In a previous post, we blogged about certain proposed rules issued by China Securities Regulatory Commission (the “CSRC”) on December 24, 2021. The proposed rules consist of general management rules on offshore listings of onshore companies (the “Management Rules”), as well as implementation measures related to the filing of such offshore listings (the “Filing Measures”). Those proposed rules require onshore companies to file certain reports and information with the CSRC and other competent governmental authorities prior to seeking either direct or indirect offshore listings. By including “indirect” offshore listings in the proposed rules, CSRC intends to state that the filing requirements also apply to offshore companies which are controlled by domestic companies or beneficial owners through the “VIE control documents”, also named “red chip companies” by some.
The abovementioned Management Rules and Filing Measures have not been promulgated. However, to stay consistent with the terms of these proposed rules, on April 2, 2022 the CSRC issued certain draft Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (关于加强境内企业境外发行证券和上市相关保密和档案管理工作的规定(征求意见稿))(the “Draft Archive Rules”), which are intended to amend and supersede a prior version of such provisions issued in 2009. The Draft Achieve Rules have not been promulgated yet.
Section 2 of the Draft Archive Rules specify that, domestic enterprises, and securities companies and securities service providers providing securities-related service in the offshore securities offering or listing activities of domestic enterprises, shall comply with the Draft Archive Rules. The Draft Archive Rules also clarify that “domestic enterprises” include domestic joint stock companies conducting direct offshore offering or listing, and the domestic operating entities of offshore entities conducting indirect offshore offering or listing. In addition, the aforesaid “securities companies and securities service providers providing securities-related service in the offshore securities offering or listing activities of domestic enterprises” includes domestic and foreign securities companies and securities service providers, as well as their respective domestic member institutions, representative institutions, affiliated institutions, and cooperative institutions, etc.
In addition, Section 5 of the Draft Archive Rules state that foreign accounting firms engaged in domestic companies’ offshore offering or listing shall comply with relevant procedures, otherwise domestic companies shall not provide accounting files to such accounting firms.
We list below the key requirements imposed by the Draft Archive Rules for your reference:
- Domestic companies, securities companies and securities service providers should establish a comprehensive confidentiality and archive management system, and implement necessary measures to carry out their confidentiality and archive management responsibilities.
- Before domestic companies provide to relevant securities companies, securities service providers, overseas supervisory authorities, etc., or publicly disclose, whether directly or indirectly through their overseas affiliates which will be publicly listed, any documents or materials involving “state secrets” or the “working secrets” of governmental authorities, such domestic companies should first obtain the approval of the competent authorities, and file with relevant State Secrecy Authority. The relevant State Secrecy Authority is responsible for determining what constitutes “state secrets” and the relevant governmental authority is responsible for determining what constitutes “working secrets.” In addition, before domestic companies provide to relevant securities companies, securities service providers, overseas supervisory authorities, etc., or publicly disclose, whether directly or indirectly through their overseas affiliates which will be publicly listed, any documents or materials the disclosure of which will adversely affect national security or public interest, such domestic companies should strictly comply with relevant state secrecy procedures.
- When providing the abovementioned documents or materials, domestic companies should provide written explanation (and securities companies and securities service providers should preserve such written explanation for possible future inspection by the government) re how they have complied with the above rules. In addition, domestic companies and securities companies and securities service providers should execute confidentiality agreement in accordance with the Law on the Protection of State Secrets (《保守国家秘密法》) to set forth each party’s confidentiality obligations and responsibilities.
- If any domestic company, securities company or securities service providers discover that state secrets have or may have been disclosed inadvertently, it shall immediately take remedial measures and report to relevant government authorities.
- When domestic companies provide securities companies, securities service providers and overseas regulators with, accounting files or copies thereof which have important preservation value to the nation and the public, such domestic companies shall complete relevant procedures in accordance with applicable national regulations.
- The working papers etc. generated domestically by securities company or other securities service providers, in the process of providing service to domestic companies in connection with offshore offering or listing, shall be stored domestically, and shall not be transmitted to overseas entities or individuals without the approval of the competent government authorities. The cross-border transfer of any files or copies of files which have important preservation value to the nation or the society shall not be permitted unless relevant procedures and approvals have been completed or obtained, as applicable.