Just in time for Small Business Week, the SEC issued a 341-page concept release on disclosure requirements. Their generous gift of rambling, redundant Small Business Week reading material is accompanied with 340 pages of specific requests for comments. Unfortunately, the SEC forgot that every great novel needs a cover, so we provided them with the one pictured above.
Don’t forget the assignment deadline: Businesses have until July 12 to comment on how the SEC wants not only all of their time, but also all of their information.
The areas of Regulation S-K disclosures covered in the concept release include, but are not limited to: reporting frequency, third-party data aggregation, EDGAR reporting, market adaptation, risk factors, risk management, information presentation, SEC industry guides, public policy and sustainability, and management’s discussion and analysis.
A few of the specific requests for input include:
- The SEC seeks input on several alternate approaches to the periodic disclosure regime that could result in less year-to-year repetition and comparison of prior periods and less frequent periodic reporting;
- The concept release requests comments on several new approaches to risk factor disclosure, including presentation of risks based on the order of magnitude and the identification of the ten most important risks to a registrant;
- The concept release seeks comment on potential reforms to the SEC’s rulemaking process designed to allow new disclosure rules to be adopted or to expire in response to a changing market.
The original purpose of Regulation S-K disclosures was to provide investors with information necessary to make informed decisions and to protect businesses against unnecessary risk.
However, the SEC has bloated the standard disclosures, making them unfriendly to the average investor. Additionally, lawyers will use risk factor disclosures for everything they can possibly think of in attempts to better protect the company through redundant discourses.
Opponents of changes to these requirements argue that the SEC’s disclosure framework should focus solely on material information.
It is impossible to streamline disclosure information without first understanding what types of information various types of investors find most useful. The SEC is once again straying from its original intention of consumer protection, resulting in the overregulation of small business.
It is most likely that in an effort to present the most useful information, rather than streamlining disclosures, the SEC will achieve the opposite in an attempt to present as much information as possible. The SEC’s open-ended quest for information only increases the regulatory burden.