President Trump Signs Defense Authorization Bill Subjecting FPI Insiders To Section 16 Reporting Obligations

On December 18, 2025, President Donald Trump signed the 2026 National Defense Authorization Act (NDAA). Section 8103 of the NDAA includes the Holding Foreign Insiders Accountable Act (HFIA Act), which subjects certain insiders of foreign private issuers (FPIs) to Section 16 reporting obligations but not its provisions on short-swing profit recapture.

HFIA Act implementation

Section 16 of the Securities Exchange Act of 1934 (Exchange Act) requires officers, directors and 10% holders of registered issuers to file ownership reports with the Securities and Exchange Commission (SEC or the Commission) and subjects them to recapture on matched purchases and sales of the issuer's equity securities within six months. Prior to enactment of the HFIA Act, Rule 3a12-3 of the Exchange Act exempted FPIs from the requirements under Section 16 of the Exchange Act. The HFIA Act subjects officers and directors of FPIs to the reporting requirements of Section 16 by adding the following underlined parenthetical language to Section 16(a)(1):

Every person who is directly or indirectly the beneficial owner of more than 10 percent of any class of any equity security (other than an exempted security) which is registered pursuant to section 78l of this title, or who is a director or an officer of the issuer of such security (including, solely for the purposes of this subsection, every person who is a director or an officer of a foreign private issuer, as that term is defined in section 240.3b–4 of title 17, Code of Federal Regulations, or any successor regulation), shall file the statements required by this subsection with the Commission.

The HFIA Act also adds a new subsection (5) to Section 16(a) that provides the SEC with the authority to "exempt any person, security, or transaction, or any class or classes of persons, securities, or transactions, from the requirements of Section 16(a) if the Commission determines that the laws of a foreign jurisdiction apply substantially similar requirements to such person, security, or transaction."

A slightly different version of the HFIA Act was previously introduced and not enacted in 2022 and in 2023; it was also included in an amendment to the Senate version of the 2024 annual defense spending legislation, but that provision was not part of the final legislation after conference.

The current HFIA Act contains several provisions that depart from the versions proposed in 2022 and 2023. First, based on the text of the HFIA Act, the HFIA Act adds reporting requirements to directors and officers of FPIs only — and not to beneficial owners of more than 10% of the securities of FPIs. Second, the inclusion of "solely for purposes of this subsection" in the parenthetical indicates that the HFIA Act would impose reporting obligations under Section 16(a), but FPIs would remain exempt under Rule 3a12-3 of the Exchange Act from the short-swing profit recapture provisions of Section 16(b) of the Exchange Act.

Consequences of the proposed changes

Officers and directors of FPIs will now be required to file initial statements of ownership on Form 3, generally within 10 days of becoming an officer or director, and statements of changes of beneficial ownership on Form 4, generally within two business days of their acquisition or disposition of equity securities of the FPI. Equity securities include equity-based compensation. There is also a concept of deputization under Section 16, whereby a shareholder whose employee serves as a director of an issuer may itself be deemed a director of the issuer for purposes of the statute. Presumably, this concept would extend to directors of an FPI. The reporting requirements under Section 16 pertaining to these and many other issues are complex; large treatises have been devoted to them, and FPIs and their officers and directors may need to consult with counsel to navigate these requirements.

Domestic issuers whose officers and directors fail to comply with the filing requirements of Section 16(a) are required to report the filing delinquencies in the issuer's annual report to the SEC on Form 10-K. There has been no such reporting requirement under Form 20-F or Form 40-F filed by FPIs, for the obvious reason that until now, there have been no Section 16(a) filing requirements for the officers and directors of FPIs. Whether the SEC will amend Form 20-F and Form 40-F to require reporting of Section 16(a) filing delinquencies remains to be seen. Separately, the SEC may bring civil enforcement actions against officers and directors who fail to timely file Section 16(a) reports, although such actions are usually directed against serial offenders.

