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.