SEC Seeks Public Input on Improving Effectiveness of Investor Disclosures
Do you invest in companies listed in the US? If so, the Securities and Exchange Commission (SEC) wants to hear from you.
The SEC published a concept release on 13 April that solicits public input on whether the business and financial disclosure requirements of Regulation S-K can be improved. Regulation S-K specifies the ongoing reporting requirements for the filings of public companies, such as the annual (10-K), quarterly (10-Q), and periodic (8-K) reports.
Why Is This Important to Investors?
- Regulation S-K governs the bulk of the disclosures made available to investors in public companies listed in the US.
- A comprehensive update of the regulation is long overdue.
- This concept release provides investors with the opportunity to offer their views to the SEC on how current disclosures can be improved to better meet their needs.
- Such rules as Regulation S-K were foundational to the creation of the profession of securities analysis and the modern investment profession because they provide the information necessary for the efficient functioning of capital markets.
- The input received on this US legislation, particularly input from investors, is likely to inform regulators globally on concepts and issues important to investors.
Contents of the Concept Release
The concept release focuses on almost all of the disclosures that registrants are required to provide in their various periodic reports to the SEC other than the financial statements themselves, including the following:
- Company performance, financial information, and future prospects (e.g., selected financial data tables and MD&A)
- Core company business information
- Risk factors and risk management
- Public policy and sustainability matters
- Industry guides for the banking, oil and gas, real estate, property and casualty insurance, and mining industries
- Information regarding securities of the registrant
- Information required to be provided in exhibits
The concept release also addresses overarching topics and asks such questions as the following:
- SEC’s Approach to Disclosures: Should the SEC adopt a principles-based or a prescriptive approach to disclosures? Should requirements be scaled for different types of registrants?
- Frequency of Reporting Requirements: Should the frequency of reporting requirements for certain registrants be more frequent (i.e., monthly) or less frequent (i.e., semiannually)?
- Presentation and Delivery of Information to Investors: How can the way in which information is presented and delivered to investors by registrants be improved?
The concept release, published as part of the SEC’s Disclosure Effectiveness Initiative, does not extend to disclosure requirements related to executive compensation and governance (i.e., proxy statements) or to offering-specific disclosure requirements, which generally apply to registration statements and prospectuses.
Our Views and Efforts on Behalf of Members
CFA Institute supports the SEC’s Disclosure Effectiveness Initiative. We believe it is essential to maintain and improve the transparency of information provided by registrants as well as to ensure that disclosure requirements are updated as markets and technology evolve. Based on our years of advocacy efforts and outreach to investors, CFA Institute published Financial Reporting Disclosures: Investor Perspectives on Transparency, Trust, and Volume in late 2013, providing investor and member views on improving disclosure effectiveness for investors. In late 2014, we specifically commented to the SEC in anticipation of this concept release and provided our member and investor views on key issues addressed in the release. Both our letter and our disclosure report are referenced extensively in the concept release.
Investors Have an Opportunity to Shape the New Rules
The SEC will use the input it receives in response to this concept release to evaluate whether to make changes to its disclosure rules. We will be commenting on behalf of our members and investors broadly, and we will be seeking member input in our response. If you would like to assist us with input directly or through participating in a member survey, please email us. Investors may also submit responses directly to the SEC by filing an individual letter. Comments are due within 90 days after the concept release is published in the Federal Register, with a targeted due date of mid-July 2016.
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