The SEC Staff’s recently released Report on Review of Disclosure Requirements in Regulation S-K, which was required by Section 108 of the JOBS Act, provides a starting point for revisiting broader issues regarding SEC disclosure. While the JOBS Act mandated that the study review Regulation S-K in the context of the new class of issuers referred to in the JOBS Act as “emerging growth companies,” the Staff decided to look more broadly at the background of the development of disclosure requirements and potential recommendations for revisiting disclosure requirements in a broad manner.
The Staff reviewed, among other things, Regulation S-K, Commission releases and comment letters on Commission regulatory actions pertaining to Regulation S-K. The Staff also reviewed public comments that were submitted regarding Section 108 of the JOBS Act. In light of the focus of the mandate in Section 108 of the JOBS Act, the Staff did not review two subparts of Regulation S-K — Regulation AB and Regulation M-A.
The Staff notes that while the study conducted in connection with the Section 108 report serves as an important starting point, further information gathering and review is warranted in order to formulate specific recommendations regarding specific disclosure requirements. Among the things the Staff will be looking for is “input from market participants is needed to facilitate the identification of ways to update or add requirements for disclosure that is material to an investment or voting decision, ways to streamline and simplify disclosure requirements to reduce the costs and burdens on public companies, including emerging growth companies, ways to enhance the presentation and communication of information and to understand how technology can play a role in addressing any of these issues.” In addition, the Staff notes in the report that economic analysis is necessary to inform any reevaluation of disclosure requirements.
The staff recommends the development of a plan to systematically review the Commission’s disclosure requirements for public companies, including Regulations S-K and S-X, and the related rules concerning the presentation and delivery of information. Among the factors that will be considered in the review are disclosure requirements developed through SEC interpretations, as well external factors that may have contributed to the length and complexity of filings and the costs of compliance (e.g., SEC enforcement actions and judicial opinions). After conducting this sort of review, the Staff would make specific recommendations for proposed rule and form changes.
The staff has identified two alternative frameworks for structuring such a review: a comprehensive approach and a targeted approach. The Staff believes that any such review could be more effective if it addresses the following four issues:
1. An emphasis on a principles-based approach as an overarching component of the disclosure framework.
2. An evaluation of the appropriateness of current scaled disclosure requirements and whether further scaling would be appropriate for emerging growth companies or other categories of issuers.
3. An evaluation of methods of information delivery and presentation, both through the EDGAR system and other means.
4. A consideration of ways to present information that would improve the readability and navigability of disclosure documents, as well as discouragement of repetition and the disclosure of immaterial information.
We expect to hear more from the Staff on these topics as it proceeds with its timely efforts to review and revise the disclosure requirements for public companies.