Understanding the HFCAA

In December 2020, the Holding Foreign Companies Accountable Act (HFCAA) was enacted to enhance transparency for foreign companies listed on U.S. exchanges. The legislation mandates that these companies comply with U.S. auditing standards or face potential consequences, including delisting from stock exchanges. This act is a pivotal move towards ensuring truthful reporting and accountability, particularly from international firms operating in the U.S. markets.

Implications for Foreign Companies

The HFCAA has significant implications, primarily affecting Chinese companies that are publicly traded in the United States. These firms must now submit to the same stringent auditing standards as domestic companies, closing gaps that previously allowed discrepancies in financial reporting. Companies like Alibaba Group, JD.com Inc., Baidu Inc., NIO Inc., Xpeng Inc., Futu Holdings could face heightened scrutiny, enforcing more rigorous compliance to maintain their listing status on U.S. exchanges.

The Push for Standardized Accounting Practices

The HFCAA pushes for a global standard in financial reporting, setting a precedent for increased regulatory expectations from foreign entities. This initiative aims to bridge the auditing gap that has often placed foreign companies at an advantage due to lax accountability measures in their home countries. By enforcing U.S. auditing standards, the act supports fair market practices and fosters investor confidence in the financial information presented by these companies.

What Investors Need to Know

At CochranMickels Retirement Specialists, we understand the necessity for investors to stay informed about companies impacted by the HFCAA. It is crucial for both individual investors and financial advisors to grasp their exposure to these foreign entities. Advisors, whether managing portfolios directly or through third-party services, must ensure they accurately assess client exposure to potentially delisted companies due to non-compliance.

In today's global market, staying informed and adaptable to new regulatory measures like the HFCAA is more important than ever. Investors should actively engage with their financial advisors to evaluate their investment strategies and mitigate risks associated with regulatory changes that impact foreign market players.

Mike

About the Author

Mike Mickels is the President and Chief Compliance Officer at CochranMickels Retirement Specialists, LLC. Beyond his professional endeavors, Mike is an avid sporting clay competitor and free diver. His firm specializes in providing custom-tailored retirement planning and investment services. Please note, this content is intended solely for informational purposes, and it is crucial to consult with a financial advisor where necessary. Investing carries risks, including the potential loss of principal capital.