SEC Securities & Exchange Commission

SEC outlines planned risk disclosure changes

The Securities and Exchange Commission (SEC) is proposing to change its regulations on business, legal proceedings, and risk factor disclosures.

The SEC says that the amendments are intended to improve disclosures for investors and to simplify compliance efforts for registrants. Regulation S-K lays out reporting requirements for various SEC filings used by public companies.

A significant focus of the amendment is on human capital. The regulator hopes to include human capital resources as a disclosure topic, including any human capital measures or objectives that management focuses on, in managing a company, such as those that address the attraction, development, and retention of personnel.

The proposals would revise the current description of risk factors to emphasise a more principles-based approach.

The SEC said this flexible approach, as opposed to prescriptive requirements, would be more effective as businesses differ in terms of which aspects of these disclosures are material to them.

By making it largely principles-based, the SEC would provide a non-exclusive list of the types of information a registrant may need to disclose, and require disclosure of a topic only when the information is material to an understanding of the general development of a registrant’s business.

Other amendments include revising the $100,000 threshold for disclosure of environmental proceedings to which the government is a party, to $300,000 to adjust for inflation.

“The world economy and our markets have changed dramatically in the more than 30 years since the adoption of our rules for business disclosures by public companies,” SEC chairman Jay Clayton said.  

“I applaud the staff for their efforts to modernise and improve our disclosure framework, including recognising that intangible assets, and in particular human capital, often are a significantly more important driver of value in today’s global economy.”

Clayton said that the proposals reflect a “thoughtful mix of prescriptive and principles-based requirements” which should improve disclosures.

The proposals, which are part of a comprehensive evaluation of the SEC’s disclosure requirements, will be subject to a 60-day public comment period following its publication in the Federal Register.

Last Updated: 18 August 2019
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