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MONTH-IN-BRIEF (Aug 2020)

Securities Regulation

SEC Amends Regulation S-K Disclosure Requirements

By Thomas White, WilmerHale, Retired Partner

On August 26, the Securities and Exchange Commission (“SEC”) adopted amendments to certain disclosures prescribed by the SEC’s Regulation S-K.  The amendments are designed to “modernize” required disclosures regarding description of business, legal proceedings and risk factors.  SEC Chairman Jay Clayton explained, “Building on our time-tested, principles-based disclosure framework, the rules we adopt today are rooted in materiality and seek to elicit information that will allow today's investors to make more informed investment decisions.”

The major changes to the disclosure requirements include:

  • Description of Business—General Development of Business (Item 101(a)): This item will be more principles-based, requiring disclosure of information material to an understanding of the general development of the business.  The current requirement that the discussion cover the prior five years is eliminated.   Subsequent filings will need to update only the most recent full discussion.
  • Description of Business—Narrative Description of Business (Item 101(c)): This item also will be more principles-based.  It will provide a nonexclusive list of disclosure topic examples (drawn in part from topics currently contained in Item 101(c)).  The item adds “human capital resources” as a discussion topic to be included if material.  It also modifies the regulatory compliance disclosure topic to cover all material government regulations, not just environmental laws.  The item immediately below noting these amendments addresses related developments that may continue to impact disclosure on these two topics.
  • Legal Proceedings (Item 103): The revised item will expressly state that required disclosure may be linked or cross-referenced to legal proceedings disclosures located elsewhere in the document.  The quantitative thresholds for disclosure of environmental proceedings are changed.
  • Risk Factors (Item 105): Registrants will be required to include a two-page summary of risk factors where the full discussion of risk factors exceeds 15 pages.  The standard for what risk factors should be disclosed is changed from “most significant” risks to “material” risks.  Registrants will be required to organize their risk factors under appropriate headings and subheadings.

Environmental and Human Capital Disclosures:  Regulation S-K Amendments and Private Market Initiatives

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