On 20 March 2019, the SEC adopted final rules amending Regulation S-K and certain other rules and forms to modernise and simplify disclosure requirements. The amendments are intended to streamline disclosures made by public companies to make them more effective and reduce compliance costs while continuing to provide material information to investors.
Key changes effected by the final rules include:
- revising the requirements for the "Operating and Financial Review and Prospects" (OFR) section of annual reports (Item 5 of Form 20-F) to allow companies to exclude a discussion of the earliest of the three years, provided that a discussion of that year has been included in a prior report;
- clarifying that companies do not necessarily need to present the discussion in the OFR section in the format of a year-over-year comparison, but may use any other format that in their judgment enhances a reader's understanding of changes in its financial condition and results of operations;
- allowing companies to redact confidential information from most exhibits to their filings without submitting a request for confidential treatment, provided that the redacted information is not material and that public disclosure would likely cause competitive harm;
- permitting companies to omit entire schedules and similar attachments to any filed exhibits unless the schedules and attachments contain material information that is not otherwise disclosed in the exhibit itself or in the disclosure document;
- revising rules or forms to update, streamline or otherwise improve the SEC's disclosure framework by eliminating the risk factor examples listed in the disclosure requirement;
- clarifying the description of property requirements to emphasise that those disclosures should only include properties that are material to the company;
- and incorporating technology to improve access to information by requiring data tagging for items on the cover page of certain filings and the use of hyperlinks for information that is incorporated by reference and available on EDGAR.
The amendments will become effective 2 May 2019, except for the amendments concerning the redaction of confidential information in material contracts, which are effective as of 2 April 2019. The provisions requiring XBRL (eXtensible Business Reporting Language) data tagging are subject to a three-year phase-in, depending on the filing status of the company.
On 1 April 2019, the SEC published guidance on complying with the new rules allowing issuers to redact nonmaterial competitively sensitive information from material contracts filed as exhibits to SEC reports. In this guidance, the SEC notes that it intends to review for compliance with the new rules by requesting a paper copy of the unredacted exhibit and may ask companies to further substantiate redaction decisions.
The final rule can be accessed here.
Our related client publication is available here.
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