Ben Bain on SEC (Audio)

it is. It is a lot of moving pieces all at once. Um. As you mentioned, there was this preliminary agreement that was reached late last month where US inspectors from the Public Company Accounting Oversight Board, which is basically the audit watchdog here, are going to be able to travel to Hong Kong and start to review some of these, uh, these audit work papers, which the US in China really been fighting over regarding access for for a couple of decades now. So that's was herald it as a kind

of a big step forward. And the U S side, though, there's there's been a lot of h questions about whether U S inspectors are actually gonna get all the access

that they've been demanding. So meanwhile, as these inspectors are set to leave Washington and travel to Hong Kong sometime this month and start reviewing some of these um these audit papers from Chinese and Hong Kong based companies that list here in New York, the U S regulators are moving ahead and basically saying, until they're comfortable with the way things are, until they get the access that they want,

they're still kind of moving ahead with more scrutiny. And one of the things that came up today which we're talking about is essentially the top accountants at the Securities and Exchange Commission came out with the statement in which he said, look, some of these Chinese firms that are planning to switch to an American auditor as a way to essentially make the situation better, telling the auditor auditing firms. Hold on a second, make sure that everything is I

don't understand. I mean, that's that's the part I think is difficult to understand. You'd think that that this would be almost something that the SEC would want Chinese companies to do to to be told by the auditors what

they actually need to provide and then provide them. The big threat hanging over all of this and the impetus for why this is all kind of coming to a head now, is that if American inspectors aren't able to get access within the next couple of years two or so, Chinese firms are gonna be kicked out of the United States.

So what the United What the U S regulators are saying today, and it's a very good, good point you're you're raising here there, they want audit firms in the United States that take on these new clients to make sure that they can get access not just to what's currently in their books, but from previous years too, Because what the US is essentially saying is if if a company has been listed here in New York, not just for one year, two years, or three years, the U

S regulators need to have access to be able to look into those audits, to see those audit work papers going back several years. And the concern is from the U S regulators perspective, But the SEC is coming out and saying today is that if these Chinese firms and Hong Kong based firms are essentially just switching auditors. Now, that's really not going to cut it, because the auditing firms in the United States need to make sure that

they're going to have access going back several years. But but also, you know, politics have really at the forefront with all this. And it's not just playing sailing, is it? Given that we have a Congress looking into this and could and could really just sort of beat this down. Yeah, I mean who would have thought like an auditing and accounting issue would become like a geopolitical one. But um, this has really become just that. Um. It's important to

remember kind of laid in the Trump administration. This was the impetus for this was a law that the U. S. Congress passed in late that set this clock going for kicking. Chinese Company is out of New York Stock Exchange and NASDAQ, who don't allow US inspectors or who aren't when you when you inspectors aren't allowed to review their audit work papers. So yeah, this is all wrapped up in politics, is all wrapped up in the broader U. S. China relationship,

which is increasingly complicated, um and important. Uh, and so yeah, this has become what was for a long time, just an accounting issue which is on the back burner to really kind of you know, a central, a central issue right now, what comes next in the deal that was supposedly hatched last month. Yeah, so so this, this announcement

today doesn't change that deal. Um, the deal is a preliminary deal, and all the indications we have is that are that this is a go and that U s inspectors from the p C O B are going to be able to get on the plane and head to Hong Kong and start to review. Um these companies audit work papers now, the the SEC and the p C A o B, the audit watched here in Washington, have been very clear from the beginning when this was announced in late August, both by by Chinese officials and by

American officials. The American officials have said from the beginning, this is a preliminary step. So if the US doesn't get the access that they think they need to get by December, they're going to make a determination again that China and Hong Kong are non compliant jurisdictions. What that essentially means is that's just a little bit closer to these two hundred some companies getting booted out of New York.

I would have just changed a bit, Ben and talk about what else is going on with the SEC as well right now. And you know that the whole attitude towards the whistle blowers is also changing. And this is quite Jamaine, given what's been going on on Twitter. Yeah, I mean what we saw in Actually it was within the last week or so, the SEC uh finalized, um, some some changes to the whistle blower rules which are which are meant to essentially allow the agency to have

little more discretion in terms of payouts. Um. You know this is this is also another political issue here in Washington. We saw it swing one way during the Trump administration and now we're seeing its suite swing the other way, um, during the Biden administration. And and really what we're talking about here is one of the most important programs that kind of came out of the financial crisis from a

financial regulation perspective. Essentially set up a program where people could come forward, they could blow the whistle on their employers and they're they're taking a risk, so they're gonna get a payout at the end. But there have been

problems and complaints about the program. So the SEC is is again kind of changing the rules a little bit here, and uh, you know, this is still kind of one of the more political, uh issues here in Washington, because you are looking at one of the things that really kind of came out of the financial crisis. That was one of the things that the SEC credits for a lot of their bigger cases over the past, um, you know, several years, and now again we're seeing changes of those rules.

All right, Thanks very much, Ben, great to have you with us here live on the program. Ben Bain, Bloomberg News Financial Regulations reporter,