These "blank-check" companies have thrived in recent years, garnering huge sums in IPOs and changing the face of M&A in the North American market. They are also becoming more prevalent in other parts of the world. The powerful US regulator is worried about the space.

The Securities and Exchange Commission is reportedly telling auditors of special purpose acquisition companies, aka SPACs, to account more strictly for public shares in these blank-check companies. The move comes as the SEC is tightening oversight of a sector that boomed last year, before easing off in recent months.

Reuters, citing unnamed industry accountants and lawyers, said that SEC staff have privately told top auditors of SPACs that "redeemable" shares issued by these shells must be treated as temporary - known as "mezzanine" - equity, in a break from the long-standing industry practice of treating them as permanent equity.

The change would result in most SPACs falling below the minimum equity capital requirement of Nasdaq's Capital Market tier, pushing SPACs looking to list on Nasdaq to its Global Market tier, which has no equity requirement. The report’s sources said the move was a sign that the regulator wanted to hit long-standing practices in the SPAC market. 

SPACs have boomed amid a flood of cheap money printed by central banks, a buoyant stock market and IPO sector, coupled with a desire to find alternatives to traditional capital-raising techniques. SPACs have been around for a while, but about two years ago the US market went into overdrive.

On the other side of the Atlantic, the UK’s Financial Conduct Authority recently unveiled changes to SPAC listing laws to encourage more of these vehicles to get off the ground. The laws took effect from August 10. In that case, the regulator is seeking to galvanize London’s listing market post-Brexit. In Hong Kong, the stock market there has set out changes to its regime to encourage SPACs - and hopefully avoid excesses. This also speaks to how financial hubs are competing to be top IPO players.

SPACs are listed shell companies used to take private companies public, sidestepping the more traditional and lengthy initial public offering process. More than $100 billion in SPAC deals have been inked so far this year, the Reuters report said. SPACs must deploy capital within two years of launch. 

In April, the SEC issued guidance suggesting that hundreds of SPACs should account for equity warrants as debt, putting a damper on the market.

To some extent the move on SPACs is all of a piece with the new leadership at the SEC under its chairman, Gary Gensler, who was appointed by the Biden administration. He is also seen as tightening oversight in a number of sectors. Industry figures have told Family Wealth Report that they hope the SEC may also improve the operation of the Regulation Best Interest rule as it applies to wealth managers and those operating as fiduciary advisors. That rule has been sharply criticized by the wealth sector. (See a WealthTalk video interview here about Reg BI.)