The SEC is reevaluating the definition of a foreign private issuer (FPI). It says the new definition needs to better represent these issuers to reflect today’s reality, so FPIs can benefit from current FPI accommodations while continuing to protect investors and promote capital formation. Comments are sought by September 8, 2025.

The agency’s rules with FPIs have featured accommodations that reflect an understanding that, while legal and regulatory requirements differ across home country jurisdictions and that most eligible FPIs are subject to meaningful disclosure and other regulatory requirements in their home country jurisdictions. But today, the majority of reporting FPIs have equity securities almost exclusively traded in US capital markets.

The FPI designation covers US-listed companies that are based overseas and have 50% or less of their voting securities held by US investors, or meet other tests involving the nationality of its management or the location of business operations.

“Because the FPI population has changed such that it may no longer reflect the issuers that the Commission intended to benefit from current FPI accommodations, we are soliciting comments on whether the current FPI definition should be amended,” the SEC said in its concept release.

Essentially, the SEC is concerned that FPI rules may disadvantage US-based issuers.

But although the SEC document specifically asks whether FPI eligibility should be narrowed, it doesn’t suggest revamping regulatory relief afforded to foreign private issuers.

The data

Interestingly, the headquarters of foreign companies have shifted away from countries with similar regulatory frameworks as the US.

According to SEC data, 943 US-listed companies are deemed foreign private issuers, according to SEC data, or about 20% of US public markets. The largest category of such companies, about 23%, are headquartered in China, followed by Israel. And of the ones headquartered in China, those FPIs typically are also incorporated in light-touch regimes such as the Cayman Islands or British Virgin Islands, according to 2023 data.

Back in 2003, the US’s top two sources of FPIs were from Canada and the United Kingdom. Mainland China was, by far, the most common jurisdiction of headquarters in fiscal year 2023.

“That objective must be balanced with other considerations, including providing investors with material information and ensuring domestic companies are not competitively disadvantaged with respect to regulatory requirements.”

Paul Atkins, Chair, SEC

SEC data shows that the number of foreign private issuers solely listed in the US began to surge around 2014. This is when Israeli and European technology and life sciences startups with leaner resources wanted to comply with fewer rules, lawyers say. Changes to these accommodations could change the calculus they use to decide where to raise funds.

“The European biotech that would traditionally have looked to the US to raise capital for the next stage in their journey may very well be caught by these changes,” said London-based Freshfields partner David Boles, who advises European and Middle Eastern companies.

But is it likely the SEC will try to dissuade major FPIs from trying to tap the US pool of investors and enhance their valuations by listing there? No. It’s likely it will strive for a middle ground requiring more disclosure, but still offering some concessions.

This would give the SEC some room to say it didn’t give them a free pass in the face of changed conditions, and stayed consistently watchful of China, while also providing a welcoming public marketplace for international companies.

Changes contemplated

The following approaches to amending the FPI regime are being contemplated, and the SEC’s concept release seeks public input on each one. A few of them include:

• Update the FPI eligibility criteria to lower the existing 50% threshold of US holders in the shareholder test and revise the existing list of criteria under the business contacts test (either adding new criteria or revising the existing threshold for assets located in the US).
• Add a foreign trading volume requirement. The thought behind this one is that issuers that have a consistent and meaningful number of their securities traded on a non-US market might be more likely to be subject to home country oversight, disclosure, and other regulatory requirements that warrant the SEC’s accommodation than FPIs whose securities are primarily or exclusively traded in the US.
• Add a major foreign exchange listing requirement to help ensure FPIs are subject to meaningful regulation and oversight in a foreign market and incentivize the provision of material and timely disclosure.

Atkins speaks

“Attracting foreign companies to US markets and providing US investors with the opportunity to trade in those companies under US laws and regulations remains an objective,” said SEC Chair Paul Atkins about the request for public comment.

“That objective must be balanced with other considerations, including providing investors with material information about these foreign companies, and ensuring that domestic companies are not competitively disadvantaged with respect to regulatory requirements,” he said.