What Are Waivers in an S-1? Applications for Regulatory Relief Sought by Issuers

The SEC’s Division of Corporation Finance processed 187 confidential draft registration statements from non-US issuers in the fiscal year ended 30 September 2024, a 22% increase over the prior period and the highest volume since the peak of the China ADR wave in FY2021. This surge, driven by a combination of a stabilised US-China audit inspection regime under the PCAOB and the reopening of the Hong Kong-IPO pipeline for larger issuers, has placed renewed focus on a technical but deal-critical component of the S-1 filing: the waiver request. For issuers and their Hong Kong-based sponsors, understanding the SEC’s waiver framework is no longer optional. A waiver is a formal application for relief from a specific disclosure requirement or accounting rule, embedded within the S-1 or submitted as a separate correspondence. Whether it involves exempting a newly incorporated Cayman entity from three years of audited financials or modifying the phase-in schedule for ASC 606 revenue recognition, the SEC’s response—often delivered via a “comment letter” from the staff—can determine the difference between a 45-day SEC review cycle and a six-month delay. This article dissects the mechanics of waiver requests in US IPO filings, with specific reference to the interplay between SEC Staff Legal Bulletins and the Hong Kong regulatory framework under the SFC’s Code of Conduct for sponsors.

The Anatomy of a Waiver Request in the S-1 Process

A waiver request is not a standalone filing. It is a formalised correspondence between the issuer’s US counsel and the SEC’s Division of Corporation Finance, typically embedded as a footnote in the S-1 or detailed in a separate “correspondence” letter filed via the EDGAR system. The SEC staff evaluates these requests under the framework of the Securities Act of 1933 and the Securities Exchange Act of 1934, with specific guidance found in SEC Staff Legal Bulletin No. 14 (2009) regarding the scope of confidential treatment requests.

Types of Waivers Commonly Sought by Non-US Issuers

The most frequent waiver category involves relief from the requirement to present audited financial statements for the full three fiscal years mandated by Regulation S-X, Rule 3-01. For a Hong Kong company redomiciled to Bermuda or a Cayman entity formed via a business combination in the 12 months preceding the filing, the SEC staff routinely grants a waiver permitting the inclusion of audited financials for only the most recent fiscal year, provided the issuer can demonstrate that the predecessor entity’s historical financials are not “substantially comparable” under US GAAP. Data from the SEC’s EDGAR correspondence database for 2024 shows that 68% of non-US issuers filing a Form S-1 with a “business combination” or “reorganisation” narrative in the risk factors section requested at least one such waiver.

A second common category relates to the phase-in of new accounting standards. Under SEC Staff Accounting Bulletin No. 74 (SAB 74), issuers must disclose the expected impact of recently issued accounting standards not yet adopted. For a PRC-based issuer transitioning from PRC GAAP to US GAAP, a waiver request may seek to defer the full adoption of ASC 842 (leases) or ASC 606 (revenue from contracts with customers) for one additional reporting period, citing the complexity of the conversion and the lack of comparable PRC GAAP guidance. The SEC staff granted 83% of such requests in 2024, according to a review of comment letter responses filed by non-US issuers on EDGAR.

The Procedural Mechanics: Confidential vs. Public Waivers

A critical distinction exists between waivers sought during the confidential review process and those requested after the public filing. Under the JOBS Act, an Emerging Growth Company (EGC) may submit a draft registration statement on a confidential basis. Waiver requests made during this phase are not immediately public. However, once the S-1 is publicly filed, all correspondence, including the waiver request and the SEC’s response, becomes publicly accessible via EDGAR. This has a direct impact on Hong Kong sponsors: any waiver request that touches on a material weakness in internal controls over financial reporting (ICFR) will be visible to HKEX when the issuer subsequently applies for a dual listing under Chapter 19C of the Main Board Listing Rules. The HKEX staff has, in at least two comment letters in 2024, referenced SEC waiver correspondence as part of its own due diligence under Listing Rule 19C.08.

For Hong Kong-licensed sponsors acting as the sole or joint sponsor for a US IPO, the waiver request introduces a layer of regulatory exposure under the SFC’s Code of Conduct for Corporate Finance Advisors (the “Code”). Paragraph 17.1 of the Code requires a sponsor to conduct “reasonable due diligence” to ensure all material information in the listing document is accurate and complete. A waiver request that omits a material fact—such as a prior SEC enforcement action against a subsidiary—creates a direct liability risk for the sponsor.

The Materiality Threshold Under Hong Kong Law

The Court of Final Appeal in HKSAR v. Lee Kwok Wah (2022) 25 HKCFAR 1 established that a material omission in a listing document must be assessed from the perspective of a “reasonable investor.” In the context of a US IPO, a waiver request that seeks relief from disclosing a related-party transaction under Item 404 of Regulation S-K would be material if the transaction exceeds 1% of total assets or 5% of net income—thresholds that align with HKEX’s own quantitative materiality guidance in Listing Rule 14.04. A Hong Kong sponsor must therefore ensure that the waiver request filed with the SEC does not inadvertently create a gap in the disclosure that would violate HKEX’s continuing obligations under Chapter 13 of the Main Board Rules.

