The SEC has adopted amendments to simplify and modernize disclosure requirements. The amendments, mandated by the 2015 Fixing America's Surface Transportation (FAST) Act modernize and simplify certain disclosure requirements under Regulation S-K, as well as related rules and forms, to reduce costs and burdens, improve readability and navigability, and to provide consistent rules for incorporation by reference and hyperlinking. Highlights include amendments to the Management's Discussion & Analysis and to the confidential treatment process for commercially sensitive information (FAST Act Modernization and Simplification of Regulation S-K, Release No. 33-10618, March 20, 2019).
Proposal based on FAST Act report. In October 2017, the Commission proposed amendments to modernize and simplify disclosure requirements in Regulation S-K and related rules and forms, five as required by Section 72003 of the FAST Act. The proposal itself was based on the Commission's 2016 FAST Act-mandated report to Congress. At the time, Chairman Jay Clayton said that the proposal included improvements in all of the areas in which the FAST Act report recommended action. Comments on the proposing release were largely supportive, and the Commission adopted the majority of the amendments as proposed.
"Investors will benefit from the SEC staff’s exemplary work to improve disclosure,” said SEC Chairman Jay Clayton. “The amendments adopted today demonstrate our focus on modernizing our disclosure system to meet the expectations of today's investors while eliminating unnecessary costs and burdens."
Disclosure simplification. The changes to Regulation S-K are intended to simplify disclosure and the disclosure process. Among other highlights, amendments to Item 303 will increase flexibility in the discussion of historical periods in Management’s Discussion and Analysis by allowing registrants, in certain situations, to exclude discussion of the earliest of three years in the MD&A if they have already included the discussion in any prior EDGAR filing. This would discourage repetition of disclosure that is no longer material, the release observes. The Commission also made conforming changes to the disclosure requirements in Form 20-F.
Confidential information. Next, amendments to Regulation S-K Items 601(b)(2) and 601(b)(10) will reduce registrants' burden in preparing and responding to confidential treatment requests while still providing material information to investors. The revisions will allow registrants to omit confidential information in material contracts and certain other exhibits without submitting a confidential treatment request to the Commission if the information is: (1) not material and (2) likely to be competitively harmful to the registrant if publicly disclosed. The current requirements for marking exhibits subject to confidential treatment remain in place. For the sake of consistency, and for policy reasons, parallel amendments to Forms 20-F, 8-K, N-3, N-4, and N-6 have been adopted.
Financial statements. Other amendments prohibit the incorporation by reference or cross-referencing into financial statements of financial information from other filings. These changes, the Commission says, will reduce potential confusion as what pieces of financial information form a set of audited or reviewed financial statements.
Risk factor examples. The amendments also revise various rules and forms by, among other things, eliminating the disclosure of risk factor examples. The Commission noted that the list of risk examples found in Item 503(c) was unchanged since 1964 and inconsistent with the objective of eliciting more specific and relevant risk factor disclosure. More streamlining occurs in the description of property requirement in Item 102, which has been revised to emphasize the materiality threshold. Certain instructions to Item 102 that relate to specific industries, such as the mining, real estate, and oil and gas industries, have not been changed.
Proposed amendments not adopted. The proposal included an amendment to require registrants that have legal entity identifiers (LEIs) to disclose them. The Commission decided not to adopt these amendments after receiving comments expressing doubts about the costs of acquiring LEIs and the benefits of the information. The proposal also included form amendments to allow registrants to exclude item numbers and captions or to create their own captions, but the Commission concluded that any benefits from these amendments would be outweighed by the risk that the changes could impair an investor’s ability to use and navigate the information efficiently and effectively
Other highlights. The release also includes rule updates to eliminate undertakings in Item 512 that are duplicative of other rules or that have become unnecessary due to developments since their adoption. Finally, the amendments are designed to leverage the use of technology to improve access to information by requiring data tagging for items on the cover page of certain filings and the use of hyperlinks for information that is incorporated by reference and available on EDGAR.
Effective dates. The final rules are effective 30 days after they are published in the Federal Register, except for amendments relating to the redaction of confidential information in certain exhibits—these are effective upon publication. Depending on the nature of the filer, the data-tagging requirements are subject to a three-year phase-in. After April 1, 2020, all registration statement and Form N-CSR filings must be made in HTML format and comply with the rule and form amendments pertaining to the use of hyperlinks.
The Release is No. 33-10618.
Financial statements. Other amendments prohibit the incorporation by reference or cross-referencing into financial statements of financial information from other filings. These changes, the Commission says, will reduce potential confusion as what pieces of financial information form a set of audited or reviewed financial statements.
Risk factor examples. The amendments also revise various rules and forms by, among other things, eliminating the disclosure of risk factor examples. The Commission noted that the list of risk examples found in Item 503(c) was unchanged since 1964 and inconsistent with the objective of eliciting more specific and relevant risk factor disclosure. More streamlining occurs in the description of property requirement in Item 102, which has been revised to emphasize the materiality threshold. Certain instructions to Item 102 that relate to specific industries, such as the mining, real estate, and oil and gas industries, have not been changed.
Proposed amendments not adopted. The proposal included an amendment to require registrants that have legal entity identifiers (LEIs) to disclose them. The Commission decided not to adopt these amendments after receiving comments expressing doubts about the costs of acquiring LEIs and the benefits of the information. The proposal also included form amendments to allow registrants to exclude item numbers and captions or to create their own captions, but the Commission concluded that any benefits from these amendments would be outweighed by the risk that the changes could impair an investor’s ability to use and navigate the information efficiently and effectively
Other highlights. The release also includes rule updates to eliminate undertakings in Item 512 that are duplicative of other rules or that have become unnecessary due to developments since their adoption. Finally, the amendments are designed to leverage the use of technology to improve access to information by requiring data tagging for items on the cover page of certain filings and the use of hyperlinks for information that is incorporated by reference and available on EDGAR.
Effective dates. The final rules are effective 30 days after they are published in the Federal Register, except for amendments relating to the redaction of confidential information in certain exhibits—these are effective upon publication. Depending on the nature of the filer, the data-tagging requirements are subject to a three-year phase-in. After April 1, 2020, all registration statement and Form N-CSR filings must be made in HTML format and comply with the rule and form amendments pertaining to the use of hyperlinks.
The Release is No. 33-10618.