WEBVTT - Ben Bain on SEC (Audio)

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<v Speaker 1>Well, the SEC is telling American audit firms to be

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<v Speaker 1>cautious about taking on new companies new Chinese clients that

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<v Speaker 1>are trading in New York and joining us to discuss

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<v Speaker 1>is Ben Bain, Bloomberg New Bloomberg News Financial Regulations Reporter.

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<v Speaker 1>This is a little interesting. We had this agreement UM

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<v Speaker 1>last month that that in Hong Kong companies would would

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<v Speaker 1>be able to audit the papers of Chinese firms. Why

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<v Speaker 1>does the SEC not want American auditors to to get

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<v Speaker 1>into this business on the New York side, Yeah, so

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<v Speaker 1>it is. It is a lot of moving pieces all

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<v Speaker 1>at once. Um. As you mentioned, there was this preliminary

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<v Speaker 1>agreement that was reached late last month where US inspectors

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<v Speaker 1>from the Public Company Accounting Oversight Board, which is basically

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<v Speaker 1>the audit watchdog here, are going to be able to

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<v Speaker 1>travel to Hong Kong and start to review some of these, uh,

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<v Speaker 1>these audit work papers, which the US in China really

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<v Speaker 1>been fighting over regarding access for for a couple of

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<v Speaker 1>decades now. So that's was herald it as a kind

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<v Speaker 1>of a big step forward. And the U S side, though,

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<v Speaker 1>there's there's been a lot of h questions about whether

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<v Speaker 1>U S inspectors are actually gonna get all the access

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<v Speaker 1>that they've been demanding. So meanwhile, as these inspectors are

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<v Speaker 1>set to leave Washington and travel to Hong Kong sometime

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<v Speaker 1>this month and start reviewing some of these um these

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<v Speaker 1>audit papers from Chinese and Hong Kong based companies that

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<v Speaker 1>list here in New York, the U S regulators are

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<v Speaker 1>moving ahead and basically saying, until they're comfortable with the

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<v Speaker 1>way things are, until they get the access that they want,

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<v Speaker 1>they're still kind of moving ahead with more scrutiny. And

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<v Speaker 1>one of the things that came up today which we're

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<v Speaker 1>talking about is essentially the top accountants at the Securities

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<v Speaker 1>and Exchange Commission came out with the statement in which

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<v Speaker 1>he said, look, some of these Chinese firms that are

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<v Speaker 1>planning to switch to an American auditor as a way

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<v Speaker 1>to essentially make the situation better, telling the auditor auditing firms.

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<v Speaker 1>Hold on a second, make sure that everything is I

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<v Speaker 1>don't understand. I mean, that's that's the part I think

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<v Speaker 1>is difficult to understand. You'd think that that this would

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<v Speaker 1>be almost something that the SEC would want Chinese companies

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<v Speaker 1>to do to to be told by the auditors what

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<v Speaker 1>they actually need to provide and then provide them. The

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<v Speaker 1>big threat hanging over all of this and the impetus

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<v Speaker 1>for why this is all kind of coming to a

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<v Speaker 1>head now, is that if American inspectors aren't able to

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<v Speaker 1>get access within the next couple of years two or so,

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<v Speaker 1>Chinese firms are gonna be kicked out of the United States.

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<v Speaker 1>So what the United What the U S regulators are

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<v Speaker 1>saying today, and it's a very good, good point you're

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<v Speaker 1>you're raising here there, they want audit firms in the

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<v Speaker 1>United States that take on these new clients to make

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<v Speaker 1>sure that they can get access not just to what's

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<v Speaker 1>currently in their books, but from previous years too, Because

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<v Speaker 1>what the US is essentially saying is if if a

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<v Speaker 1>company has been listed here in New York, not just

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<v Speaker 1>for one year, two years, or three years, the U

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<v Speaker 1>S regulators need to have access to be able to

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<v Speaker 1>look into those audits, to see those audit work papers

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<v Speaker 1>going back several years. And the concern is from the

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<v Speaker 1>U S regulators perspective, But the SEC is coming out

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<v Speaker 1>and saying today is that if these Chinese firms and

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<v Speaker 1>Hong Kong based firms are essentially just switching auditors. Now,

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<v Speaker 1>that's really not going to cut it, because the auditing

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<v Speaker 1>firms in the United States need to make sure that

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<v Speaker 1>they're going to have access going back several years. But

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<v Speaker 1>but also, you know, politics have really at the forefront

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<v Speaker 1>with all this. And it's not just playing sailing, is it?

