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From Securities Regulation Daily, October 15, 2013

White says review of SEC’s disclosure regime a priority

By Jacquelyn Lumb

SEC Chair Mary Jo White today spoke to the National Association of Corporate Directors about information overload and efforts to address it. The JOBS Act requires the SEC to analyze the rules that underlie its disclosure regime. White said the Section 108 staff report will be made public soon and will be the first step in moving to a more optimal disclosure system. She added that a meaningful review of the SEC’s disclosure requirements is among her priorities.

Relevance of disclosure. White said the SEC must ask whether investors benefit from the detailed and lengthy disclosures that companies file with the agency and whether the proliferation of new rules has contributed to information overload. Over the years, the SEC has been asked to reconsider its disclosure requirements and has done so periodically. Many of these reviews have resulted in meaningful change, she said, but a lot remains to be done.

White explored a number of the questions raised by the current disclosure regime, including whether it is providing information that a reasonable investor needs to make investment decisions. Some of the SEC’s requirements may have been appropriate in the past, she said, but may no longer reflect the reality of how businesses operate and how investors use information.

Causes of information overload. White also questioned whether the SEC’s rules are the main cause of disclosure overload or whether other sources contribute to the length and complexity of current disclosures. She said part of the problem may be related to legislative mandates or to companies’ efforts to reduce the risk of litigation. White said it is also worth asking what could be accomplished if companies made an effort to reduce the length of some of the disclosures on their own.

White also pointed to numerous areas in which disclosure is repeated throughout a filing. She said it is time to figure out what investors want and whether certain disclosure requirements can be harmonized to eliminate unnecessary repetition.

Staff guides. The staff typically handles new disclosure areas and hot topics based on the standard of materiality, according to White. For example, cybersecurity attacks were not contemplated when the SEC adopted the risk factor disclosure and MD&A, but the materiality standard governs that disclosure.

The staff also issues tailored guidance to various industries, such as oil and gas, mining and bank holding companies. White noted that all of these industries have changed dramatically since the guides were published, and they may need to be updated. She added that the guides could be updated or they could be adopted as rules.

Access to disclosure. As for access to company information, White said the increasing use of social media to connect with investors raises the question of whether company disclosure that is required by the SEC should be treated differently. The SEC should look at the current timeframes for its rules and forms to determine whether they continue to be appropriate. In some cases, she said investors may benefit from receiving the information sooner than is currently required. However, the SEC also has to consider whether shorter timeframes would impose an undue burden on companies and whether more frequent updates could lead to a decrease in the quality of the information.

White said one area that could be explored is a filing and delivery framework based on the nature and frequency of disclosures, which would include a core document or company profile with information that changes less frequently. Companies would update the core filings with information about securities offerings, financial statements, and significant events, she explained.

White acknowledged that there is not a single system of disclosure that will satisfy everyone. The staff study of Regulation S-K is only the first step, she said, and it will set the stage for the future dialogue regarding the SEC’s disclosure requirements.

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