SEC Adopts FAST Act Amendments to Modernize and Simplify Disclosure Requirements
The Situation: The U.S. Securities and Exchange Commission ("SEC") adopted amendments to modernize and simplify disclosure requirements in Regulation S-K and certain related rules and forms.
The Result: The amendments seek to improve investors' readability and accessibility to information with changes to the requirements around, among other things, a registrant's management discussion and analysis ("MD&A"), inclusion of confidential information in material contracts and certain other exhibits, incorporation by reference, and Inline XBRL tags.
Looking Ahead: While these amendments may streamline or reduce specified disclosure requirements, registrants will still need to assess materiality in drafting their SEC filings.
On March 20, 2019, the SEC adopted amendments to Regulation S-K and certain related rules and forms which, among other things:
- Amend certain burdensome or repetitive disclosure requirements to improve the quality and navigability of disclosure in filings, and reduce the costs and burdens on registrants.
- Eliminate and/or amend certain outdated and unnecessary disclosure requirements to increase the ability of investors to access and analyze all material information, and to further leverage the use of technology.
The amendments, adopted more than one year after their initial proposal in October 2017, are a part of the SEC's ongoing efforts under its Fixing America's Surface Transportation Act ("FAST Act") mandate and Disclosure Effectiveness Initiative to improve disclosure effectiveness and simplify compliance while continuing to ensure that investors receive all material information. The amendments will become effective on May 2, 2019, except that: (i) the rules regarding the redaction of confidential information in certain exhibits were effective on April 2, 2019, upon publication in the Federal Register; and (ii) the requirements to tag data in certain filings are subject to a three-year phase-in.
SUMMARY OF THE AMENDMENTS
The following summary highlights some of the noteworthy amendments that will affect a registrant's typical SEC disclosures.
MD&A (Item 303).
- Omission of Earliest Year. Under the current rules, registrants generally provide a discussion covering the three-year period of the financial statements with year-to-year comparisons. The amendments allow registrants to eliminate the discussion of the earliest of the three years if such a discussion was included in a prior EDGAR filing. Registrants relying on this amendment must identify the location in the prior filing where the discussion of the earliest year may be found.
- MD&A Presentation and Other. Additional amendments allow registrants to use any presentation, in lieu of the year-to-year comparisons, that, in their judgment, enhances a reader's understanding of the registrant's financial condition, changes in financial condition, and results of operations. The SEC anticipants that registrants will largely continue to present year-to-year comparisons. The amendments also eliminate the reference to five-year selected financial data for trend information as the disclosure of known trends and uncertainties is already required by Item 303.
Exhibits (Item 601).
- Omission of Confidential Information. The amendments allow registrants to redact or omit confidential information in acquisition agreements and material contracts filed as exhibits, without submitting a confidential treatment request, if such information is immaterial and would likely cause competitive harm to the registrants if publically disclosed and the registrant follows certain procedural requirements in redacting the information.
- Omission of Attachments. The amendments extend the accommodation previously available only for schedules to acquisition agreements and permit registrants to omit entire schedules or similar attachments to any filed exhibits unless the schedules or attachments contain material information not otherwise disclosed in the exhibit or disclosure document. Registrants are still required to file a list identifying the content of omitted schedules or attachments with the exhibit and furnish them if requested.
- Omission of Personally Identifiable Information. The amendments also codify the current SEC practice allowing registrants to omit personally identifiable information from exhibits without submitting a confidential treatment request.
- Elimination of Two-Year Look-Back. The current rules require registrants to file material contacts entered into within the previous two years or to be performed, at least in part, after the filing. The amendments eliminated the two-year look-back period for filing material contracts not made in the ordinary course of business for registrants other than newly reporting registrants.
In addition, the amendments made additional changes to increase accessibility to information and minimize immaterial disclosure.
- Risk Factors (Item 503). The amendments relocated the risk factors disclosure requirement from Item 503(c) to a new Item 105 and eliminated the examples of possible risk factors. The elimination of examples reinforced the SEC's principle-based approach to encourage registrants to disclose risks tailored to their business and particular circumstances.
- Description of Property (Item 102). The amendments narrow physical property disclosure to a materiality standard, allowing for a uniform standard for the disclosure.
- Section 16 Filers (Item 405). The amendments modify the proxy statement heading requirement in Item 405(a)(1) from "Section 16(a) Beneficial Ownership Reporting Compliance" to the more specific "Delinquent Section 16(a) Reports," and since the modified heading is more specific, registrants without Section 16(a) delinquencies may exclude this heading in their proxy statements. The amendments also eliminate the checkbox on the cover page of Form 10-K to indicate delinquent Section 16 filers.
- Trading Information. The amendments require registrants to disclose the following on the cover page of Form 10-K, Form 10-Q, Form 8-K, Form 20-F, and Form 40-F: (i) the national exchange or principal U.S. market on the form for their securities; (ii) their trading symbol; and (iii) the title of each class of securities.
- Data Tagging. The amendments require all information on the cover pages of Form 10-K, Form 10-Q, Form 8-K, Form 20-F, and Form 40-F to be tagged in Inline XBRL.
- Incorporation by Reference Rules. The amendments eliminate the rules requiring registrants to file documents incorporated by reference as an exhibit. Instead, registrants may provide hyperlinks to these documents.
Read the full text of the final amendments here.
Two Key Takeaways
- While these amendments may streamline or reduce specified disclosure burdens, registrants will still need to assess materiality in drafting their SEC filings, including any changes implemented to their MD&A, for potential omissions.
- Going forward, among other things, registrants should consider the materiality of any changes in their exhibit disclosure practices based on their preferences to include or omit confidential information and also ensure they implement the electronic tagging and hyperlink requirements to allow for more accessibility to material information.
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