Speaker 1: Well, the SEC is telling American audit firms to be
Speaker 1: cautious about taking on new companies new Chinese clients that
Speaker 1: are trading in New York and joining us to discuss
Speaker 1: is Ben Bain, Bloomberg New Bloomberg News Financial Regulations Reporter.
Speaker 1: This is a little interesting. We had this agreement UM
Speaker 1: last month that that in Hong Kong companies would would
Speaker 1: be able to audit the papers of Chinese firms. Why
Speaker 1: does the SEC not want American auditors to to get
Speaker 1: into this business on the New York side, Yeah, so
Speaker 1: it is. It is a lot of moving pieces all
Speaker 1: at once. Um. As you mentioned, there was this preliminary
Speaker 1: agreement that was reached late last month where US inspectors
Speaker 1: from the Public Company Accounting Oversight Board, which is basically
Speaker 1: the audit watchdog here, are going to be able to
Speaker 1: travel to Hong Kong and start to review some of these, uh,
Speaker 1: these audit work papers, which the US in China really
Speaker 1: been fighting over regarding access for for a couple of
Speaker 1: decades now. So that's was herald it as a kind
Speaker 1: of a big step forward. And the U S side, though,
Speaker 1: there's there's been a lot of h questions about whether
Speaker 1: U S inspectors are actually gonna get all the access
Speaker 1: that they've been demanding. So meanwhile, as these inspectors are
Speaker 1: set to leave Washington and travel to Hong Kong sometime
Speaker 1: this month and start reviewing some of these um these
Speaker 1: audit papers from Chinese and Hong Kong based companies that
Speaker 1: list here in New York, the U S regulators are
Speaker 1: moving ahead and basically saying, until they're comfortable with the
Speaker 1: way things are, until they get the access that they want,
Speaker 1: they're still kind of moving ahead with more scrutiny. And
Speaker 1: one of the things that came up today which we're
Speaker 1: talking about is essentially the top accountants at the Securities
Speaker 1: and Exchange Commission came out with the statement in which
Speaker 1: he said, look, some of these Chinese firms that are
Speaker 1: planning to switch to an American auditor as a way
Speaker 1: to essentially make the situation better, telling the auditor auditing firms.
Speaker 1: Hold on a second, make sure that everything is I
Speaker 1: don't understand. I mean, that's that's the part I think
Speaker 1: is difficult to understand. You'd think that that this would
Speaker 1: be almost something that the SEC would want Chinese companies
Speaker 1: to do to to be told by the auditors what
Speaker 1: they actually need to provide and then provide them. The
Speaker 1: big threat hanging over all of this and the impetus
Speaker 1: for why this is all kind of coming to a
Speaker 1: head now, is that if American inspectors aren't able to
Speaker 1: get access within the next couple of years two or so,
Speaker 1: Chinese firms are gonna be kicked out of the United States.
Speaker 1: So what the United What the U S regulators are
Speaker 1: saying today, and it's a very good, good point you're
Speaker 1: you're raising here there, they want audit firms in the
Speaker 1: United States that take on these new clients to make
Speaker 1: sure that they can get access not just to what's
Speaker 1: currently in their books, but from previous years too, Because
Speaker 1: what the US is essentially saying is if if a
Speaker 1: company has been listed here in New York, not just
Speaker 1: for one year, two years, or three years, the U
Speaker 1: S regulators need to have access to be able to
Speaker 1: look into those audits, to see those audit work papers
Speaker 1: going back several years. And the concern is from the
Speaker 1: U S regulators perspective, But the SEC is coming out
Speaker 1: and saying today is that if these Chinese firms and
Speaker 1: Hong Kong based firms are essentially just switching auditors. Now,
Speaker 1: that's really not going to cut it, because the auditing
Speaker 1: firms in the United States need to make sure that
Speaker 1: they're going to have access going back several years. But
Speaker 1: but also, you know, politics have really at the forefront
Speaker 1: with all this. And it's not just playing sailing, is it?
