Foreign private issuers (FPIs) have recently faced scrutiny from regulators in the United States. As discussed in a previous Market Edge blog, US Securities and Exchange Commission (SEC) Chairman Paul Atkins has questioned some of the accommodations currently provided to FPIs and whether the “FPI” definition under federal securities laws should be changed.  

Recently enacted and proposed regulations regarding executive compensation may also warrant the attention of FPIs, as they could require changes to business and compensation practices to ensure that compliant policies and procedures are put into place.

In this blog, we discuss these regulations and their potential impact on FPIs, executives, and directors.

Section 16 reporting

As we noted in a prior blog, the Holding Foreign Insiders Accountable Act (HFIAA) was recently signed into law as a result of which the longstanding exemption for FPIs from reporting under Section 16(a) of the Securities Exchange Act of 1934, as amended (Exchange Act) is ending.

Starting March 18, 2026, directors and officers of FPIs must comply with US insider reporting rules under Section 16(a). We highlight key considerations below.

Reporting of individual equity awards

Previously, FPIs were often permitted to disclose executive compensation and share ownership on an aggregate basis (e.g., total shares held by all directors as a group) unless their home country required individual disclosure.

  • The change: Under Section 16(a), every single equity grant (restricted stock units (RSUs), options, and share awards) to a covered officer or director must be reported individually on Form 4.
  • The metric: This creates a public, award-by-award tracking system. Investors and regulators will now be able to see the specific details of an equity award, including size, strike price, and vesting schedule of grants for each individual executive or director within two business days of the grant date.

Determining beneficial ownership levels  

FPIs must now move beyond simple legal title and track “beneficial ownership” based on pecuniary interest (the opportunity to profit or share in any profit). Exchange Act Rule 16a-1(a)(2) defines a “beneficial owner” as any person who has or shares a “pecuniary interest” in the securities. Pecuniary interest is defined as “the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in the subject securities.” Because the standard is “pecuniary interest,” FPI insiders may be required to report securities that they do not directly own if they benefit from them. The rule specifically includes:

  • Family members: Securities held by immediate family members sharing the same household
  • Partnerships: A general partner’s proportionate interest in the portfolio securities held by a partnership
  • Trusts: Interests in trusts where the insider is a trustee, beneficiary, or settlor with certain powers
  • Derivative securities: Options, warrants, and RSUs, which are considered beneficial ownership of the underlying equity

Reporting of filing delinquency

Complying with the reporting deadlines under Section 16(a) can be challenging, as beneficial ownership change reporting is typically required within 48 hours of a transaction. While domestic issuers are required to disclose the names of insiders who failed to timely file Section 16 reports in their annual proxy statement or Form 10-K as required by Item 405 of Regulation S-K, it is unclear whether the SEC will require FPIs to provide similar disclosure. If so, FPIs may need to track delinquent filings as a key internal metric. Frequent late Section 16 filings could be viewed as an indication of poor control procedures or compliance practices, increasing the risk of an inquiry or enforcement action from the SEC.

Changes to Section 162(m) of the US Tax Code

The US Internal Revenue Service (IRS) has proposed rules regarding the expansion of executives that may be subject to the limit on the compensation tax deduction that publicly traded companies, including FPIs, can take under Section 162(m) of the US Internal Revenue Code, as required by a recent statutory change.

Section 162(m) limits the amount of compensation paid to “covered employees” that a company can deduct to $1 million for US tax purposes. The new statute and the proposed rules require that, effective for tax years starting on or after January 1, 2027, a company’s five most highly compensated individuals will be treated as “covered employees” subject to the tax deduction limit, in addition to the current individuals subject to the limit (currently the Chief Executive Officer, Chief Financial Officer, and the three most highly compensated executive officers). 

Determining the covered employees subject to this US tax deduction limit under Section 162(m) may be complicated for FPIs, as they must consider employees of all entities within their affiliated group, including non-US entities. However, compensation paid to a non-US person that is not deductible in the US is not considered for purposes of Section 162(m).

Conclusion

FPIs are encouraged to consider the impact of the above requirements on their businesses and whether they have appropriate controls in place to track the necessary information and ensure accurate reporting.

The timeline for FPIs to consider the impact and to have systems in place to address them is quite short – specifically by March 18, 2026 in the case of the Section 16(a) reporting requirements.

DLA Piper is available to assist with determining the scope of these regulations and helping to establish appropriate policies and procedures for compliance.

Please contact the authors if you would like additional information or assistance.

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