On June 4, 2025, the U.S. Securities and Exchange Commission (SEC) issued a Concept Release soliciting public comments on whether and how to revise the definition of a foreign private issuer (FPI) under the federal securities laws.[1] Notably, the Concept Release and some accompanying SEC Commissioner statements indicate that stricter standards may be considered for determining FPI status.
The Concept Release is not a formal rule proposal but is expected to inform any future SEC rulemaking. The public comment period will remain open for 90 days following publication of the Concept Release in the Federal Register.
Background
Under the current standard, a company may qualify for FPI status if it is incorporated or organized outside the U.S. and either:
- 50% or less of its outstanding voting securities are held by U.S. residents; or
- If more than 50% of its outstanding voting securities are directly or indirectly owned of record by U.S. residents, none of the following three circumstances apply:
- A majority of its directors or executive officers are U.S. citizens or residents;
- More than 50% of its assets are located in the United States; or
- Its business is principally administered in the United States (primarily directed or controlled).
Qualifying as an FPI provides significant advantages to foreign issuers, including the following:
- More Time for Annual Reports. FPIs must file an Annual Report on Form 20-F within four months after the fiscal year covered by the report.
- In contrast, domestic issuers must file an Annual Report on Form 10-K between 60 and 90 days following the end of its fiscal year, depending on the size of the issuer.
- Reduced Reporting Obligations. FPIs are not required by U.S. federal securities laws to file either Quarterly Reports on Form 10-K or Current Reports on Form 8-K.
- Reduced Executive Compensation Reporting Requirements. FPIs may provide executive compensation on an aggregate basis instead of an individual basis, and often do not need to file employment agreements.
- Regulatory Exemptions. FPIs are exempt from the federal proxy rules, Regulation FD, and Section 16 reporting.
- IFRS Reporting. FPIs may prepare their financial statements in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board, without reconciliation to U.S. GAAP.
- Stock Exchange Accommodations. Nasdaq and NYSE provide numerous accommodations to FPIs, which allow them to comply with home country rules for corporate governance and exemptions from shareholder approval requirements for certain share issuances.
Concept Release
Background
The Concept Release is largely premised on a data-based analysis conducted by the SEC staff that shows significant changes to the composition of the FPI population in recent years and that raises some doubt as to the prudence of providing legal accommodations to FPIs. The Concept Release notes that the SEC’s FPI framework was founded on the assumption that FPIs’ securities would be traded in foreign markets and that FPIs would be subject to meaningful disclosure and other regulatory requirements in their home country jurisdictions, but questions whether this is still the case.
In particular, the Concept Release notes that:
- The two jurisdictions most frequently represented among FPIs in fiscal year 2003 were Canada and the United Kingdom, both in terms of incorporation and the location of headquarters.
- In contrast, the most common jurisdiction of incorporation for FPIs in fiscal year 2023 was the Cayman Islands, and the most common jurisdiction of headquarters in fiscal year 2023 was mainland China.
- The staff also found a substantial increase in FPIs with differing jurisdictions of incorporation and of headquarters, from 7% in fiscal year 2003 to 48% in fiscal year 2023.
- Global trading FPIs’ equity securities has become increasingly concentrated in U.S. capital markets over the last decade.
- As of fiscal year 2023, approximately 55% of Exchange Act reporting FPIs appear to have had no or minimal trading of their equity securities on any non-U.S. market and appear to maintain listings of their equity securities only on U.S. national securities exchanges.
- As a result, the United States is effectively those issuers’ exclusive or primary trading market.
The Concept Release also notes that some foreign jurisdictions now provide local issuers with exemptions from their disclosure or regulatory requirements if the issuers qualify as FPIs under U.S. securities laws, which appears to conflict with the SEC’s historical expectations regarding meaningful home country disclosure and regulatory requirements for FPIs.
Areas for Public Comment
In light of the above, the Concept Release solicits public comment on whether, and if so, how, to amend the FPI definition. The Concept Release identifies a range of potential reforms, including but not limited to:
- Eligibility Criteria Update: Whether the existing FPI eligibility criteria should be updated, potentially by reducing the existing 50 percent threshold of U.S. holders in the shareholder test or adding new criteria for the business contacts test;
- Additional Trading Volume Requirement: Whether a foreign trading volume requirement test should be adopted, which could require FPIs to assess their foreign and U.S. trading volume on an annual basis and impose a minimum percentage of foreign trading volume to maintain FPI status;
- Listing Requirement: Whether FPIs should be required to be listed on a major foreign exchange, and what criteria should be used in determining whether a foreign exchange is “major”;
- Foreign Regulatory Requirement: Whether FPIs should be required to (1) be incorporated or headquartered in a jurisdiction where the SEC has determined there is a robust regulatory and oversight framework for issuers and (2) be subject to such securities regulations and oversight without modification or exemption; and
- International Cooperation:
- Whether the SEC should establish new mutual recognition systems with respect to Securities Act registration and Exchange Act periodic reporting for FPIs from selected jurisdictions, similar to the mutual recognition approach under the Multijurisdictional Disclosure System for Canadian issuers; and
- Whether FPIs should be required to certify they are either incorporated or headquartered in a jurisdiction with a securities authority that has signed the International Organization of Securities Commissions Multilateral Memorandum of Understanding (MMoU) or Enhanced MMoU.
The SEC seeks public feedback on the costs and benefits with respect to each of the above, noting that it has historically sought to balance U.S. investor protection considerations and competitive implications for U.S. issuers alongside the opportunity for U.S. investors to invest in foreign securities.
Next Steps
Once the Concept Release is published in the Federal Register, the SEC will gather public comments on these and other questions posed in the Concept Release for 90 days. The SEC will typically then consider these comments and publish a Rule Proposal in response, which will be subject to a second period of public comment and will potentially implement a Final Rule. While the substance and timing of any amendments to the FPI definition remain uncertain, any responsive amendments could significantly impact the ability of foreign issuers to access U.S. capital markets and the competitive landscape between U.S. and foreign issuers.
[1] Release No. 33-11376, Concept Release on Foreign Private Issuer Eligibility (June 4, 2025),(the “Concept Release”).