SEC Proposes More Changes to Modernize Regulation S-K Disclosure

On August 8, 2019, the SEC proposed amendments to the description of business, legal proceedings, and risk factor disclosure requirements of Regulation S-K. The proposal is part of the SEC’s ongoing Disclosure Effectiveness Initiative and is intended to improve the readability of disclosure documents, simplify compliance, and discourage repetition and disclosure of information that is not material to investors.  Other than the proposed changes to legal proceedings which continue to reflect a prescriptive-based approach to disclosure, the other amendments would emphasize a more principles-based approach. The proposal is subject to a 60-day public comment period after its publication in the Federal Register.

Among other things, the proposed amendments would revise:

 

Item 101 (Description of business) –

• To make the disclosure topics within this section more principles-based, generally require disclosure only to the extent such information is material to an understanding of the business, and:

  • Provide a non-exclusive list of the types of information that may need to be disclosed;  

  • Include disclosure topics related to:

    • Transactions and events affecting the registrant’s operations (including changes in a previously disclosed business strategy);

    • Human capital resources, including any human capital measures or objectives that management focuses on in managing the business; and

    • Material government regulations (in addition to environmental provisions);

  • Permit registrants to provide only an update of the general development of the business that focuses on material developments in the reporting period with a hyperlink to the previous filing that, together with the update, provides a full discussion of the general development of the business; and

  • Eliminate the prescribed timeframe for this disclosure.

Item 103 (Legal Proceedings) –

• To explicitly state that the required information about material legal proceedings may be provided using hyperlinks or cross-references to legal proceedings disclosure included elsewhere in the filing to avoid duplication; and

• To revise the $100,000 threshold for disclosure of environmental proceedings to which the government is a party to $300,000 to adjust for inflation.

 

Item 105 (Risk Factors) –

• To address the lengthy and generic nature of risk factor disclosure by:

  • Requiring a summary risk factor disclosure if the section exceeds 15 pages;

  • Changing the disclosure standard from the “most significant” factors to the “material” factors required to be disclosed; and

  • Requiring risk factors to be organized under relevant headings with any risk factors that apply to an investment in securities to be disclosed at the end of the risk factor section under a separate caption.