SEC Announces Regulatory Agenda
In July 2017 the SEC posted its latest version of its semi-annual regulatory agenda and plans for rulemaking with the U.S. Office of Information and Regulatory Affairs. The agenda is as interesting for what’s on it, as for what isn’t. The semi-annual list only contains 33 legislative action items that the SEC intends to propose or finalize in the next 12 months. The fall 2016 list contained 62 items. As further discussed in this blog, the list does not include proposals on executive compensation, or many other Dodd-Frank mandated rules.
In the preamble to the list it indicates that it was completed in March, when Michael Piwowar was acting Chair of the SEC. Chair Jay Clayton and now Commissioner Michael Piwowar have been publicly like-minded, with a goal of directing the SEC towards assisting in small and emerging business growth and capital raise activities, while remaining tough on fraud. A summary of Chair Clayton’s first public speech as head of the SEC can be read HERE and a summary of Commissioner Piwowar’s words on the U.S. IPO market can be read HERE.
The Unified Agenda of Regulatory and Deregulatory Actions
The Office of Information and Regulatory Affairs, which is an executive office of the President, publishes a Unified Agenda of Regulatory and Deregulatory Actions (“Agenda”) with actions that 60 departments, administrative agencies and commissions plan to issue in the near and long term. The Agenda is published twice a year, though the fall edition contains statements of regulatory priorities and additional information about the most significant regulatory activities planned for the coming year.
The Office of Information and Regulatory Affairs states that the current Agenda “represents the beginning of fundamental regulatory reform and a reorientation toward reducing unnecessary regulatory burden on the American people.” Furthermore, the Office states, “[B]y amending and eliminating regulations that are ineffective, duplicative, and obsolete, the Administration can promote economic growth and innovation and protect individual liberty.”
Executive Orders 13771 and 13777 require agencies to reduce unnecessary regulatory burden and to enforce regulatory reform initiatives. Each agency was requested to carefully consider the costs and benefits of each regulatory or deregulatory action and to prioritize to maximize the net benefits of any regulatory action. The SEC is not the only agency with a reduced Agenda. In total, agencies withdrew 469 actions that were initially proposed in the fall 2016 Agenda. Agencies moved 391 actions to either long-term or inactive. There are only 58 proposed economically significant regulations, about half from last year. Also, adding transparency for those of us who like to stay up on these matters, for the first time, the agencies will post and make public their list of “inactive” rules.
SEC Flex Regulatory Agenda
As mentioned, in the preamble to the list it indicates that it was completed in March, when Michael Piwowar was acting Chair of the SEC, and reflects his priorities. The preamble to the newest agenda is short. The fall 2017 agenda will reflect the priorities of Chair Jay Clayton and contains more information, including “The Regulatory Plan” of the SEC with a statement of regulatory priorities for the coming year.
The newest agenda is in line with the SEC’s new leader’s promise of support to small and emerging companies. It is also in line with the current administration’s lack of support for Dodd-Frank. The list does not include proposed regulatory actions related to pay for performance (see HERE), executive compensation clawback (see HERE), hedging (see HERE), universal proxies (see HERE), and clawbacks of incentive compensation at financial institutions, although many of these items remain on the “long-term actions” schedule.
The SEC rulemaking agenda may not include further rulemaking on many Dodd-Frank rules, but it also does not include specific rulemaking to repeal existing regulations, such as the pay ratio disclosure rules which were adopted in August 2015 and initially applies to companies for their first fiscal year beginning on or after January 1, 2017. See HERE for more information on this rule. The pay ratio rules do not apply to emerging-growth companies, smaller reporting companies, foreign private issuers, U.S-Canadian Multijurisdictional Disclosure System filers, and registered investment companies. All other reporting companies are subject to the new rules. In October 2016 the SEC published five new compliance and disclosure interpretations (C&DI’s) on certain aspects of the final rules. The C&DI’s covered two main topics: (i) the use of a consistently applied compensation measure in identifying a company’s median employee; and (ii) the application of the term “employee” to furloughed employees and independent contractors or “leased” workers.
Interesting items in the final rule stage include disclosure update and simplification (again see summary at end of this blog), simplification of disclosure requirements for emerging-growth companies and forward incorporation by reference on Form S-1 for smaller reporting companies (see HERE), Form 10-K summary, amendments to smaller reporting company definition (see HERE), and regulation of NMS Stock Alternative Trading Systems.
