EQUITABLE Act of 2019

I 116TH CONGRESS 1ST SESSION H. R. 3124 To amend the Sarbanes-Oxley Act of 2002 to require the Public Company Accounting Oversight Board to maintain a list of certain foreign issuers, and for other purposes. IN THE HOUSE OF REPRESENTATIVES JUNE 5, 2019 Mr. CONAWAY (for himself, Mr. RYAN, and Mr. GALLAGHER) introduced the following bill; which was referred to the Committee on Financial Services A BILL To amend the Sarbanes-Oxley Act of 2002 to require the Public Company Accounting Oversight Board to maintain a list of certain foreign issuers, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘Ensuring Quality In- 4 formation and Transparency for Abroad-Based Listings 5 on our Exchanges of 2019’’ or the ‘‘EQUITABLE Act 6 of 2019’’. 7 SEC. 2. DEFINITIONS. 8 In this Act— 9 VerDate Sep 11 2014 01:57 Jun 13, 2019 Jkt 089200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H3124.IH H3124 kjohnson on DSK79L0C42 with BILLS 2 •HR 3124 IH (1) the term ‘‘applicable foreign issuer’’ means 1 a foreign issuer— 2 (A) that is required to file a covered form; 3 and 4 (B) for which, during the period covered 5 by the filing described in subparagraph (A), a 6 covered foreign public accounting firm has pre- 7 pared an audit report for the issuer; 8 (2) the term ‘‘audit report’’ has the meaning 9 given the term in section 2(a) of the Sarbanes-Oxley 10 Act of 2002 (15 U.S.C. 7201(a)); 11 (3) the term ‘‘Board’’ means the Public Com- 12 pany Accounting Oversight Board; 13 (4) the term ‘‘Commission’’ means the Securi- 14 ties and Exchange Commission; 15 (5) the term ‘‘covered foreign public accounting 16 firm’’ means a foreign public accounting firm that 17 the Board is unable to inspect or investigate under 18 the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7201 et 19 seq.) because of a position taken by an authority 20 outside of the United States; 21 (6) the term ‘‘covered form’’— 22 (A) means— 23 VerDate Sep 11 2014 01:57 Jun 13, 2019 Jkt 089200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H3124.IH H3124 kjohnson on DSK79L0C42 with BILLS 3 •HR 3124 IH (i) the form described in section 1 249.310 of title 17, Code of Federal Regu- 2 lations, or any successor regulation; and 3 (ii) the form described in section 4 249.220f of title 17, Code of Federal Reg- 5 ulations, or any successor regulation; and 6 (B) includes a form that— 7 (i) is the equivalent of, or substan- 8 tially similar to, the form described in 9 clause (i) or (ii) of subparagraph (A); and 10 (ii) a foreign issuer files with the 11 Commission under the Securities Exchange 12 Act of 1934 (15 U.S.C. 78a et seq.) or 13 rules issued under that Act; 14 (7) the term ‘‘covered jurisdiction’’ means the 15 foreign jurisdiction in which the position described 16 in paragraph (5) is taken with respect to a covered 17 foreign public accounting firm that prepares an 18 audit report for an applicable foreign issuer; 19 (8) the term ‘‘exchange’’ has the meaning given 20 the term in section 3(a) of the Securities Exchange 21 Act of 1934 (15 U.S.C. 78a(a)); 22 (9) the term ‘‘foreign issuer’’ has the meaning 23 given the term in section 240.3b–4 of title 17, Code 24 of Federal Regulations, or any successor regulation; 25 VerDate Sep 11 2014 01:57 Jun 13, 2019 Jkt 089200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H3124.IH H3124 kjohnson on DSK79L0C42 with BILLS 4 •HR 3124 IH (10) the term ‘‘foreign public accounting firm’’ 1 has the meaning given the term in section 106(g) of 2 the Sarbanes-Oxley Act of 2002 (15 U.S.C. 3 7216(g)); 4 (11) the term ‘‘national securities exchange’’ 5 means an exchange that is registered with the Com- 6 mission under section 6 of the Securities Exchange 7 Act of 1934 (15 U.S.C. 78f); and 8 (12) the term ‘‘public accounting firm’’ has the 9 meaning given the term in section 2(a) of the Sar- 10 banes-Oxley Act of 2002 (15 U.S.C. 7201(a)). 