U.S. may eliminate Section 16 reporting exemption for foreign private issuers

Under the House version of the U.S. National Defense Authorization Act for Fiscal Year 2026 (NDAA)—which was passed on December 10 and could become law by year-end—directors and officers of SEC-reporting foreign private issuers would no longer be exempt from the U.S. insider reporting regime under Section 16 of the Securities Exchange Act of 1934. However, the NDAA leaves open the possibility that the SEC could enact exemptions to these reporting requirements if it determines that the laws of a non-U.S. jurisdiction apply substantially similar requirements.

What you need to know

• On December 10, the U.S. House of Representatives passed the U.S. National Defense Authorization Act for Fiscal Year 2026 (NDAA), which now awaits action by the U.S. Senate and could be signed into law by President Trump by the end of the year. The NDAA includes a provision, referred to as the “Holding Foreign Insiders Accountable Act” (HFIAA), that eliminates the Section 16(a) reporting exemption from the U.S. Securities Exchange Act of 1934 (Exchange Act) for directors and officers of foreign private issuers.
• Elimination of the Section 16(a) reporting exemption would subject directors and officers of foreign private issuers, including Canadian issuers relying on the multijurisdictional disclosure system (MJDS), to the SEC’s insider reporting requirements in respect of their ownership of equity securities. However, the HFIAA expressly authorizes the SEC to enact exemptions to Section 16(a) reporting requirements for directors and officers of foreign private issuers if it determines that the laws of a non-U.S. jurisdiction apply substantially similar requirements.
• Unlike the 2024 version of the HFIAA, the 2026 version:
  • applies only to directors and officers; shareholders that beneficially own greater than 10% or more of SEC-reporting foreign private issuers would remain exempt from Section 16¹; and
  • the exemption for foreign private issuers from short-swing profit liability under Section 16(b) would remain intact, including for directors and officers.
• Ninety days after the NDAA is enacted (i.e., in late March 2026, assuming the NDAA becomes law by the end of December), directors and officers of SEC-reporting foreign private issuers will be required to begin reporting under Section 16(a) of the Exchange Act (i.e., on Forms 3, 4 and 5), unless exempted by SEC rule or order, pursuant to the authority granted in HFIAA.

The upending of a long-time foreign private issuer exemption

Under the existing Section 16 regime, directors, officers and greater than 10% shareholders of domestic SEC reporting companies must comply with insider reporting requirements in respect of their ownership of equity securities of the issuer, and are subject to potential liability for “short swing” profits under Section 16(b) of the Exchange Act. The SEC has long exempted foreign private issuers, including Canadian issuers relying on the MJDS, from the requirements of Section 16 of the Exchange Act, along with other provisions of the Exchange Act, in an effort to accommodate home country practices and facilitate cross-listings by non-U.S. companies. 

With HFIAA on the verge of becoming law, this long-time exemption for foreign private issuers would be upended, eliminating the Section 16(a) reporting exemption from the Exchange Act for directors and officers of foreign private issuers, subject to exemptions that the SEC is authorized to enact by rule or order if it determines that the laws of a non-U.S. jurisdiction apply substantially similar requirements (see “Prospects for exemption” below). Unlike the version of the HFIAA included in the U.S. Senate version of the 2024 NDAA (which ultimately did not become law) as described in our bulletins (see “U.S. Congress may eliminate Section 16 exemption for foreign private issuers” and “Section 16 exemption for foreign private issuers remains intact—at least for now”), the 2026 version of HFIAA only eliminates the Section 16(a) reporting exemption for directors and officers (not 10% shareholders), and it does not eliminate the foreign private issuer exemption from short-swing profit liability under Section 16(b) of the Exchange Act.   

By its terms, the elimination of the Section 16(a) reporting exemption for directors and officers of foreign private issuers will go into effect 90 days after the NDAA is enacted. Given that the NDAA is likely to be signed into law by the end of the year, the 90^th day will probably be sometime in late March 2026. In addition, the NDAA requires the SEC to enact final rules within 90 days of enactment of the NDAA to give effect to the terms of HFIAA. 

