London Daily

Focus on the big picture.
Friday, Apr 03, 2026

As US Congress considers delisting Chinese companies, Wall Street looks to step in and police itself

A market-driven approach, not legislation, is considered a more effective way to keep fraudulent companies from hurting US investors. If bill becomes law, foreign companies will be required to hand over audits for US inspection or face delisting

Wall Street is scrambling to regulate Chinese companies listed on US equity markets to avoid intervention by US lawmakers, who have expressed bipartisan frustration over the lack of financial transparency the firms have offered even as they seek investors on American exchanges.

US securities watchdogs have been in a continuing struggle with China over inspecting the audits of the country’s US-listed companies, and Beijing has refused to comply, citing state secret laws.

A market-driven approach, industry participants said recently, would be a more effective way to stem fraudulent companies from hurting US investors. At the same time, it could help prevent an exodus of fast-growing Chinese companies from US capital markets and help US investors maintain desired exposure to China’s higher growth.

“The Chinese government really widened the moat with the revised securities law that went into effect this year,” which has made “the perpetrator of the frauds effectively beyond the reach of US law,” said Carson Block, founder and chief investment officer at Muddy Waters Capital, a California investment firm known for its short-selling strategy that profits from dropping stock prices by disclosing corporate wrongdoings.

Over the years, Muddy Waters has exposed accounting problems at several Chinese companies, most recently Luckin Coffee.

What can be done, Block said, is to focus on “US arms of the auditors, of the investment banks, maybe even the lawyers” as they are “the enablers” and “look to hold them financially and materially responsible”.

He also said US headquarters of global auditing firms – Deloitte, PricewaterhouseCoopers (PwC), Ernst & Young and KPMG and the like – should be required to provide collateral for audit failures of their Chinese affiliates in the form of financial guarantees.

“This is analogous to a parent who often would bear financial responsibility for wrongdoing of their minor children,” he said.

Block’s proposal effectively advocates some self-policing by a group of Wall Street insiders, highlighting the distance American investors are willing to go to avoid having Congress decide the fate of Chinese firms in US capital markets.

The legislation at hand – the Holding Foreign Companies Accountable Act – passed the Senate unanimously in late May. If the House of Representatives approves it and it becomes law, any foreign company, including Chinese, would be required to hand over audits for US inspection or face delisting if it failed to do so for three straight years.

“It is a privilege to be a public company listed in the United States,” said Elad Roisman, who sits on the US Securities and Exchange Commission.

“The benefits of this privilege include not only access to our retail investors and their hard-earned money, but also the association with our rigorous regulatory regime, where this regime confronts challenges from companies that operate in emerging markets.”

Drew Bernstein, co-founder of Marcum Bernstein & Pinchuk, a New York-based accounting and advisory firm focused on China, said, “If [the company is] registered here, then you should be subject to inspections.”

“Although the Chinese companies have choices right now, and certainly choosing exchanges close to home where investors understand their companies is a big thing, the US markets are still the gold standard because they offer things that other markets don't – for example, very, very deep and diversified sources of capital,” he said.

Meanwhile, the US investment community has pushed back since the Senate passage, calling the approach “blunt” and saying such law should be “reserved as the last resort”.

The New York Stock Exchange – the world’s largest by market capitalisation, more than US$30 trillion – said last week that it would support the introduction of a separate indicator for issuers that are not set up for inspection. That would provide more transparency, especially for people who don’t typically have the means to look into each company they invest in.

Nasdaq, a US$11 trillion exchange, said last week that while it was “not opposed to the legislation”, there were still things that could be done before resorting to a new law.

“With a little centralised guidance to each stakeholder, [we can] try to ensure that we are listing companies and trading companies that deserve that status. We've taken some early steps now, but there's probably more we can do, and that legislation really should be the last resort,” said John Zecca, a Nasdaq legal and regulatory officer.

Some large US investors have defended Chinese companies, despite their lack of transparency and the low quality of documents, saying they have a place in American capital markets.

“All of our disclosures talk about the risks of emerging markets in our portfolios that include different accounting standards, different exchange standards, different risks,” said Rodney Comegys, principal global head of Vanguard Equity Index Group, managing US$5 billion.

“Emerging markets should only be a portion of a portfolio. As part of global investments, that is roughly about 10 per cent, and China only represents about 5 per cent of a globally diversified market capitalisation weighted index fund. And it gives you the benefits of diversification,” he added.

Historically, audit quality is low in China because accountants there have learned China is not going to cooperate because of the state secret law. Bernstein added that “unfortunately the [US regulators] never contemplated these problems when they registered these companies. I don’t think anybody ever really contemplated that on day one.”

One effective way to improve transparency, as Block suggested, is to hold the American auditing firms accountable.

“These auditors are happy to license out their names so that people will trust the audits coming from the ‘Big Four’ affiliates in China,” he said.

