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Shearman & Sterling LLP The SEC's Regulation of Foreign Private Issuers | 54 capital markets 5 (an objective that may carry more or less weight depending on the prevailing political climate in Washington). The regime was also developed during a time when FPIs were more commonly listed in their home countries, with their involvement with the U.S. capital markets being focused on a secondary listing. Because an FPI was therefore also typically subject to regulation in its primary listing jurisdiction, the U.S. disclosure framework did not need to drive reporting obligations for FPIs. As fewer FPIs maintain dual listings and instead qualify as FPIs while only listing on the New York Stock Exchange or Nasdaq, it has attracted focus, including by a member of the SEC's staff over the years, whether the current reporting regime continues to be appropriate for FPIs and, in particular, whether it is appropriate for there to continue to be a one-size-fits- all approach to FPI disclosure obligations regardless of whether an FPI is listed on a foreign exchange and so subject to home country regulation. 6 Recently Adopted and Proposed Rules Applicable to Foreign Private Issuers The SEC's latest rulemaking activity supports the idea that its view is shifting towards one that believes FPIs should be subject to a robust disclosure framework more comparable to that applicable to U.S. domestic reporting companies. 7 For example, the SEC's recently adopted rules with respect to clawbacks, amended Rule 10b5-1, share repurchase disclosures, cybersecurity and beneficial ownership reporting, each apply to FPIs, at least to some degree. Similarly, the SEC's currently proposed rules on climate disclosures also will apply to FPIs if adopted as proposed. The rules and their applicability to FPIs are discussed below. 8 Recently Adopted Rules Dodd-Frank Clawback Rule Under the SEC's recently enacted clawback rule and NYSE and Nasdaq standards implemented to comply with a mandate under the Dodd-Frank Act, all U.S. listed companies, including FPIs, are required to (a) implement a clawback policy by December 1, 2023 entitling them to recover erroneously awarded incentive-based compensation received by current and former "executive officers" during a three-year look- back period following an accounting restatement, (b) include that policy as an exhibit to its annual report on Form 20-F or 40-F (for calendar year companies, beginning with the fiscal year 2023 Form 20-F (or 40-F) to be filed in calendar year 2024) and (c) disclose on an annual basis any activity to recover erroneously awarded compensation during its last completed fiscal year. While the SEC acknowledged the concerns identified by comments with respect to applying the rule to FPIs, the SEC declined to exempt FPIs, despite the fact that FPIs have been exempted from many other SEC executive compensation regulations. Indeed, the SEC noted expressly that it believed shareholders of FPIs should benefit from the same compensation recovery regime as shareholders of domestic companies. Because of the lack of any FPI relief, the rules require an FPI to adapt its governance framework relating to executive compensation to implement a compliant clawback policy. Notably, the policy must apply to all "executive officers," 9 a defined group of officers 5 See Steven M. Davidoff, "Rhetoric and Reality: A Historical Perspective on the Regulation of Foreign Private Issuers," https:// lawcat.berkeley.edu/record/1124040 (February 10, 2010); see also Robert Bartlett et al., "The Myth of Morrison: Securities Fraud Litigation Against Foreign Issuers," https://lawcat.berkeley.edu/ record/1137210 (November 13, 2018). 6 See Meredith Cross, "Keynote Address at PLI - Eleventh Annual Institute on Securities Regulation in Europe," https://www.sec.gov/ news/speech/2012-spch030812mchtm (March 8, 2012). Questions raised include: • Is the current 6-K reporting model the right model for these companies? Does it continue to be the right model for foreign private issuers in general? • Should companies that are only listed in the United States, whose only price discovery market is an exchange in the United States, who have a significant shareholder base in the United States, and who have no applicable home country disclosure requirements, be subject to a reporting model that is different than a U.S. company? Should these companies not be required to provide quarterly financial information and 8-K level current reporting? • Should any of these questions apply to foreign private issuers that are also listed on a foreign exchange? 7 Notably, Canadian issuers filing under the Multijurisdictional Disclosure System (MJDS filers) are exempt from certain of the SEC's new disclosure requirements as described herein. 8 For a discussion of the recently adopted and proposed rules outlined below as applicable to reporting companies broadly, including what companies should consider in preparing for compliance, see "SEC Rulemaking Roundup" on page 65 of the Survey. 9 Consistent with the definition of officer in Rule 16a-1(f), executive officer is defined to include the company's president, principal financial officer, principal accounting officer or controller, any vice-president in charge of a principal business unit, division or function, any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the company.