Speaker 1: Given that we have a Congress looking into this and
Speaker 1: could and could really just sort of beat this down. Yeah,
Speaker 1: I mean who would have thought like an auditing and
Speaker 1: accounting issue would become like a geopolitical one. But um,
Speaker 1: this has really become just that. Um. It's important to
Speaker 1: remember kind of laid in the Trump administration. This was
Speaker 1: the impetus for this was a law that the U. S.
Speaker 1: Congress passed in late that set this clock going for kicking.
Speaker 1: Chinese Company is out of New York Stock Exchange and NASDAQ,
Speaker 1: who don't allow US inspectors or who aren't when you
Speaker 1: when you inspectors aren't allowed to review their audit work papers.
Speaker 1: So yeah, this is all wrapped up in politics, is
Speaker 1: all wrapped up in the broader U. S. China relationship,
Speaker 1: which is increasingly complicated, um and important. Uh, and so yeah,
Speaker 1: this has become what was for a long time, just
Speaker 1: an accounting issue which is on the back burner to
Speaker 1: really kind of you know, a central, a central issue
Speaker 1: right now, what comes next in the deal that was
Speaker 1: supposedly hatched last month. Yeah, so so this, this announcement
Speaker 1: today doesn't change that deal. Um, the deal is a
Speaker 1: preliminary deal, and all the indications we have is that
Speaker 1: are that this is a go and that U s
Speaker 1: inspectors from the p C O B are going to
Speaker 1: be able to get on the plane and head to
Speaker 1: Hong Kong and start to review. Um these companies audit
Speaker 1: work papers now, the the SEC and the p C
Speaker 1: A o B, the audit watched here in Washington, have
Speaker 1: been very clear from the beginning when this was announced
Speaker 1: in late August, both by by Chinese officials and by
Speaker 1: American officials. The American officials have said from the beginning,
Speaker 1: this is a preliminary step. So if the US doesn't
Speaker 1: get the access that they think they need to get
Speaker 1: by December, they're going to make a determination again that
Speaker 1: China and Hong Kong are non compliant jurisdictions. What that
Speaker 1: essentially means is that's just a little bit closer to
Speaker 1: these two hundred some companies getting booted out of New York.
Speaker 1: I would have just changed a bit, Ben and talk
Speaker 1: about what else is going on with the SEC as
Speaker 1: well right now. And you know that the whole attitude
Speaker 1: towards the whistle blowers is also changing. And this is
Speaker 1: quite Jamaine, given what's been going on on Twitter. Yeah,
Speaker 1: I mean what we saw in Actually it was within
Speaker 1: the last week or so, the SEC uh finalized, um,
Speaker 1: some some changes to the whistle blower rules which are
Speaker 1: which are meant to essentially allow the agency to have
Speaker 1: little more discretion in terms of payouts. Um. You know
Speaker 1: this is this is also another political issue here in Washington.
Speaker 1: We saw it swing one way during the Trump administration
Speaker 1: and now we're seeing its suite swing the other way, um,
Speaker 1: during the Biden administration. And and really what we're talking
Speaker 1: about here is one of the most important programs that
Speaker 1: kind of came out of the financial crisis from a
Speaker 1: financial regulation perspective. Essentially set up a program where people
Speaker 1: could come forward, they could blow the whistle on their
Speaker 1: employers and they're they're taking a risk, so they're gonna
Speaker 1: get a payout at the end. But there have been
Speaker 1: problems and complaints about the program. So the SEC is
Speaker 1: is again kind of changing the rules a little bit here,
Speaker 1: and uh, you know, this is still kind of one
Speaker 1: of the more political, uh issues here in Washington, because
Speaker 1: you are looking at one of the things that really
Speaker 1: kind of came out of the financial crisis. That was
Speaker 1: one of the things that the SEC credits for a
Speaker 1: lot of their bigger cases over the past, um, you know,
Speaker 1: several years, and now again we're seeing changes of those rules.
Speaker 1: All right, Thanks very much, Ben, great to have you
Speaker 1: with us here live on the program. Ben Bain, Bloomberg
Speaker 1: News Financial Regulations reporter,