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Executive Summary
In late 2025, the U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) each announced initiatives focused on small-cap offerings involving foreign issuers, with China specifically identified as a jurisdiction of concern. In September, the SEC established a Cross-Border Task Force to address fraud risks tied to foreign-based companies and to review the role of market "gatekeepers," such as auditors, underwriters, and broker-dealers. One month later, FINRA launched a targeted review of broker-dealers that participated in small-cap IPOs and related transactions tied to foreign issuers — particularly those with operations in China — between January 2023 and September 2025. These developments indicate increased regulatory attention on cross-border market activity from jurisdictions perceived as high-risk and underscore the importance of robust compliance and due diligence frameworks.
SEC's Cross-Border Task Force
Announced on September 5, 2025, the SEC's Cross-Border Task Force is charged with identifying and pursuing securities law violations involving foreign-based companies. Focus areas include potential market manipulation, such as pump‑and‑dump schemes, and assessing the role of intermediaries that facilitate U.S. market access for these companies. The SEC has cited jurisdictions where governmental influence and limited transparency may create higher investor risk, naming China as an example.
The task force will coordinate across several SEC divisions and offices to consider both enforcement actions and possible updates to disclosure requirements or rules intended to enhance investor protection.
FINRA's Targeted Examination
On October 23, 2025, FINRA announced a targeted examination of member firms involved in:
- Small‑cap IPOs raising $25 million or less, priced between $4 and $8 per share;
- Follow‑on offerings and private placements involving issuers with foreign business operations, especially those from China; and
- Initial and secondary market trading in these securities, including through omnibus accounts.
The examination focuses on broker-dealers acting in roles such as underwriter, bookrunner, syndicate member, selling group member, or placement agent.
FINRA has requested participating firms provide a range of materials, including:
- Written supervisory procedures and compliance policies for small-cap offerings;
- Due diligence processes for issuers and affiliated individuals;
- Records of all relevant offerings, compensation structures, and professional parties involved for small-cap offerings;
- Anti‑money laundering (AML) program documentation; and
- Trading surveillance procedures and tools to detect suspicious activity.
Considerations for Market Participants
Firms engaged in transactions that fall within the parameters of the SEC's Task Force and FINRA's targeted examination may wish to:
- Review supervisory procedures and compliance materials relevant to small-cap and cross-border activity;
- Confirm AML and Know‑Your‑Customer (KYC) programs address the risks associated with issuers from China and other perceived high‑risk jurisdictions;
- Ensure due diligence processes are well‑documented and consistently applied; and
- Maintain organized records for offerings conducted during the January 2023 to September 2025 period.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