11 SEC. 3. DISCLOSURE. 12 (a) LIST OF CERTAIN FOREIGN ISSUERS AND COV- 13 ERED FOREIGN PUBLIC ACCOUNTING FIRMS.— 14 (1) IN GENERAL.—The Commission shall main- 15 tain a publicly available list of— 16 (A) each foreign issuer, an audit report of 17 which— 18 (i) is prepared by a foreign public ac- 19 counting firm; and 20 (ii) the Board is not able to inspect or 21 investigate because of a position taken by 22 an authority that is outside of the United 23 States; 24 VerDate Sep 11 2014 01:57 Jun 13, 2019 Jkt 089200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H3124.IH H3124 kjohnson on DSK79L0C42 with BILLS 5 •HR 3124 IH (B) each covered foreign public accounting 1 firm that has prepared an audit report identi- 2 fied under subparagraph (A); and 3 (C) the jurisdiction in which each covered 4 foreign public accounting firm identified under 5 subparagraph (B) is organized or operating. 6 (2) ROLE OF THE BOARD.—Not less frequently 7 than annually, the Board shall provide to the Com- 8 mission the information that is required for the 9 Commission to carry out paragraph (1). 10 (b) ANNUAL REPORT DISCLOSURE.— 11 (1) DISCLOSURE.—Each applicable foreign 12 issuer shall disclose in each covered form filed by the 13 applicable foreign issuer— 14 (A) that, during the period covered by cov- 15 ered form, a covered foreign public accounting 16 firm has prepared an audit report for the 17 issuer; 18 (B) the percentage of the shares of the 19 issuer owned by governmental entities in the 20 foreign jurisdiction in which the issuer is incor- 21 porated or otherwise organized; 22 (C) whether governmental entities in a cov- 23 ered jurisdiction with respect to any covered 24 foreign public accounting firm that has pre- 25 VerDate Sep 11 2014 01:57 Jun 13, 2019 Jkt 089200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H3124.IH H3124 kjohnson on DSK79L0C42 with BILLS 6 •HR 3124 IH pared an audit report for the issuer during the 1 period covered by the form have a controlling fi- 2 nancial interest with respect to the issuer; and 3 (D) the name of any official of the Chinese 4 Communist Party who is a member of the 5 board of directors of the issuer or the operating 6 entity with respect to the issuer. 7 (2) UPDATE OF REGULATIONS.—Not later than 8 270 days after the date of enactment of this Act, 9 and after providing the opportunity for public notice 10 and comment, the Commission shall make any 11 amendments to the regulations of the Commission 12 that are required as a result of the requirements of 13 this subsection. 14 (3) EFFECTIVE DATE.—This subsection shall 15 take effect on the date on which the Commission 16 completes the amendments required under para- 17 graph (2). 18 (c) DISCLOSURE BY BROKERS AND DEALERS.—Sec- 19 tion 15(n) of the Securities Exchange Act of 1934 (15 20 U.S.C. 78o(n)) is amended— 21 (1) in paragraph (1), by striking ‘‘Commission 22 may issue’’ and all that follows through the period 23 at the end and inserting the following: ‘‘Commis- 24 sion— 25 VerDate Sep 11 2014 01:57 Jun 13, 2019 Jkt 089200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H3124.IH H3124 kjohnson on DSK79L0C42 with BILLS 7 •HR 3124 IH ‘‘(A) shall issue rules that require a broker 1 and a dealer to disclose, with respect to any ad- 2 vice, analysis, or report of the broker or dealer 3 to a retail investor regarding the securities of a 4 foreign issuer, whether a covered foreign public 5 accounting firm has prepared an audit report 6 for the foreign issuer; and 7 ‘‘(B) in addition to the rules required 8 under subparagraph (A), may issue rules desig- 9 nating documents or information that shall be 10 provided by a broker or dealer to a retail inves- 11 tor before the purchase of an investment prod- 12 uct or service by the retail investor.’’; and 13 (2) by adding at the end the following: 14 ‘‘(4) DEFINITIONS.