SEC Proposes Amendments to Regulation S-K to Modernize Disclosures of Business, Legal Proceedings and Risk Factors
On August 8, the SEC proposed amendments to modernize the description of business (Item 101), legal proceedings (Item 103) and risk factor disclosures (Item 105) that registrants are required to make pursuant to Regulation S-K. These disclosure items have not undergone significant revisions in over 30 years, and the proposed amendments are intended to update the SEC’s rules to account for current business and regulatory realities, to improve the readability of these disclosures for investors and to simplify compliance for registrants.
The SEC’s press release quotes Chairman Jay Clayton: “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 … [and the proposed amendments] reflect a thoughtful mix of prescriptive and principles-based requirements that should result in improved disclosures and the elimination of unnecessary costs and burdens.”
Among other things, the proposed amendments would:
- Include human capital resources as a disclosure topic under Item 101(c);
- Refocus the regulatory compliance requirement within Item 101(c) to include all material government regulations, not just environmental provisions;
- Require summary risk factor disclosure under Item 105 if the risk factor section exceeds 15 pages; and
- Change Item 105’s disclosure standard from the “most significant” risks to the “material” risks, with the aim of reducing the amount of risk factor disclosure that is not material and potentially shortening the length of the risk factor discussion.
The proposal is subject to a 60-day public comment period.