On August 26, 2020, the SEC announced the adoption of amendments to Regulation S-K, the “general” regulation covering disclosure under the federal securities laws. The items amended are 101 (description of business), 103 (legal proceedings), and 105 (risk factors). As expected, and as indicated in the SEC’s August 2019 proposing release, the amendments continue the SEC’s increasing reliance upon principles-based, rather than rules-based, disclosure regulation.
The amendments will be effective 30 days following publication in the Federal Register – in other words, they will be in place for the next annual reporting season for calendar-year companies.
The major changes resulting from the amendments include the following:
- In Item 101, the current requirement to disclose the development of the business over the past five years will be replaced with a “materiality framework.” Companies will also be able to report on material developments since the most recent full discussion of the development of the business, rather than having to repeat disclosures in prior filings. Notably, companies will be required to discuss material changes to a previously disclosed strategy – believed to be the first time strategy has been addressed in SEC disclosure requirements.
- Item 101 will also contain a non-exclusive list of disclosure topics, rather than specify every matter for which disclosure is required. Those topics include human capital management (if material) – another first – and material government regulations (rather than just environmental laws).
- Item 103 will expressly permit disclosure by hyperlink or cross-reference to legal proceedings disclosure elsewhere in a document, hopefully eliminating the verbatim repetition of identical, and often lengthy, disclosures in 10-Ks and other filings. The amendments also modify the disclosure thresholds for governmental environmental proceedings.
- Item 105 will require a summary of risk factor disclosures if the risk factor section exceeds 15 pages and will require risk factors to be disclosed under separate captions.
A more detailed discussion of the amendments will appear in an upcoming posting on the Securities Edge blog.
In the interim, please direct any questions or observations to Gunster securities law and corporate governance practice leader Bob Lamm.