—In this subsection, the 15 terms ‘audit report’, ‘covered foreign public account- 16 ing firm’, ‘foreign issuer’, and ‘public accounting 17 firm’ have the meanings given the terms in section 18 2 of the EQUITABLE Act of 2019.’’. 19 SEC. 4. PROHIBITION AGAINST THE LISTING OF CERTAIN 20 FIRMS ON NATIONAL SECURITIES EX- 21 CHANGES. 22 (a) IN GENERAL.—Section 6(b) of the Securities Ex- 23 change Act of 1934 (15 U.S.C. 78f(b)) is amended by add- 24 ing at the end the following: 25 VerDate Sep 11 2014 01:57 Jun 13, 2019 Jkt 089200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H3124.IH H3124 kjohnson on DSK79L0C42 with BILLS 8 •HR 3124 IH ‘‘(11)(A) The rules of the exchange prohibit the 1 initial listing, after the date of enactment of this 2 paragraph, of any security of an issuer for which a 3 covered foreign public accounting firm has prepared 4 an audit report. 5 ‘‘(B) Nothing in subparagraph (A) may be con- 6 strued to prevent an exchange from listing a security 7 on the exchange on or after the date of enactment 8 of this paragraph if that security was listed on the 9 exchange or a national securities exchange before 10 the date of enactment of this paragraph. 11 ‘‘(C) In this paragraph, the terms ‘audit report’ 12 and ‘covered foreign public accounting firm’ have the 13 meanings given the terms in section 2 of the EQUI- 14 TABLE Act of 2019. 15 ‘‘(12)(A) The rules of the exchange prohibit the 16 listing of any security of a foreign issuer that, begin- 17 ning in 2025, has been identified under section 18 3(a)(1)(A) of the EQUITABLE Act of 2019 in 3 19 consecutive years. 20 ‘‘(B) Nothing in subparagraph (A) may be con- 21 strued to prevent an exchange from listing a security 22 of a foreign issuer described in that subparagraph 23 beginning on the date on which the issuer submits 24 to the Commission an audit report for the issuer 25 VerDate Sep 11 2014 01:57 Jun 13, 2019 Jkt 089200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6201 E:\BILLS\H3124.IH H3124 kjohnson on DSK79L0C42 with BILLS 9 •HR 3124 IH that is prepared by a registered public accounting 1 firm that the Public Company Accounting Oversight 2 Board has inspected, or is able to inspect, under sec- 3 tion 104 of the Sarbanes-Oxley Act of 2002 (15 4 U.S.C. 7214). 5 ‘‘(C) In this paragraph— 6 ‘‘(i) the terms ‘audit report’ and ‘reg- 7 istered public accounting firm’ have the mean- 8 ings given the terms in section 2(a) of the Sar- 9 banes-Oxley Act of 2002 (15 U.S.C. 7201(a)); 10 and 11 ‘‘(ii) the terms ‘covered foreign public ac- 12 counting firm’ and ‘foreign issuer’ have the 13 meanings given the terms in section 2 of the 14 EQUITABLE Act of 2019.’’. 15 (b) RULES.— 16 (1) PROPOSALS.—Not later than 90 days after 17 the date of enactment of this Act, each national se- 18 curities exchange shall, in accordance with section 19 19(b) of the Securities Exchange Act of 1934 (15 20 U.S.C. 78s(b)) and any rules prescribed by the Com- 21 mission under that section, file with the Commission 22 any proposed change to the rules of the exchange 23 that is required as a result of the amendments made 24 by this section. 25 VerDate Sep 11 2014 01:57 Jun 13, 2019 Jkt 089200 PO 00000 Frm 00009 Fmt 6652 Sfmt 6201 E:\BILLS\H3124.IH H3124 kjohnson on DSK79L0C42 with BILLS 10 •HR 3124 IH (2) ADOPTION.—Not later than 1 year after the 1 date of enactment of this Act, each national securi- 2 ties exchange shall have each proposed change de- 3 scribed in paragraph (1) approved by the Commis- 4 sion. 5 Æ VerDate Sep 11 2014 01:57 Jun 13, 2019 Jkt 089200 PO 00000 Frm 00010 Fmt 6652 Sfmt 6301 E:\BILLS\H3124.IH H3124 kjohnson on DSK79L0C42 with BILLS