FAST-Tracking Simplicity: SEC Proposes Rules to Modernize and Simplify Disclosure10.16.17
Last Wednesday, the Securities and Exchange Commission (SEC) proposed a variety of amendments to Regulation S-K and corresponding rules and forms (Proposed Amendments). The Proposed Amendments, which are primarily based upon the SEC’s November 23, 2016 report that was required by the Fixing America’s Surface Transportation (FAST) Act, are intended to simplify and modernize the SEC’s existing disclosure framework for public companies, investment advisers and investment companies by reducing their compliance costs while continuing to require that they provide material information in a readable and navigable format to the public.
Among other things, the Proposed Amendments would modify the following sections of Regulation S-K, as well as corresponding SEC rules and regulations relating to such sections:
- Description of Property (Item 102 of Reg. S-K): limit disclosure about a registrant’s physical properties to physical properties that are material.
- Management’s Discussion and Analysis of Financial Condition and Results of Operations (Item 303 of Reg. S-K): require an annual period-over-period comparison of results only for the two most recent fiscal years if (i) a discussion of the results of the earliest year is not material to an understanding of the registrant’s financial statements, and (ii) the registrant has filed its prior year Form 10-K on EDGAR with the discussion of the earliest year, and eliminate the reference to five-year selected financial data for trend information.
- Executive Officer Information (Item 401 of Reg. S-K): clarify that information regarding executive officers is not required in proxy statements if the information was provided in the Form 10-K.
- Section 16(a) Compliance (Item 405 of Reg. S-K): allow issuers to rely upon EDGAR-filed Section 16 reports (Forms 3, 4 and 5) and change required heading to “Delinquent Section 16(a) Reports,” which would be included only if there are such delinquencies.
- Risk Factors (Item 503 of Reg. S-K): remove the risk factor examples provided by the SEC to emphasize the principles-based nature of the disclosure requirement and to focus registrants on their own risk identification processes.
- Exhibits (Item 601 of Reg. S-K): subject to certain conditions, permit the omission of (i) personal information (such as bank account and social security numbers and home addresses), (ii) entire schedules and similar attachments to exhibits unless they contain material information and unless that information is not otherwise disclosed in the exhibit or disclosure document, and (iii) permit registrants to omit confidential information from material contracts where such information is not material and would be competitively harmful if publicly disclosed.
- Incorporation by Reference (Rule 411 under the Securities Act of 1933): require the use of hyperlinks to improve accessibility to previously filed information that is incorporated by reference.
The SEC is seeking public comment on the Proposed Amendments for 60 days after publication in the Federal Register. We anticipate that public commentary on the Proposed Amendments will be favorable and that the SEC will continue to propose additional amendments to its disclosure framework.