The SEC has adopted rule amendments to simplify disclosure requirements consistent with its mandate under the Fixing America’s Surface Transportation (FAST) Act. The FAST Act was adopted in 2015 and, among other things (such as to provide funding for surface transportation infrastructure) directed the SEC to amend Regulation S-K to reduce the regulatory burden on “emerging growth companies, accelerated filers, smaller reporting companies, and other smaller issuers, while still providing all material information to investors.” SEC staff prepared a report to Congress in 2016 to recommend specific amendments to further this mandate. The adopted rule amendments, as proposed in October 2017, affect filings by investment companies and investment advisers.
The rule amendments are based on these recommendations, and on a broader review of the SEC’s disclosure rules. Among other measures, the amendments:
- Discourage repetition and disclosure of immaterial information. To that end, only newly reporting registrants will be required to file “material contracts” created within two years of the registration statement or report. Additionally, registrants will not be required to file attachments to those agreements if the attachments do not contain material information.
- Introduce flexibility in disclosure of historical periods in the Management’s Discussion and Analysis (MD&A). Registrants could generally omit discussion of the earliest of three years in the MD&A, but only if this information was already included in a prior filing.
- Allow the redaction of confidential information from most exhibits, without the filing of a confidential treatment request. The exemption applies only if the information omitted is not material and would likely cause competitive harm to the registrant if publicly disclosed.
- Require data tagging for items on the cover page of certain filings, and the use of hyperlinks for certain information that is available on the EDGAR database. Registrants will no longer be required to file as an exhibit any document that is incorporated by reference. Instead, they would provide hyperlinks to those documents.
The SEC rule amendments will be implemented in stages:
- The amendments relating to the redaction of confidential information in certain exhibits took effect on April 2, when they were published in the Federal Register.
- Most other amendments will take effect 30 days later; however, both of the following apply:
- The requirement to tag data on the cover pages of certain filings will be phased in over three years.
- The requirement that certain investment company filings be made in HTML format and use hyperlinks will take effect on or after April 1, 2020.
While the amendments were adopted to facilitate the objectives of the FAST Act, they were also intended to simplify and modernize disclosure requirements generally. By removing or clarifying ambiguous requirements, removing redundancies, and leveraging the use of technology, the amendments simplify securities law and reduce the regulatory burden for many registrants.