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SEC Proposes to Modernize Disclosures of Business, Legal Proceedings, and Risk Factors

​On August 8, 2019, the Securities and Exchange Commission (“SEC") announced that it voted to propose amendments to Regulation S-K (available here) seeking to modernize and simplify the required disclosures by public companies, investment advisors, and investment companies (the “Proposed Amendments").  The Proposed Amendments form part of the SEC's ongoing efforts to simplify disclosure requirements, and, with the exception of Legal Proceedings, emphasize a more flexible, principles-based approach as opposed to prescriptive requirements.  “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.  Today's proposal reflects these significant changes, as well as the reality that there will be changes in the future," said Chairman Jay Clayton.  “I applaud the staff for their efforts to modernize and improve our disclosure framework, including recognizing that intangible assets, and in particular human capital, often are a significantly more important driver of value in today's global economy.  The proposals reflect a thoughtful mix of prescriptive and principles-based requirements that should result in improved disclosures and the elimination of unnecessary costs and burdens."

The Proposed Amendments include the following proposals:

  • Description of the general development of the business (Item 101(a))

    The Proposed Amendments would take a principles-based approach to the Business section disclosure by revising this Item to provide a non-exclusive list of the types of information a registrant may need to disclose, requiring disclosure of a topic only to the extent it is material to the understanding of a registrant's business, and eliminating the prescribed five-year timeframe for disclosure.  In addition, the Proposed Amendments would eliminate year-over-year redundancy in the Business section by permitting a registrant, in filings made after the registrant's initial filing, to provide only an update of the general development of the business that focuses on material developments in the reporting period, so long as the update is accompanied by an active hyperlink to the registrant's most recent filing that, together with the update, would contain the full discussion of the general development of the registrant's business.
  • Narrative description of the business (Item 101(c))

    The Proposed Amendments would revise this Item to include human capital resources as a disclosure topic, such as measures that address attraction, development and retention of personnel to the extent such objectives are material to the understanding of a registrant's business, and include material government regulations as a topic under the regulatory compliance requirement.
  • Legal proceedings (Item 103)

The Proposed Amendments would revise this Item to adjust the threshold for disclosure of environmental proceedings to which the government is a party from $100,000 to $300,000, and allow for hyperlinks and cross-references to legal proceedings disclosure located elsewhere in the document, such as in Management's Discussion & Analysis (MD&A), Risk Factors and notes to the financial statements.  The Proposed Amendments stop short of allowing the legal proceedings disclosure requirement to be met by hyperlinks or cross-references to discussions in other filings.

  • Risk factors (Item 105)

    The Proposed Amendments would revise this Item to require summary risk factor disclosure if the risk factor section exceeds 15 pages, change the disclosure standard from “most significant risks" to “material risks" and prescribe organization under headings, with risks as to investment in securities presented at the end under a separate caption.

The Proposed Amendments will be subject to a 60-day public comment period following their publication in the Federal Register.  Comments may be submitted (1) via the internet at; (2) via e-mail to [email protected] (with “File Number S7-11-19" included on the subject line); or (3) via mail in triplicate to Vanessa A. Countryman, Secretary, Securities and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.  All submissions should refer to File Number S7-11-19.

In light of these Proposed Amendments, registrants should consider how they might impact disclosure in their 2019 Form 10-K if the Proposed Amendments are adopted by the time of filing.

Thanks to Monika Kluziak, corporate associate in our Houston office, for her contributions to this post.

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