Tag: Disclosure Effectiveness Initiative

SEC adopts amendments to modernize Reg S-K requirements for business, legal proceedings and risk factor disclosures (UPDATED)

[This post revises and updates my earlier post primarily to reflect the contents of the adopting  release.]

By a vote of three to two, on Wednesday, the SEC voted to adopt amendments, substantially as proposed with some modifications, to modernize the Reg S-K disclosure requirements related to the descriptions of business, legal proceedings and risk factors. As Chair Jay Clayton observed in his Statement, these Reg S-K disclosure items “essentially have not changed in over 30 years,” but much has changed in our economy since that time, making these updates well warranted. The changes are a component of the SEC’s Disclosure Effectiveness Initiative and reflect public comments on the SEC’s 2016 Concept Release (see this PubCo post) and the 2019 Reg S-K proposal (see this PubCo post), as well as experience from the staff’s disclosure review process. In devising the final amendments, the SEC considered the “many changes that have occurred in our capital markets and the domestic and global economy” since the requirements were adopted. The amendments largely reflect the SEC’s historic “commitment to a principles-based, registrant-specific approach to disclosure” that, although “prescriptive in some respects,” is “rooted in materiality” and designed to provide an understanding of a company’s business through the lens that management and the board apply in managing and assessing the company’s performance. While there are changes throughout, the most significant change is the enhancement of the disclosure requirement for human capital, a topic that has been front-burnered by the impact of COVID-19 on the workforce. How substantially disclosure changes as a result of these amendments remains to be seen. The amendments will become effective 30 days after publication in the Federal Register.

SEC votes to modernize Reg S-K requirements for business, legal proceedings and risk factor disclosures

At an open meeting this morning, the SEC voted (three to two) to adopt amendments, substantially as proposed, to modernize the Reg S-K disclosure requirements related to the descriptions of business, legal proceedings and risk factors. As Chair Jay Clayton observed in his Statement, these Reg S-K disclosure items “essentially have not changed in over 30 years,” but much has changed in our economy since that time, making these updates well warranted. The changes are a component of the SEC’s Disclosure Effectiveness Initiative and reflect public comments on the SEC’s 2016 Concept Release (see this PubCo post) and the 2019 proposal (see this PubCo post)—although the extent to which those comments were taken into account was subject to some debate, as discussed below—as well as learning from the staff’s disclosure review process. As described in the press release, the amendments mainly adopt a “principles-based, registrant-specific approach to disclosure” that is intended to elicit information “on a basis consistent with the lens that management and the board of directors use to manage and assess the registrant’s performance.”  The amendments are also intended to discourage repetition, reduce disclosure of information that is not material and simplify compliance.  While there are changes throughout, the most significant change is the enhancement of the disclosure requirement for human capital, a topic that has been front-burnered by the impact of COVID-19 on the workforce.  The amendments will become effective 30 days after publication in the Federal Register.

What’s on the SEC’s Spring 2020 RegFlex Agenda?

With so much going on in connection with COVID-19 and its impact, it would be easy to overlook the rest of the SEC’s agenda. And it’s a lengthy one. The new Spring Regulatory Flexibility Act Agenda was published at the end of June, so it’s time to look at what’s on deck for the SEC in the coming year or so. (That reference to “on deck” may be the only sports anyone gets this year….)  SEC Chair Jay Clayton has repeatedly made clear his intent to make the RegFlex Agenda more realistic, streamlining it to show what the SEC actually expects to take up in the subsequent period.  (Clayton has previously said that the short-term agenda signifies rulemakings that the SEC actually planned to pursue in the following 12 months. See this PubCo post and this PubCo post.)  The SEC’s Spring 2020 short-term and long-term agendas reflect the Chair’s priorities as of March 31, when the agenda was compiled. What stands out here are the matters that have, somewhat surprisingly, moved up onto the final-rule-stage agenda—think universal proxy—from perpetual residence on the long-term (i.e., the maybe never) agenda. 

SEC proposes changes to MD&A and other financial disclosure requirements

On Thursday, once again without holding an open meeting, the SEC voted, with a dissent from Commissioner Allison Lee, to propose to simplify and modernize MD&A and the other financial disclosure requirements of Reg S-K. As summed up in the press release, the proposed amendments are intended to “eliminate duplicative disclosures and modernize and enhance Management’s Discussion and Analysis disclosures for the benefit of investors, while simplifying compliance efforts for companies.”  The proposal is part of the SEC’s Disclosure Effectiveness Initiative and follows on the 2013 S-K Study, the Report on Review of Disclosure Requirements in Regulation S-K, required by Section 108 of the JOBS Act, and the 341-page 2016 concept release, which sought comment on modernizing certain business and financial disclosure requirements in Reg S-K (see this PubCo post). The proposal also took into account the staff’s experience with Reg S-K as part of Corp Fin’s disclosure review program. Once again, the proposal employs a more principles-based approach, describing the objectives of MD&A with the goal of eliciting more thoughtful, less rote analysis.  Some of the proposed changes are fairly dramatic—such as eliminating selected financial data (Item 301), supplementary financial data (Item 302), and that pesky table of contractual obligations, or adding a requirement to disclose critical accounting estimates—while some just address moving parts and conforming changes. Whether the proposal, if adopted, actually leads to more nuanced, analytical disclosure remains to be seen. The proposal will be open for comment for 60 days.

