On January 6, 2012, the staff of the U.S. Securities and Exchange Commission’s Division of Corporation Finance (the “Staff”) issued guidance regarding disclosures about exposure to the debt of sovereign and non sovereign issuers in Europe. Topic No. 4 of the Staff’s new “CF Disclosure Guidance” series addresses specific concerns about the adequacy of public disclosures made principally by financial institutions regarding their European debt exposures, and the potential consequences of such exposures on those issuers.1 The Staff encourages affected issuers to consider this guidance in preparing their SEC reports, including in the upcoming annual reports for calendar year-end issuers.

The Staff has focused its attention on disclosure about European debt exposure included (or required to be included) in risk factors, management’s discussion and analysis of results of operations and financial condition (“MD&A”), qualitative and quantitative disclosure about market risks (“Market Risk Disclosure”), as well as Industry Guide 3 disclosures required of bank holding companies and similar lending and deposit-taking financial institutions (“Guide 3”). The Staff’s guidance in Topic No. 4 is directed at both U.S. and non-U.S. financial institutions, and the Staff notes that, to date, disclosures about the nature and extent of direct or indirect exposure to European sovereign debt “have been inconsistent in both substance and presentation.” For this reason, the Staff lays out a very specific structure for evaluating what disclosures may be necessary regarding these exposures, based on the Staff’s own experience in commenting on those disclosures that it has, to date, found to be lacking.