On October 11, 2017, the Securities and Exchange Commission (SEC) proposed amendments (Proposed Amendments) to its regulations and forms which are intended to modernize and simplify the existing disclosure requirements for public companies, investment advisers, and investment companies. The Proposed Amendments are mandated under the Fixing America’s Surface Transportation (FAST) Act of 2015, and aim to update a disclosure framework that may have become redundant, outdated or superseded in light of other SEC disclosure requirements.
The Proposed Amendments are principally based on a November 2016 SEC staff report, and provide specific and detailed recommendations to modernize and simplify disclosure requirements. These Proposed Amendments are meant to reduce costs and burdens on companies while still providing all material information. SEC Chairman Jay Clayton states, “An effective disclosure regime provides investors with the information necessary to make informed investment choices without imposing unnecessary burdens of time and money on issuers…”
Among other things, the Proposed Amendments would:
- Revise rules and forms to update, streamline, or otherwise improve the disclosure framework for public companies, including revision to the instructions for risk factor disclosures and emphasis on a materiality threshold for the “description of property” disclosure requirement;
- Update rules and forms to account for developments since their adoption or last amendment, including deleting references to outdated auditing standards and the elimination of certain obsolete “undertakings” from registration statements;
- Simplify disclosure and the disclosure process, including proposed changes to registration statement cover pages, exhibit filing requirements, and the related process for confidential treatment requests and changes to “Management's Discussion and Analysis” disclosure to provide flexibility in discussing historical periods; and
- Incorporate technology to improve access to information with new rules for data tagging of items on the cover page of certain filings and the use of hyperlinks for cross-references within a filing and to information that is incorporated by reference and available on EDGAR.
In addition, the proposal also includes parallel amendments to several rules and forms as applicable to investment companies and investment advisers.
The Proposed Amendments contain a number of requests for comment on specific proposed changes, as well as a general request for comment. The SEC will seek public comment on the proposed rules for 60 days after the publication of the Proposed Amendments in the Federal Register. If you have any questions regarding the Proposed Amendments and how they could impact your disclosure requirements, please contact any member of Michael Best’s Corporate Finance & Securities Team.