Regulators in the United States are contemplating what next steps they can take to rattle some greater cooperation out of overseas regulators, especially in China.

A rare joint statement by the heads of the Securities and Exchange Commission and the Public Company Accounting Oversight Board reflects growing frustration over long-standing barriers to regulating companies beyond U.S. borders that access U.S. capital markets. “If significant information barriers persist, remedial actions involving U.S.-listed companies may be necessary or appropriate,” they say.

SEC Chairman Jay Clayton, PCAOB Chairman William Duhnke, and SEC Chief Accountant Wes Bricker indicate they are considering their options in light of ongoing obstacles in certain countries, most notably China. They’ve already tried a number of measures, including requiring companies to make additional disclosures and placing additional restrictions on new securities issuances to no avail, they say. The SEC has taken enforcement actions against major firms in China as well.

U.S. regulators have a heightened responsibility to access audit-related information on U.S.-listed companies abroad, they say, as U.S.-listed companies overall account for about 40 percent of the market capitalization of global public companies in 2017. For investors both inside and outside the United States, “a U.S. listing carries with it the assumption that U.S. rules and regulatory oversight apply,” the statement says.

That is not the case, however, for companies whose audits are performed by firms located in countries that will not cooperate with the PCAOB. The audit regulator is required under Sarbanes-Oxley to inspect the work of audit firms auditing financial statements for all companies listed on U.S. exchanges, even if they are located outside U.S. borders.

The PCAOB has cooperative agreements with regulators in 23 foreign jurisdictions where it can perform joint inspections or share inspection findings, and the board has carried out inspections in 50 different countries. The SEC has formal cooperative arrangements with 75 foreign regulators and law enforcement agencies, and it’s one of 120 signatories to the multilateral memorandum of understanding of the International Organization of Securities Commissions.

None of that has pried loose audit work papers from a handful of countries, however, including China, which Clayton, Duhnke, and Bricker identify as “one of the most significant issues” they continue to wrestle. Authorities in China have barred the PCAOB from inspecting the audit work for the 224 companies currently listed on U.S. changes with a combined market capitalization of $1.8 trillion. The SEC counts an additional 207 companies where the PCAOB can inspect some, but not all, audit work.

“Although substantial progress has been made, issues relating to information access remain, and our experience leads us to expect that new access issues are likely to arise,” the statement says. “A regulator, confined to only a view from within its own national borders, can only see a portion, and oftentimes a small portion, of the activities and risks of a company or the work of its auditor. … Review of a consolidated audit of a multinational company cannot be performed effectively in country-specific silos.”

Clayton, Duhnke, and Bricker say they are summarizing the state of affairs and issuing their statement because they want investors to be on notice. “The inability to date to achieve this level of regulatory cooperation with Chinese authorities raises a number of investor protection and general oversight issues,” they say. The statement reflects their view “that it is appropriate to bring the general issue of SEC and PCAOB access to information held outside the United States … to the attention of investors in the U.S. capital markets.”

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