SEC proposes to modernize descriptions of business, legal proceedings and risk factors (UPDATED)

At the end of last week, the SEC voted, without an open meeting, to propose amendments to modernize the descriptions of business, legal proceedings and risk factors in Reg S-K.  The proposal is another component of the SEC’s  “Disclosure Effectiveness Initiative.” In crafting the proposal, the SEC took into account comments received on the 2016 Concept Release on disclosure simplification and modernization (see this PubCo post), as well as Corp Fin staff experience in review of disclosures. The changes to the rules were proposed “in light of the many changes that have occurred in our capital markets and the domestic and global economy in the more than 30 years since their adoption, including changes in the mix of businesses that participate in our public markets, changes in the way businesses operate, which may affect the relevance of current disclosure requirements, changes in technology (in particular the availability of information), and changes such as inflation that have occurred simply with the passage of time.”  There is a 60-day comment period. 

SEC proposes amendments to modernize Reg S-K descriptions of business, legal proceedings and risk factors

Although the SEC cancelled the scheduled open meeting (again), it still went ahead and voted to propose amendments to modernize the descriptions of business, legal proceedings and risk factors in Reg S-K.  The proposal is another component of the “Disclosure Effectiveness Initiative.” As described in the press release, to enable  each business to focus on the matters that are material to that business, the proposed amendments take a more principles-based approach to the business and risk factors  disclosure requirements. With regard to legal proceedings, the proposal would “continue the current prescriptive approach because that requirement depends less on the specific characteristics of registrants.”  There is a 60-day comment period.

What’s on the SEC’s new RegFlex Agenda?

SEC Chair Jay Clayton has repeatedly made a point of his intent to take the Regulatory Flexibility Act Agenda “seriously,” streamlining it to show what the SEC actually expected to take up in the subsequent period.  (Clayton has previously said that the short-term agenda signifies rulemakings that the SEC actually planned to pursue in the following twelve months. See this PubCo post and this PubCo post.)  The SEC’s Spring 2019 short-term and long-term agendas have now been posted, reflecting the Chair’s priorities as of March 18, when the agenda was compiled. What stands out is not so much the matters that show up on the short-term agenda—although there are plenty of significant proposals to keep us all busy—but rather the legislatively mandated items that have taken up protracted residency on the long-term (i.e., the maybe never) agenda.

Cooley Alert:  SEC Adopts Final Rules to Modernize and Simplify Regulation S-K

Most of the SEC’s new disclosure simplification rules will become effective tomorrow.  With that in mind, check out this Cooley Alert:  SEC Adopts Final Rules to Modernize and Simplify Regulation S-K.

SEC adopts amendments for FAST Act Modernization and Simplification of Regulation S-K (revised and updated)

Yesterday, once again without an open meeting, the SEC adopted changes to its rules and forms designed to modernize and simplify disclosure requirements.  The final amendments, FAST Act Modernization and Simplification of Regulation S-K, which were adopted largely as originally proposed in October 2017 (see this PubCo post), are part of the SEC’s ambitious housekeeping effort, the Disclosure Effectiveness Initiative.  (See this PubCo post and this PubCo post.)   The amendments are intended to eliminate outdated, repetitive and unnecessary disclosure, lower costs and burdens on companies and improve readability and navigability for investors and other readers. Here is the SEC’s press release.

The final amendments make a number of useful changes, such as eliminating the need to include discussion in MD&A about the earliest of three years of financial statements, permit omission of schedules and attachments from most exhibits, limiting the two-year lookback for material contracts, and streamlining the rules regarding incorporation by reference and other matters. The final amendments also impose some new obligations, such as a requirement to file as an  exhibit to Form 10-K a description of the securities registered under Section 12 of the Exchange Act and a requirement to data-tag cover page information and hyperlink to information incorporated by reference. .

Certainly one of the most welcome changes is the SEC’s innovative new approach to confidential treatment, which will allow companies to redact confidential information from exhibits without the need to submit in advance formal confidential treatment requests.  This new approach will become effective immediately upon publication of the final amendments in the Federal Register. The remainder of the final amendments will become effective 30 days after publication in the Federal Register, with the exception of new cover page data-tagging requirements, which are subject to a three-year phase-in.

Clayton says Dodd-Frank rules not going anywhere

For those of you who have been waiting for those big changes to Dodd-Frank to materialize, don’t hold your breath; at least as far as the SEC is concerned, the vast majority of those rules are expected to remain in place.  In case you missed it, SEC Chair Jay Clayton, speaking at the annual meeting of the WSJ’s CFO Network, said that “regulators are evaluating how postcrisis rules have performed in practice, and that he had concerns about some of the unintended side effects from some regulations. But any changes will be around the edges, keeping the core of postcrisis overhauls in place, he added. ‘I don’t think Dodd-Frank is changing a great deal, just to put a pin in it,’ he said.” And that tinkering may well be focused primarily on bank-related rules.  Of course, there’s always the possibility that Congress may act, but so far it’s been all hat and no cattle. Case in point: the much ballyhooed Financial Choice Act of 2017, which passed the House, but went nowhere in the Senate.  (See this PubCo post.)