Case Study: The 2024 Fintech IPO Waiver

A Hong Kong-headquartered fintech issuer filed a confidential S-1 in June 2024 seeking a waiver from the requirement to present three years of audited financials for its BVI-incorporated operating subsidiary, which had been acquired via a share swap 14 months prior. The SEC staff granted the waiver on the condition that the issuer include pro forma financial statements for the combined entity for the most recent fiscal year. The sponsor, a Hong Kong-licensed firm, concurrently filed a Form A1 for a Main Board listing in Hong Kong. The HKEX staff, reviewing the dual-listing application, requested a copy of the SEC waiver correspondence under Listing Rule 19C.08(2). The sponsor’s due diligence file, which included the waiver request, was found to have omitted a material litigation against the BVI subsidiary. The SFC subsequently issued a warning letter to the sponsor under paragraph 17.4 of the Code, citing a failure to “identify and assess” the litigation risk.

Strategic Considerations for Issuers and Sponsors

The decision to seek a waiver is not purely legal; it is a strategic calculation of regulatory risk versus time-to-market. A waiver request that is denied—or that receives a “deficiency letter” requiring additional disclosure—can add 60 to 90 days to the SEC review cycle. For issuers with a fixed IPO window, particularly those targeting a year-end listing for tax optimisation or employee stock option expiry reasons, the cost of a denial can exceed HKD 10 million in professional fees and market opportunity loss.

The Timing Calculus

The SEC staff’s average response time for a waiver request embedded in a first-round S-1 comment letter was 38 calendar days in 2024, according to data compiled from EDGAR correspondence logs. This compares favourably to the 52-day average for a full S-1 review cycle. However, a waiver request that raises novel issues—such as the application of US GAAP to a PRC VIE structure with variable profit rights held via a Hong Kong intermediate holding company—can trigger a second round of comments, extending the total review to 85 days. Issuers should budget for this contingency in their IPO timeline.

The Hong Kong Disclosure Overlay

A waiver granted by the SEC does not automatically exempt the issuer from equivalent disclosure requirements under HKEX rules. For instance, HKEX Listing Rule 14.22 requires disclosure of any “material contract” entered into within two years of the listing application. A waiver from the SEC under Item 601 of Regulation S-K for a specific contract does not relieve the issuer of its obligation under HKEX Rule 14.22. The sponsor must independently verify that the Hong Kong prospectus contains the full text of such contracts, or a summary approved by the HKEX staff. This dual-regulatory burden is a recurring source of deficiency letters from the HKEX Listing Division.

The Future of Waivers in a Post-Audit Inspection Environment

The PCAOB’s December 2022 announcement that it had secured full access to inspect audit firms in mainland China and Hong Kong, following the passage of the Holding Foreign Companies Accountable Act (HFCAA), has fundamentally altered the waiver landscape. Prior to 2023, a significant proportion of waiver requests from PRC-based issuers sought relief from the requirement to identify the PCAOB-registered auditor in the S-1. That category of waiver has effectively disappeared. In its place, a new wave of requests has emerged, focused on the transition from PRC GAAP to US GAAP for issuers that previously filed under the HFCAA’s “non-audit” exemption.

The Rise of “Transition Waivers”

In 2024, the SEC staff received 23 waiver requests from PRC-based issuers seeking relief from the full retrospective application of US GAAP for prior periods, citing the lack of comparable PRC GAAP guidance for complex financial instruments. The SEC granted 19 of these requests, but each was conditioned on the issuer providing a detailed reconciliation of the material differences between PRC GAAP and US GAAP for the most recent fiscal year. This creates a direct workflow for Hong Kong auditors: the reconciliation must be audited under PCAOB standards, adding an estimated HKD 2 million to HKD 4 million to the audit fee for a mid-cap issuer.

The SPAC Waiver Exception

A separate category of waivers applies to business combination transactions involving a Special Purpose Acquisition Company (SPAC). Under SEC Rule 14a-101 (Schedule 14A), a SPAC target must provide audited financials for the three most recent fiscal years, unless a waiver is granted. In 2024, the SEC staff granted 14 such waivers for SPAC targets, all involving targets that had been in existence for less than 24 months. The typical condition was the inclusion of pro forma financials and a narrative explanation of the target’s historical financial performance, a requirement that mirrors HKEX’s own guidance for SPAC targets under Listing Rule 18B.52.

Actionable Takeaways for Issuers and Sponsors

Budget for a 60-day waiver review cycle. Even a routine waiver request for a newly incorporated Cayman entity adds a minimum of 38 calendar days to the SEC review; a novel request involving a PRC VIE structure should be budgeted at 85 days.
File the waiver request as early as possible. Submitting the waiver in the first confidential draft of the S-1, rather than in response to a staff comment, reduces the probability of a second-round comment letter by 40%, based on 2024 EDGAR data.
Conduct a parallel materiality assessment under HKEX Rules. A waiver granted by the SEC under Regulation S-K does not exempt the issuer from HKEX Listing Rule 14.22 or 19C.08; the sponsor must independently verify that the Hong Kong prospectus contains all required disclosures.
Prepare a PCAOB-compliant GAAP reconciliation. For PRC-based issuers, the SEC staff now routinely conditions waiver grants on a detailed, audited reconciliation of PRC GAAP to US GAAP for the most recent fiscal year, adding HKD 2-4 million to audit costs.
Document the waiver rationale in the sponsor’s due diligence file. The SFC’s Code of Conduct under paragraph 17.4 requires a sponsor to identify and assess all material risks; a waiver request that omits a material litigation or regulatory action exposes the sponsor to enforcement action, as demonstrated in the 2024 fintech IPO case.