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<v Speaker 1>Given that we have a Congress looking into this and

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<v Speaker 1>could and could really just sort of beat this down. Yeah,

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<v Speaker 1>I mean who would have thought like an auditing and

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<v Speaker 1>accounting issue would become like a geopolitical one. But um,

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<v Speaker 1>this has really become just that. Um. It's important to

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<v Speaker 1>remember kind of laid in the Trump administration. This was

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<v Speaker 1>the impetus for this was a law that the U. S.

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<v Speaker 1>Congress passed in late that set this clock going for kicking.

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<v Speaker 1>Chinese Company is out of New York Stock Exchange and NASDAQ,

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<v Speaker 1>who don't allow US inspectors or who aren't when you

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<v Speaker 1>when you inspectors aren't allowed to review their audit work papers.

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<v Speaker 1>So yeah, this is all wrapped up in politics, is

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<v Speaker 1>all wrapped up in the broader U. S. China relationship,

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<v Speaker 1>which is increasingly complicated, um and important. Uh, and so yeah,

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<v Speaker 1>this has become what was for a long time, just

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<v Speaker 1>an accounting issue which is on the back burner to

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<v Speaker 1>really kind of you know, a central, a central issue

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<v Speaker 1>right now, what comes next in the deal that was

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<v Speaker 1>supposedly hatched last month. Yeah, so so this, this announcement

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<v Speaker 1>today doesn't change that deal. Um, the deal is a

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<v Speaker 1>preliminary deal, and all the indications we have is that

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<v Speaker 1>are that this is a go and that U s

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<v Speaker 1>inspectors from the p C O B are going to

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<v Speaker 1>be able to get on the plane and head to

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<v Speaker 1>Hong Kong and start to review. Um these companies audit

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<v Speaker 1>work papers now, the the SEC and the p C

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<v Speaker 1>A o B, the audit watched here in Washington, have

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<v Speaker 1>been very clear from the beginning when this was announced

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<v Speaker 1>in late August, both by by Chinese officials and by

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<v Speaker 1>American officials. The American officials have said from the beginning,

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<v Speaker 1>this is a preliminary step. So if the US doesn't

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<v Speaker 1>get the access that they think they need to get

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<v Speaker 1>by December, they're going to make a determination again that

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<v Speaker 1>China and Hong Kong are non compliant jurisdictions. What that

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<v Speaker 1>essentially means is that's just a little bit closer to

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<v Speaker 1>these two hundred some companies getting booted out of New York.

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<v Speaker 1>I would have just changed a bit, Ben and talk

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<v Speaker 1>about what else is going on with the SEC as

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<v Speaker 1>well right now. And you know that the whole attitude

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<v Speaker 1>towards the whistle blowers is also changing. And this is

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<v Speaker 1>quite Jamaine, given what's been going on on Twitter. Yeah,

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<v Speaker 1>I mean what we saw in Actually it was within

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<v Speaker 1>the last week or so, the SEC uh finalized, um,

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<v Speaker 1>some some changes to the whistle blower rules which are

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<v Speaker 1>which are meant to essentially allow the agency to have

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<v Speaker 1>little more discretion in terms of payouts. Um. You know

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<v Speaker 1>this is this is also another political issue here in Washington.

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<v Speaker 1>We saw it swing one way during the Trump administration

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<v Speaker 1>and now we're seeing its suite swing the other way, um,

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<v Speaker 1>during the Biden administration. And and really what we're talking

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<v Speaker 1>about here is one of the most important programs that

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<v Speaker 1>kind of came out of the financial crisis from a

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<v Speaker 1>financial regulation perspective. Essentially set up a program where people

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<v Speaker 1>could come forward, they could blow the whistle on their

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<v Speaker 1>employers and they're they're taking a risk, so they're gonna

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<v Speaker 1>get a payout at the end. But there have been

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<v Speaker 1>problems and complaints about the program. So the SEC is

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<v Speaker 1>is again kind of changing the rules a little bit here,

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<v Speaker 1>and uh, you know, this is still kind of one

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<v Speaker 1>of the more political, uh issues here in Washington, because

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<v Speaker 1>you are looking at one of the things that really

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<v Speaker 1>kind of came out of the financial crisis. That was

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<v Speaker 1>one of the things that the SEC credits for a

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<v Speaker 1>lot of their bigger cases over the past, um, you know,

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<v Speaker 1>several years, and now again we're seeing changes of those rules.

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<v Speaker 1>All right, Thanks very much, Ben, great to have you

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<v Speaker 1>with us here live on the program. Ben Bain, Bloomberg

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<v Speaker 1>News Financial Regulations reporter,