SEC eyes company disclosure changes

Michael Piwowar

The SEC will this week take its next steps toward revamping what information companies must release and how they do so, even as it continues to operate with bare-bones leadership.

Acting agency chair Michael Piwowar told attendees at a Practising Law Institute event on February 24 that the commission will consider four initiatives at an open meeting tomorrow. The SEC, which usually has five commissioners, at present comprises only Piwowar and Kara Stein, but as the sole commissioners they are able to form a quorum.

Piwowar’s comments suggest he is at least likely to support the measures. ‘I am very pleased we have immediate opportunities to seek to provide meaningful disclosure improvements,’ he told the conference.

Specifically, the commissioners will decide whether to adopt a requirement to include a hyperlink to each exhibit listed in the exhibit indices of filings under Item 601 of Regulation SK, or on forms F10 or 20F, and whether to require registrants to submit such registration statements and reports to its Edgar system in HTML format.

The agency’s staff will also ask the commission to consider publishing a request for comment to seek public input about disclosures provided by registrants in the financial services industry. Piwowar noted that the last ‘substantive revisions’ to Industry Guide 3 (statistical disclosure by bank holding companies) were undertaken more than three decades ago.

The commission will then consider whether to propose amendments to require the use of the Inline XBRL format for the submission of operating company financial statement information and mutual fund risk/return summaries. In addition, it will consider whether to eliminate the requirement for filers to post interactive data files on their websites and whether to terminate the SEC’s voluntary program for the submission of financial statement information interactive data.

Piwowar and Stein will further consider whether to propose amendments to Rule 15c2-12. The measure, if ultimately adopted, would add to the list of event notices a broker-dealer or municipal securities dealer acting as an underwriter in a primary offering of municipal securities must reasonably determine that an issuer has undertaken, in a written agreement or contract for the benefit of holders of the municipal securities, to give the Municipal Securities Rulemaking Board.

The SEC took a number of steps last year as part of its disclosure effectiveness review, a broad staff review of the agency’s requirements in the area and the presentation and delivery of disclosures that companies make to investors.

In July, for example, it proposed amendments to eliminate redundant, overlapping, outdated or superseded provisions, given changes to disclosure requirements, US Gaap, IFRS and technology. Among other things, the commission in August sought feedback on disclosure requirements in Subpart 400 of Regulation SK, including those relating to management, certain security holders and corporate governance matters.

Since becoming acting chair, Piwowar has moved against what he regards as over-regulation. In his speech last week, he described the Dodd-Frank Act as ‘rife with examples of burdens’ ultimately borne by investors through shareholder money and company resources being expended to provide non-material disclosures.

In January he asked the SEC staff to consider whether the agency’s 2014 guidance on the conflict minerals rule ‘is still appropriate and whether any additional relief [may be] appropriate.’ Last week he said, ‘[W] hatever the purported benefits of the rule may be, I believe it is categorically wrong to use shareholder assets to fund a humanitarian effort better left to executive agencies with the requisite experiential knowledge.’

Earlier this month, he asked for public comment on any ‘unexpected challenges’ encountered in the implementation of the SEC pay ratio rule, and directed the staff ‘to reconsider the implementation of the rule based on any comments submitted, and to determine as promptly as possible whether additional guidance or relief may be appropriate.’