Directors and Officers of FPIs to make prompt public disclosure to the SEC about their FPI equity holdings from March 2026

The US legislature has removed a disclosure exemption enjoyed by directors and officers of SEC-reporting non-US companies that meet the definition of Foreign Private Issuer (FPI). The new disclosures are required by the new Holding Foreign Insiders Accountable Act (the Act) which is included in the US annual defence spending act signed into law on Thursday 18 December.

Until now, such directors and officers were not required to publicly disclose their SEC-registered equity holdings in the FPI, and any changes to such holdings, in prompt filings with the SEC as required by Section 16(a) of the Securities Exchange Act of 1934, as amended (Section 16(a)). By contrast, their counterparts at SEC-reporting US companies have been required to make such filings by Section 16(a) for decades. The new Act removes a nine decades-old exemption from Section 16(a) applicable to directors and officers of FPIs.

The change takes effect on 18 March 2026, 90 days after enactment. The 18 March date does not allow much time for FPIs and their director and officer insiders to develop Section 16 compliance programmes, so prompt action to prepare is required as outlined below.

On the positive side, the Act gives broad exemptive power to the SEC if the SEC determines that the laws of a foreign jurisdiction apply “substantially similar” disclosure requirements. Freshfields is engaging actively with the SEC to provide information and analysis on possible jurisdiction-specific exemptions. In the future, this exemptive power may offer relief to the directors and officers of FPIs that are required to make detailed ownership disclosures in their home jurisdiction, for example dual-listed FPIs.  However, whether the SEC will grant any exemptions and the timing and scope of any exemptions are unknown at this stage. 

Without an exemption, each director and officer of an SEC-reporting FPI must do the following:

• file a Form 3 with the SEC by 18 March to report their ownership in the FPI’s SEC-registered equity securities
• report subsequent transactions in these equity securities on SEC Form 4 within two business days of the relevant transaction
• report certain previously unreported transactions on SEC Form 5 within 45 days after the end of the applicable fiscal year.

Transactions include:

• purchases and sales
• gifts
• compensation-related transactions such as equity compensation grants, sales to cover exercise price payments and tax withholding obligations.

Filings must be made electronically and in English on the SEC’s EDGAR Next system. In practice, US companies usually make these filings on behalf of the director or officer, but the individual concerned must have the relevant codes for the EDGAR Next system. If any FPI insider does not already have EDGAR codes, they should promptly apply for them as we expect there may be a backlog for such applications. 

FPIs have already identified their “executive officers” to comply with the SEC’s incentive compensation clawback rule that went into effect in December 2023. They may want to review this analysis in preparing to comply with the new Section 16(a) reporting requirement for their directors and officers.  The identity of such officers will now be publicly disclosed and more closely scrutinized.  Note that the definition of an “officer” for Section 16 purposes may not match precisely with an FPI’s home country definition of officer. 

This disclosure development is another step towards “levelling the playing field” between SEC-reporting domestic issuers and FPIs, for example, as mentioned by SEC Commissioner Crenshaw in connection with the recent SEC FPI definition concept release. However, as SEC Chair Atkins recently indicated, the regulator wants the US to remain an attractive listing venue for FPIs and to provide US investors with the opportunity to trade in those FPIs. 

Perhaps with these policy goals in mind, the US legislators did not go as far as they could have; they did not require shareholder insiders (those with more than 10% of an FPI’s equity securities) to report their equity holdings under Section 16(a) as is the case for such insiders of US public companies. They also left intact the FPI exemption from Section 16(b), the short-swing profit liability section, which requires all insiders (directors, officers and shareholder insiders) to disgorge even notional profits from any trades in the FPI’s equity securities made within a six-month period. In other words, under Section 16(b), if plaintiffs can match any purchase with a sale (or a sale and then a purchase) within a six month window, then they can bring a lawsuit to recover the paper profit even if the insider did not trade based on inside information and even if the insider lost money from all aggregate trading during that window.

Section 16(b) can be enforced by private action and is a happy hunting ground for plaintiffs’ lawyers. We should note, however, that it would be possible for the SEC to remove the FPI exemptions from 16(a) reporting for shareholder insiders and from the Section 16(b) short-swing profit liability through subsequent rulemaking.

For more detail on this development including potential litigation implications, please see our earlier blog here.