SEC proposals suggest forthcoming changes for the foreign private issuer regime

Last month, the Securities and Exchange Commission (SEC) proposed a significant package of reforms that includes measures to ease disclosure obligations, relieve a significant proportion of US-listed companies from internal control audit requirements, and substantially broaden access to shelf registration in the US public capital markets – a form of registration that gives US-listed issuers flexibility over when to publicly offer securities.Non-US companies accessing US capital markets as FPIs have been largely excluded from the proposals. In each case, the SEC said it considers it prudent not to include FPIs as part of these proposed reforms prior to the completion of its more comprehensive review of the definition of FPI under the FPI concept release it issued in June 2025.

This suggests that the SEC is likely to propose changes to the definition of “foreign private issuer” in the near- to medium-term. Any such changes could have far-reaching consequences – both for existing US-listed FPIs and for other non-US companies considering a US IPO/listing, relying on the key offshore exemption under Regulation S of the US Securities Act, or engaging in cross-border takeover offers.

Below, we look at the potential implications of any change to the definition of FPI.

The definition of ‘foreign private issuer’

Under Rule 405 of the Securities Act and Rule 3b-4 of the Exchange Act, an issuer incorporated or organised outside the US qualifies as an FPI unless:

• more than 50% of its outstanding voting securities are held of record directly or indirectly by US residents (the ‘shareholder contacts test’); and
• a majority of its executive officers or directors are US citizens or residents, more than 50% of its assets are located in the US, or its business is principally administered in the US (the ‘business contacts test’).

FPIs with securities registered under the US Exchange Act of 1934 and listed in the US benefit from a suite of regulatory accommodations relative to the disclosure, reporting, accounting and other requirements applicable to US domestic issuers. These include the ability to file annual reports with a longer filing window; exemptions from quarterly reporting; the option to present financial statements under international financial reporting standards (IFRS) without reconciliation to US generally accepted accounting principles (GAAP); and exemptions from the US proxy rules, ‘say-on-pay’ requirements concerning executive pay and the selective disclosure rules under Regulation FD.

A refresher on the FPI concept release

The FPI concept release, published in June 2025, was the SEC's first broad review of the FPI framework in over 15 years. In the release, the SEC's staff identified two principal concerns.

First, the composition of the FPI population has shifted significantly: whereas in 2003 the most common jurisdictions of incorporation and headquarters for FPIs filing annual reports on Form 20-F were Canada and the UK, by 2023 the most common jurisdiction of incorporation was the Cayman Islands and the most common jurisdiction of headquarters was mainland China – jurisdictions that the SEC considers may impose disclosure requirements that differ materially from those applicable to domestic US issuers.

Second, a majority of FPIs now have their equity securities traded almost exclusively in US capital markets rather than in foreign markets, raising questions about the extent to which such issuers are subject to meaningful disclosure requirements and regulatory oversight outside the US.

The SEC suggested that these developments may sit at odds with the historical rationale for the FPI accommodations, which assumed that FPIs would be subject to robust home country regulation and would have their securities traded principally in foreign markets.

Against that backdrop, the SEC asked for feedback on a range of potential changes to the definition of FPI, which include:

• updating the existing bifurcated shareholder and ‘business contacts’ test – for example, by lowering the existing 50% US shareholder requirement or revising the list of criteria under the business contacts test;
• adding a foreign trading volume requirement, whereby FPIs would need to assess their foreign and US trading volume on an annual basis to determine continued eligibility for FPI status;
• requiring FPIs to be listed on a “major foreign exchange”;
• requiring FPIs to be incorporated or headquartered in a jurisdiction that the SEC has determined to have a robust regulatory and oversight framework for issuers, and to be subject to such securities regulations and oversight without modification or exemption;
• developing a system of mutual recognition, with respect to Securities Act registration and Exchange Act periodic reporting, for issuers from selected foreign jurisdictions, building on the existing Multijurisdictional Disclosure System for Canadian issuers; and
• requiring, as a criterion for FPI eligibility, that an FPI certify that it is either incorporated or headquartered in, and subject to the oversight of, a jurisdiction whose foreign securities authority has signed the IOSCO Multilateral Memorandum of Understanding (MMOU) or the Enhanced MMOU.

Potential ramifications for changes to the FPI definition

The ramifications of any change to the definition of FPI extend well beyond the existing US-reporting FPI population.

The FPI definition is a foundational concept under the US federal securities laws, and changes to it could have material consequences for non-US issuers that are not currently registered or listed in the US but that rely on the current definition in connection with their capital markets activities.

Changes to the FPI definition could affect: non-US issuers considering an initial public offering (IPO) in the US; non-US issuers that rely on the FPI definition for purposes of the offshore offering safe harbours under Regulation S; and the application of certain other, important securities law exemptions, such as the cross-border tender offer rules, which are conditioned on the target company securities being those of an FPI.

Non-US issuers considering a US IPO

Under the current framework, FPI status affords non-US issuers a suite of accommodations. These include the ability to file annual reports on Form 20-F and present financial statements under IFRS without reconciliation to US GAAP. They also include exemptions from the US proxy rules, quarterly reporting and, in part, beneficial ownership reporting under section 16 of the US Exchange Act of 1934. Taken together, these significantly reduce the regulatory burden associated with accessing the US public capital markets.

If the FPI definition were amended such that a non-US issuer contemplating a US IPO would not qualify for FPI status – for example, because it will not be concurrently listed on a qualifying "major foreign exchange" – that issuer would be required to comply with the full panoply of requirements applicable to US domestic issuers from the outset. This would include, for example, a requirement to prepare financial statements in accordance with US GAAP.

Regulation S

The offshore offering safe harbours under Regulation S depend, in part, on whether an issuer can be classified as an FPI.

Under Regulation S, the category of issuer determines the applicable conditions for the safe harbour from Securities Act registration for offers and sales of securities that occur outside the US. If a non-US issuer were reclassified from an FPI to a "domestic issuer" because of changes to the FPI definition, it could be placed into a more restrictive category under Regulation S. This would impose additional conditions on offshore offerings of its securities – including, potentially, flow-back restrictions and other compliance requirements that are not currently applicable.

This could make it materially harder for such issuers and other distribution participants, such as underwriters, to comply with the Regulation S safe harbours and impose significant additional compliance costs on offshore capital markets transactions.

Cross-border tender offer exemptions

The US cross-border tender offer exemptions, which provide relief from certain procedural and substantive requirements of the US tender offer rules, are conditioned on the subject securities being those of an FPI.

If the FPI definition were narrowed, certain non-US issuers that currently qualify as FPIs could lose their eligibility for these exemptions. The result of that would be that tender offers and other business combination transactions involving their securities would need to comply fully with the US tender offer rules – including the filing, disclosure and procedural requirements under Regulation 14E of the US Exchange Act of 1934.

This could significantly complicate cross-border M&A transactions and impose additional costs and timing constraints on both offerors and target companies, particularly in circumstances where the transaction is otherwise governed by a well-developed home country takeover regime.