Items of interest in the proposed rule stage include amendments to the interactive data (XBRL) program, amendments to financial disclosures about entities other than the registrant (see HERE), business and financial disclosure required by Regulation S-K (see end of this blog for the most recent summary on Regulation S-K changes), reporting on proxy votes on executive compensation (i.e., say-on-pay – see HERE), transfer agents (see HERE), implementation of FAST Act report recommendations (see HERE), and concept release on possible audit committee disclosures.
Also interesting is the many items that appeared on the proposed rule list in fall 2016 that have now been moved to “long-term actions.” Items moved from proposed to long-term include registration of security-based swaps, universal proxy, corporate board diversity, investment company advertising, personalized investment advice standard of conduct, stress testing for large asset managers, prohibitions of conflicts of interest relating to certain securitizations, commission guidance on definitions of mortgage-related security and small-business-related security, standards for covered clearing agencies, and risk mitigation techniques.
Other items on the long-term action list include pay versus performance, amendments to Regulation D, Form D and Rule 156, hedging disclosures, several securities-based swaps regulatory actions, exchange traded products, and disclosures of payments by resource extraction issuers.
Further Reading on the SEC Disclosure Effectiveness Initiative
I have been keeping an ongoing summary of the SEC’s ongoing Disclosure Effectiveness Initiative. The following is a recap of such initiative and proposed and actual changes. Although the rate of changes has slowed down since the election and change in SEC control regime, I expect it to pick up again. In an upcoming blog, I will be writing about the SEC’s announced Regulatory Flexibility Agenda. The Agenda lists regulations the SEC expects to propose or finalize in the next 12 months. This year’s Agenda only incudes 33 rules (last year’s contained 62), at least 8 of which are related to disclosure requirements.
On March 1, 2017, the SEC passed final rule amendments to Item 601 of Regulation S-K to require hyperlinks to exhibits in filings made with the SEC. The amendments require any company filing registration statements or reports with the SEC to include a hyperlink to all exhibits listed on the exhibit list. In addition, because ASCII cannot support hyperlinks, the amendment also requires that all exhibits be filed in HTML format. See my blog HERE on the Item 601 rule changes.
On August 25, 2016, the SEC requested public comment on possible changes to the disclosure requirements in Subpart 400 of Regulation S-K. Subpart 400 encompasses disclosures related to management, certain security holders and corporate governance. See my blog on the request for comment HERE.
On July 13, 2016, the SEC issued a proposed rule change on Regulation S-K and Regulation S-X to amend disclosures that are redundant, duplicative, overlapping, outdated or superseded (S-K and S-X Amendments). See my blog on the proposed rule change HERE. This proposal is slated for action in this year’s SEC regulatory agenda.
That proposed rule change and request for comments followed the concept release and request for public comment on sweeping changes to certain business and financial disclosure requirements issued on April 15, 2016. See my two-part blog on the S-K Concept Release HERE and HERE.
As part of the same initiative, on June 27, 2016, the SEC issued proposed amendments to the definition of “Small Reporting Company” (see my blog HERE). The SEC also previously issued a release related to disclosure requirements for entities other than the reporting company itself, including subsidiaries, acquired businesses, issuers of guaranteed securities and affiliates. See my blog HERE. Both of these items are slated for action in this year’s SEC regulatory agenda.
As part of the ongoing Disclosure Effectiveness Initiative, in September 2015 the SEC Advisory Committee on Small and Emerging Companies met and finalized its recommendation to the SEC regarding changes to the disclosure requirements for smaller publicly traded companies. For more information on that topic and for a discussion of the Reporting Requirements in general, see my blog HERE.
In March 2015 the American Bar Association submitted its second comment letter to the SEC making recommendations for changes to Regulation S-K. For more information on that topic, see my blog HERE.
In early December 2015 the FAST Act was passed into law. The FAST Act requires the SEC to adopt or amend rules to: (i) allow issuers to include a summary page to Form 10-K; and (ii) scale or eliminate duplicative, antiquated or unnecessary requirements for emerging-growth companies, accelerated filers, smaller reporting companies and other smaller issuers in Regulation S-K. The current Regulation S-K and S-X Amendments are part of this initiative. In addition, the SEC is required to conduct a study within one year on all Regulation S-K disclosure requirements to determine how best to amend and modernize the rules to reduce costs and burdens while still providing all material information. See my blog HERE . These items are all included in this year’s SEC regulatory agenda.
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