new criteria or revising the existing criteria under the business contacts test, such as changing the U.S. assets threshold.
- Foreign trading volume requirement. Whether a foreign trading volume test should be adopted, either as an alternative or in addition to updating the existing eligibility criteria. For example, the test could be conducted on an annual basis and require an FPI to have a certain percentage of securities trading volume attributable to non-U.S. markets over the preceding 12-month period.
- Major foreign exchange listing requirement. Whether FPIs should be required to be listed on a “major foreign exchange” and what specific criteria should be considered in evaluating whether a foreign exchange is “major.”2 This requirement could be implemented in conjunction with a foreign trading volume test.
- SEC assessment of foreign regulation. Whether each FPI should be (i) required to be incorporated or headquartered in a jurisdiction with a robust regulatory and oversight framework, and (ii) subject to such securities regulations and oversight without modification or exemption. This approach would involve developing criteria for determining which foreign jurisdictions have regulatory regimes that are sufficiently protective of U.S. investors, and it would require cooperation with foreign authorities.
- Mutual recognition systems. Whether the SEC should establish mutual recognition systems that would allow FPIs from certain jurisdictions to meet U.S. disclosure and registration requirements by complying with their home country regulations. Participating jurisdictions would be expected to meet certain standards in their regulatory approaches, but their requirements would not need to be exactly the same as the SEC’s requirements for domestic issuers. For example, the SEC currently applies a limited mutual recognition approach for Canadian issuers under the Multijurisdictional Disclosure System, which allows U.S. and Canadian issuers to conduct cross-border securities offerings and fulfill their reporting requirements primarily by complying with home country securities regulations.
- International cooperation arrangements. Whether FPIs should be required to certify they are incorporated or headquartered in, and subject to the oversight of the signatory authority of, a jurisdiction in which the foreign securities authority has signed the IOSCO (International Organization of Securities Commissions) Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information (MMoU) or the Enhanced MMoU. These multilateral arrangements are intended to facilitate international cooperation in enforcement matters, such as by providing bank, brokerage and beneficial ownership records. According to the concept release, this requirement would be in addition to the other requirements discussed above.
Key Takeaway
The issuance of a concept release signals a significant step forward in the SEC’s process to revisit the FPI definition. However, it remains to be seen whether the SEC’s examination of these matters will give rise to rulemaking or other initiatives.
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1 Per the concept release, “almost exclusively” refers to 20-F FPIs that have had less than 1% of their equity security trading volume outside U.S. capital markets (or equivalently 99% or more of such volume in U.S. capital markets) in a 12-month period centered around their fiscal year-end dates.
2 Per the concept release, in determining which exchanges fit the definition of a “major foreign exchange,” one approach would be for the SEC to maintain a list of foreign exchanges whose listing requirements meet certain specific criteria.
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