Given the expense associated with complying with the Section 16 regime, and, where applicable, complying with the insider reporting requirements of a foreign private issuer’s home country—as well as the potential consequences for violations—the adoption of the HFIAA would mark a significant departure from existing rules applicable to foreign private issuers’ reporting requirements.

The compliance burden of Section 16 reporting

Absent any exemptions established by the SEC pursuant to their authority under the HFIAA, SEC-reporting foreign private issuers—including those reporting with the SEC under the MJDS—will need to begin preparing for Section 16 reporting compliance. First, the issuer would need to determine who their Section 16 reporting insiders are: while it is clear-cut that all members of the public company board of directors would be included, as well as top-level executives like the principal executive, financial and accounting officers, issuers would need to determine who else constitutes a Section 16 “officer”. Rule 16a-1(f) under the Exchange Act defines “officer” to include “any vice-president of the issuer in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions for the issuer” and may include officers of the issuer’s subsidiaries “if they perform such policy-making functions for the issuer”. 

Once the issuer determines its set of Section 16 reporting insiders, each of them will need to obtain (if they do not have them already) codes from the SEC to enable them to make filings on the Electronic Data Gathering, Analysis and Retrieval (EDGAR) system, and then file a Form 3 to report their current holdings of the subject issuer’s equity securities. Thereafter, Section 16 reporting insiders are required to report all transactions in equity securities of the issuer (subject to certain limited exceptions) on Form 4 within two business days of the event. Section 16 filings are publicly available on EDGAR alongside the issuer’s other SEC periodic reports.  

Given that the HFIAA does not impose short-swing liability under Section 16(b) for directors and officers of foreign private issuers, and because foreign private issuers are not subject to Item 405 of Regulation S-K (which requires disclosure of Section 16 reports that were not timely filed), HFIAA by itself does not impose any immediate consequences for a missed or late Section 16 filing. However, the SEC has from time to time conducted Section 16 “enforcement sweeps” to penalize issuers and individual filers who fail to file timely Section 16 reports.

Prospects for exemptions

We note that opportunistic selling by insiders of foreign private issuers, especially insiders of Russian and Chinese companies (many of which are organized as Cayman or British Virgin Island entities and listed on a U.S. stock exchange without significant home country regulation), has been a particular concern for certain members of the U.S. Congress, the SEC and market and legal commentators, leading to the proposal to repeal the Section 16 exemption for foreign private issuers in the HFIAA in 2024 and earlier in 2022 and 2023. With this backdrop, it seems plausible that the SEC, as permitted by the terms of the HFIAA in the 2026 NDAA, will introduce exemptions for directors and officers of issuers reporting in countries outside of the above-mentioned target jurisdictions, provided that such foreign jurisdictions maintain substantially similar insider reporting requirements. Therefore, it seems reasonable that the SEC could include exemptions for directors and officers that are required to file insider reports under Canada’s robust System for Electronic Disclosure by Insiders (SEDI).

However, what is not clear is the timing of enactment of any such exemptions. While the SEC is tasked with amending its rules to comply with the HFIAA within 90 days of enactment of the statute, the SEC could simply enact final rules that nullify the SEC rules that provide a Section 16(a) exemption for foreign private issuers, and use its discretion to establish specific jurisdictional exemptions (e.g., for companies subject to Canadian SEDI reporting) at some later date—which would mean that directors and officers of companies in these jurisdictions may need to file Section 16 reports for a period of time until such exemptions become effective. We are hopeful that the SEC moves quickly to enact such exemptions before the HFIAA goes into effect and avoid Section 16 reporting by directors and officers of foreign private issuers that are already subject to a robust insider reporting regime in their home country (such as SEDI in Canada).