“As soon as something goes wrong, the parents of the Big Four turn around and say ‘no, no, no, not us.’ That has to change,” he said. “If they are happy to collect [fees] and try to build the value of the brands [by sponsoring] a golf tournament, they should also bear financial responsibility because the people to whom they license their brands can't be touched and can't cooperate.”

Newsletter

Related Articles

0:00
0:00
Close
Trump’s Strategic Pressure on UK Seen as Push for Stronger Alignment and Fairer Terms
UK Focuses on Trade Finance to Secure Critical Materials for Defence and Energy Sectors
Majority of UK Businesses Hit by Middle East Conflict While Confidence Holds Firm
UK Royal Navy Faces Renewed Scrutiny as Debate Intensifies Over Capability and Readiness
Reform UK Faces Mounting Distractions as Policy Agenda Struggles to Gain Traction
Investigation Launched Into Northern Cyprus IVF Clinics After UK Families Receive Incorrect Sperm
International Meeting Issues Unified Call to Safeguard Navigation Through Strait of Hormuz
Potential Strait of Hormuz Closure Raises Concerns Over UK Food and Medicine Supply Chains
UK Leads Coalition of Over Forty Nations Urging Iran to Reopen Strait of Hormuz
UK Secures Tariff-Free Access for Medicines in Landmark US Pharma Trade Agreement
King Charles III Invited to Address Joint Session of U.S. Congress in Rare Diplomatic Honor
Debate Grows Over Whether Expanded North Sea Drilling Can Reduce UK Energy Bills
UK Faces Heightened Risk of Jet Fuel Shortages, Airline Chief Warns
UK Ends Police Investigations into Lawful Social Media Posts After Review Finds Overreach
Abramovich Moves to Establish Charity for Frozen Chelsea Sale Proceeds Amid UK Dispute
Starmer Reaffirms NATO Commitment While Responding to Trump’s Strategic Critique
UK Aid Reductions Raise Fears of Severe Human Impact Across Parts of Africa
UK Signals Renewed Push for EU Cooperation as Iran Conflict Reshapes Security Landscape
Bank of England Signals Caution as Bailey Advises Markets Against Expecting Rate Hikes
UK to Convene Global Coalition to Restore Shipping Through Strait of Hormuz
Trump Signals Possible NATO Reassessment, Emphasizes Stronger U.S. Strategic Autonomy
Australia Joins British-Led Efforts to Reopen Strait of Hormuz Amid Escalating Tensions
King Charles Plans US State Visit as UK Strengthens Ties with Trump Leadership
UK Regulator Launches Investigation Into Microsoft’s Business Software Practices
Kanye West Set for High-Profile Return to UK Stage at Wireless Festival
Trump Presses Europe to Strengthen Commitment as Iran Conflict Escalates
UK to Deploy Additional Troops to Middle East Amid Rising Regional Tensions
UK Authorities Face Claims of Heavy-Handed Measures in Monitoring Released Pro-Palestine Activists
Trump Calls on UK to Secure Its Own Energy as Iran Conflict Intensifies
Nigel Farage Declines Invitation to UK Conservative Conference Led by Liz Truss
Trump Warns Allies to Take Responsibility as Rift Deepens with UK and France Over Iran Conflict
How Britain’s Prime Minister Controls U.S. Bomber Access in Escalating Iran Conflict
Trump Urges Allies to Secure Their Own Oil Supplies as Hormuz Crisis Disrupts Global Energy
Russia Expels British Diplomat as UK Pushes Back Against Pressure
White House App Faces Scrutiny After Claims of Continuous User Location Tracking
BBC Faces Scrutiny Over Allegations of Paid Content Linked to Saudi Arabia
UK-France Coastal Patrol Agreement Nears Breakdown Amid Migration Pressures
UK Police Detain Pro-Palestine Activist Again Weeks After Bail Release
FTSE 100 Advances as Energy and Mining Shares Gain Amid Middle East Tensions
Eli Lilly Seeks UK Pricing Deal to Unlock Renewed Pharmaceutical Investment
Three Arrested in UK After Massive Cocaine Haul Discovered Hidden in Banana Shipment
UK Fuel Prices Poised for Further Surge Amid Global Energy Pressures
Apple Subsidiary Penalized by UK Authorities for Breach of Moscow Sanctions
Western Allies Intensify Coordinated Sanctions Strategy Against Russia
UK Lawmakers Face Criticism Over Renewed Push for Social Media Restrictions
Starmer Signals UK Crackdown on Addictive Social Media Features
Rising Costs Push One in Five UK Hospitality Businesses to the Brink of Closure
Man Arrested on Suspicion of Attempted Murder After Car Strikes Pedestrians in UK, Injuring Seven
Escalating Conflict Involving Iran Tightens Fiscal Pressures and Highlights UK Economic Vulnerabilities
UK Moves to Confront Russian ‘Shadow Fleet’ Operating in Its Waters
×