Friday, July 07, 2017

SIFMA and ABA urge SEC not to expand Guide 3 disclosure requirements

By Jacquelyn Lumb

The Securities Industry and Financial Markets Association and The Clearing House Association L.L.C. have submitted their views to the SEC regarding potential revisions to Industry Guide 3, Statistical Disclosure by Bank Holding Companies, in which they noted that the guide mostly overlaps or duplicates existing disclosure requirements. They recommend that the SEC significantly streamline the guide so that it serves as a “gap filler” for U.S. bank holding companies and that it require only information that is not included in SEC filings and that would be useful and material to investors. The associations added that for foreign banking entities that file on Form 20-F, the SEC should defer to home country practices and eliminate the guide’s applicability to these registrants.

Expansion of available information. The associations pointed to the dramatic expansion of information that is required in SEC filings since the guide was last revised in 1986 and said they see no need for additions to the guide. The existing disclosure requirements already provide adequate regulation, according to the associations. They also oppose the codification of the guide into Regulations S-X or S-K and said it should remain as guidance that provides bank holding companies with the flexibility they need in their approaches to disclosure.

Bank holding companies provide information in Pillar 3 reports which are publicly available, the associations noted. In their view, this information should not be required in SEC filings because it would increase duplicative disclosures while not adding material information. This information is provided for different purposes, they added, and quantitative information that is incorporated by reference from regulatory reports cannot be accompanied by qualitative, contextualizing disclosures.

Opposition to interim disclosures. The associations also wrote that the SEC should not require disclosures in interim periods since it could lead to a lot of duplication, but should conform annual reporting periods to the Regulation S-X requirements as historical data is readily accessible.

Periodic reviews. Guide 3 should continue to apply to bank holding companies and other registrants with material lending and deposit activities since this information is useful to investors, according to the associations. The guide should be reviewed and updated periodically, including the period after the new FASB standards on financial instruments and credit losses are fully implemented. The associations added that the disclosure requirements for the new FASB and IASB standards on financial instruments and credit losses are comprehensive and should not be revised or supplemented at this time.

Opposition to structured data disclosures. Finally, the associations said the Guide 3 disclosures should not be required in structured data format, such as XBRL, since the information is spread throughout SEC filings and does not readily lend itself to the structured data format. The cost of doing so would also be significant, in their view.

ABA’s views. The American Bankers Association also cited the dramatic increase in the availability of financial data, including that in MD&A which has served investors well. The information requirements in Guide 3 often overlap with the information required by U.S. GAAP or MD&A, and given the guide’s prescriptive requirements, some of the key information may lack relevance or confuse investors. ABA said the reduction and elimination of redundancy of prescriptive disclosure requirements should be a priority and any further expansion of the Guide 3 disclosure is unnecessary.

Among ABA’s recommendations are to align the number of years of data presented in Guide 3 with GAAP; align the size thresholds with the current definitions of a smaller reporting company; apply the requirements to non-bank holdings registrants that have significant operations in which credit is provided; not to apply the requirements to interim financial filings; and not to require the information in XBRL format.