SEC Requests Comment on Foreign Private Issuer Definition: Considerations for Canadian Issuers

On June 4, 2025, the U.S. Securities and Exchange Commission (SEC) issued a concept release seeking public comment on whether the definition of “foreign private issuer” (FPI) under U.S. securities laws remains appropriate in today’s capital markets. The release is part of the SEC’s broader review of whether the existing FPI eligibility criteria continue to strike the right balance between investor protection and cross-border market access. The SEC indicated its objective is to ensure that only companies with a meaningful connection to a non-U.S. jurisdiction can access the benefits of the FPI regime, thereby maintaining the integrity of U.S. disclosure standards. The comment period is expected to close around early September 2025.

Background

The review has been prompted in part by structural shifts in the global issuer landscape. In recent years, an increasing number of foreign companies have accessed U.S. capital markets through corporate structures based in offshore jurisdictions, often with limited home-market disclosure requirements or minimal trading outside the U.S. These developments have raised questions about whether the current framework adequately distinguishes between truly international companies and those with substantial U.S.-facing operations or investor bases.

The FPI definition plays a central role in determining the regulatory obligations of non-U.S. issuers. Issuers that qualify as FPIs are subject to a modified compliance regime, including semi-annual reporting and exemptions from certain proxy, insider reporting, and governance rules applicable to U.S. domestic issuers. These accommodations significantly reduce the ongoing reporting burden, allowing FPIs to avoid quarterly filings, shareholder proxy requirements, and insider reporting under Section 16 of the U.S. Exchange Act. The current framework, which was last substantively revised over two decades ago, is based largely on shareholder and director/executive officer residency, operational ties to the U.S., and corporate governance structures.

Concept Release Highlights

Under current U.S. securities rules, a foreign company may qualify as a “foreign private issuer” if it meets certain tests designed to assess its degree of connection to the U.S. market. These tests look at two main areas:

1. Ownership: Whether more than 50% of the issuer’s outstanding voting securities are held by U.S. residents; and
2. Business Contacts: If more than half of the issuer’s assets, executive officers, directors, or business operations are located in or tied to the U.S.

If either test suggests the issuer is too closely aligned with the U.S. market, it may not qualify as a FPI and would instead be treated as a domestic issuer, subject to more extensive reporting and governance requirements.

In the concept release, the SEC is asking whether this approach continues to reflect today’s global capital markets and whether alternative or updated criteria should be used. The SEC is specifically requesting comment on several issues, including:

• Whether the current 50% U.S. resident shareholding threshold remains an effective way to assess an issuer’s orientation toward the U.S. market;
• Whether the existing “business contacts” test (covering assets, executive officers, and board members) still provides meaningful insight into where a company’s business is centered;
• Whether FPIs should be required to maintain significant trading volume on a non-U.S. stock exchange or otherwise demonstrate a material connection to a foreign market;
• How the strength and reliability of the issuer’s home country regulatory and disclosure framework should factor into FPI eligibility; and
• Whether any future rule changes should include transitional relief, such as grandfathering provisions or phased implementation timelines for affected issuers.

By raising these questions, the SEC is signaling an openness to modernizing the FPI definition, potentially shifting toward a framework that places greater emphasis on economic substance, market presence, and regulatory equivalence.

Potential Impact on Canadian Issuers

Canada is the only jurisdiction currently covered by the Multijurisdictional Disclosure System (MJDS), a long-standing mutual recognition regime that allows eligible Canadian issuers to access U.S. capital markets using Canadian disclosure documents. A wide range of Canadian issuers rely on FPI status to access U.S. capital markets efficiently, including resource companies, dual-listed financial institutions, and technology issuers with primary trading on U.S. exchanges.

While the SEC’s release references MJDS positively, it does not indicate whether changes to the FPI definition would apply differently to MJDS filers. Notably, the SEC invites comments on whether mutual recognition arrangements should influence FPI eligibility and how such regimes should be preserved or expanded.

Canadian issuers, particularly those that rely on FPI status outside of the MJDS framework, should carefully assess their exposure. Issuers with substantial U.S. shareholder bases, directors, executive officers, operations, or trading activity concentrated on U.S. exchanges, may face challenges under potential new thresholds. Likewise, if foreign trading volume or listing on a “recognized foreign exchange” becomes a condition for FPI status, issuers that are U.S.-oriented in terms of market activity may become ineligible.

Even MJDS-qualified issuers may wish to engage in the comment process, particularly to ensure that mutual recognition remains a central feature of the cross-border disclosure framework. The concept release explicitly requests feedback on how foreign disclosure systems, such as those of the Canadian Securities Administrators, should be factored into any revised definition.

What Comes Next

The SEC is accepting public comments for 90 days following publication in the Federal Register, which is expected to close around early September 2025. While the release does not set out specific rule proposals, it signals a potential recalibration of how the SEC defines non-U.S. issuer status going forward.

Canadian issuers should consider reviewing their corporate, operational, and shareholder structures against the FPI framework and may wish to provide input to help ensure that any revisions remain appropriately calibrated for jurisdictions with established regulatory and disclosure regimes. In particular, submissions that highlight the benefits and reliability of MJDS may help preserve access to U.S. markets without subjecting Canadian issuers to full domestic issuer treatment.

We continue to monitor developments and are available to assist clients with comment submissions or FPI eligibility assessments under current and potential future frameworks.

For further information, please contact any member of our Capital Markets Group.