A primary purpose of Section 16 is to deter insider trading. The statute's main anti-insider-trading tool is the short-swing recapture provisions of Section 16(b), which will be inapplicable to FPIs. But the reporting provisions of Section 16(a) also play a role here. The disclosure of insider trading activity makes it easier for the SEC and other regulators to correlate trading activity with significant corporate events that may have been known to the insiders but not the public at the time of the trades. Many FPIs are familiar with key purposes and disclosures under Section 16, particularly if they are listed in their home country, as such FPIs may already be subject to analogous regulatory frameworks governing market abuse and trade reporting and prohibiting insider dealing, unlawful market disclosure and market manipulation. Nevertheless, officers and directors of FPIs should appreciate that, as a consequence of their Section 16(a) filings now required under the HFIA Act, their trading activity will be subject to a new level of scrutiny.

Finally, the exclusion of FPIs from the reach of Section 16(b) has certain favorable governance consequences for FPIs. Boards and compensation committees of domestic issuers go to great lengths to observe proper approval requirements for equity compensation awards to their officers and directors to assure the exemption of these awards from the short-swing recapture provisions of Section 16(b). Similar approval requirements must be observed with respect to equity received by officers and directors in certain M&A transactions to exempt the equity received by officers and directors in those transactions from short-swing profit recapture. Because the HFIA Act would not make Section 16(b) applicable to FPIs, FPIs will not need to observe these approval requirements.

Exemption for FPIs in certain jurisdictions

As noted, the HFIA Act gives the SEC the authority to exempt FPIs in certain jurisdictions from the requirements of Section 16(a). It is not known at this time whether the SEC will utilize this authority to exempt specifically designated jurisdictions or whether the SEC might promulgate general criteria by which compliant jurisdictions would be exempt. It is also not known how the SEC would interpret the statutory phrase "substantially similar requirements" for ownership reporting in the foreign jurisdiction required to qualify for exemption. For example, to qualify, would a jurisdiction be required to have a filing system for ownership reports that is publicly accessible in the United States and that has features similar to the SEC's EDGAR filing system? Alternatively, it is possible that the SEC will only provide exemptive relief to FPIs if ownership information disclosed in an FPI's home jurisdiction is furnished to the SEC on Form 6-K.

Recent FPI regulatory activity

As discussed in our June client alert, the SEC issued a concept release soliciting comments on the current FPI definition and exemptive accommodations, as well as proposed modifications to existing FPI regulation. The concept release is generally viewed by market participants as the first step in potential additional SEC oversight of non-US entities seeking to access the US capital markets. In that June alert, we specifically mentioned how one of the accommodations for these entities was an exemption from Section 16 obligations for FPIs. The proposed rule changes appear directed particularly at FPIs that are seeking to register their securities in the United States and list them only on a US stock exchange or where home country disclosure and reporting standards may not be as robust compared with those of the United States.

The HFIA Act subjects directors and officers of FPIs to Section 16(a) reporting obligations, irrespective of whether the SEC's proposed changes to the regulations affecting FPIs are adopted.

Timing considerations

The amendments to Section 16(a) take effect 90 days after enactment. The HFIA Act directs the SEC to issue final regulations to carry out the changes to Section 16 within that period. The SEC will no doubt amend Rule 3a12-3, which currently provides a blanket exemption from Section 16 for FPIs. The SEC may also issue transition rules to clarify when current officers and directors are required to file their initial beneficial ownership reports, something that is not fully clear from the statute itself.

The HFIA Act also authorizes the SEC to issue additional regulations to implement the intent of the act but provides no timetable for any such additional rules. As noted, the SEC may wish to amend Form 20-F and Form 40-F to provide for reporting of Section 16 filing delinquencies. It is possible that the SEC may provide a window for filing Section 16(a) reports by officers and directors of FPIs that is longer than two business days, in consideration of what could be substantial time zone differences between Washington, D.C., and an FPI's headquarters jurisdiction. And then there is the issue of exempt jurisdictions, which the SEC will likely address by way of rulemaking. Typically, such rule changes require a notice and comment period, which could further extend the implementation timeline before the definitive application of Section 16(a) to FPIs comes to rest.

Conclusion

Change for FPIs is in the air, and the enactment of the HFIA Act should be viewed as the first step in what will likely be additional SEC oversight of non-US entities. FPIs should (i) consider the new Section 16(a) requirements together with any home country requirements and identify any areas of additional obligation or inconsistencies, (ii) begin educating their officers and directors with respect to the reporting requirements of Section 16(a) and (iii) adopt policies and procedures to promote timely filings. FPIs should also be following SEC rulemaking, and potentially staff guidance, that will soon accompany the legislative changes to Section 16.

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