U.S. Securities and Exchange Commission [Reuters=Yonhap News]

Members of the U.S. Congress have urged the Securities and Exchange Commission (SEC) to review the need for regulations regarding Chinese companies' access to U.S. capital markets, the Financial Times (FT) reported on the 19th (local time).

According to the FT, Senator Tim Scott (Republican), Chairman of the Senate Banking Committee, and Senator Elizabeth Warren (Democrat), the ranking member, sent a letter to SEC Commissioner Paul Atkins on this matter.

The letter was co-signed by all 13 Republican members of the Banking Committee, including Chairman Scott, and five Democratic members, including Senator Warren.

In the letter, the lawmakers stated that SEC-registered entities with ties to Chinese authorities pose significant risks to U.S. national security, market order, and investor protection.

They specifically pointed to cases where companies listed by circumventing U.S. legal regulations through an opaque corporate structure called Variable Interest Entities (VIEs), demanding that the SEC investigate whether this harms the order and efficiency of the U.S. capital market, the FT reported.

The FT noted that this letter reflects the cautious sentiment in Washington's political circles regarding Chinese companies listed in the U.S. It suggested that companies linked to the Chinese government could use funds from U.S. investors to advance their domestic military technologies, such as artificial intelligence (AI), threaten the personal data protection of Americans, or evade transparency disclosure obligations.

The SEC stated that it is taking action in this regard under the direction of Commissioner Atkins regarding alleged market manipulation by foreign companies and suspected crimes against U.S. investors.

Since taking office in April last year, Commissioner Atkins has been intensifying crackdowns on market manipulation and fraud by foreign companies, including launching a task force in September of that year to combat international economic crimes targeting U.S. investors.

The FT described this as an unusual case where policy continuity has been maintained across party lines, following the direction set by former SEC Chairman Gary Gensler during the previous Biden administration, even after a change in administration from Democrat to Republican.

In an interview with the FT, Christopher LaCourbe, President of the American Securities Association (ASA), said, "VIEs are merely a 'legal fiction' created by the Chinese Communist Party to gain access to American capital." He added, "It is now time for the SEC to put an end to the bad practice of Chinese companies raising funds while avoiding the strict governance and disclosure obligations that U.S. companies face."

Last year, Republican finance officials from 21 U.S. states requested the SEC to consider delisting Chinese companies listed in the U.S. if they neglect their investor protection duties.

According to the U.S.-China Economic and Security Review Commission (USCC), a bipartisan advisory body to the U.S. Congress, as of March last year, there were 286 Chinese companies listed in the U.S., with a combined market capitalization of $1.1 trillion (approximately 1,650 trillion won).

Among these, companies such as Alibaba, JD.com, and Baidu are listed through the VIE structure.