REGULATIONS
Securities Regulators in U.S. and China to Increase Cooperation
May 9, 2006
John Rieger, CPA

U.S. and Chinese securities regulators met in Washington this month to identify common areas of concern, including corporate governance, convergence of accounting standards and enforcement matters. Cooperative enforcement is particularly important because, as the number of cross-border listings grows, so does the likelihood of securities fraud against U.S. and Chinese investors.

The Securities and Exchange Commission (SEC) and the China Securities Regulatory Commission (CSRC) on May 3 announced a new relationship to increase their co-operation and collaboration through an enhanced bilateral dialogue.

Meeting at SEC headquarters in Washington, D.C., SEC Chairman Christopher Cox and CSRC Chairman Shang Fulin presented terms of reference that establish the structure of this enhanced dialogue and discussion subjects for the agenda during 2006.

The new dialogue has three primary objectives:

1. To identify and discuss securities markets regulatory developments of common interest, particularly those relevant to reporting requirements for public companies listed in one another's markets

2. To improve cooperation and the exchange of information in cross- border securities enforcement matters

3. To continue and expand upon the existing program of training and technical assistance provided by the SEC to the CSRC

As set out in the terms of reference, the dialogue will take place through regular contacts among senior staff and between the Chairmen of the SEC and CSRC.

Regulatory Issues

In setting out the areas of dialogue for the agenda in 2006, the following regulatory issues for discussion were identified:

• Corporate governance reforms, including requirements for audit committees, auditor independence and internal controls over financial reporting

• Convergence of national accounting standards with International Financial Reporting Standards

• The use of information technology, including interactive data tagging systems, to enhance the usefulness of reported of financial information

Further, both the SEC and the CSRC stated that as the number of cross-border listings and dually-registered companies grows, so does the likelihood that the perpetrators of securities fraud may seek to defraud both United States and Chinese investors. Accordingly, the SEC and CSRC will work to enhance quick communication and to provide timely and thorough assistance to one another on such enforcement-related matters.

Finally, building on the existing framework, the SEC and CSRC will continue to promote the further development of China's securities market regulatory and oversight structure through a comprehensive technical assistance and training program. As the CSRC continues to work to enhance its enforcement abilities, the SEC will share its experiences and knowledge related to investigation and enforcement of securities law violations, as well as international standards for enforcement cooperation.

The SEC says it intends to conduct training programs in China this year on topics ranging from corporate governance and disclosure to market oversight and enforcement.

John Rieger is AFP’s director of financial accounting and reporting. He can be reached at jrieger@chinaforum.com

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