SEC revises risk factor, business description and legal proceedings disclosure

Amendments impose additional risk factor burdens and take principles-based approach to other sections

As part of its ongoing review of its disclosure rules, the US Securities and Exchange Commission’s (the “SEC”) recently adopted amendments to Regulation S-K, the principal source for disclosure requirements for US domestic companies, focusing on three disclosure areas: risk factors; description of the business; and legal proceedings. 
The amendments are generally intended to move the disclosure requirements in Items 101, 103 and 105 of Regulation S-K from a prescriptive to a more flexible, principles-based approach. With respect to the risk factors section, however, the amendments impose additional requirements, including a mandatory summary of the principal risk factors if the risk factor section exceeds 15 pages. 
Foreign private issuers – essentially, most non-governmental non-US issuers – will have to comply with the changes to the risk factor requirements, but the amendments to the other sections will not affect them unless they voluntarily choose to comply with US domestic company requirements.  
Also, despite pressure from a number of institutional investors to adopt disclosure rules regarding environmental, social and governance (“ESG”) matters, the new amendments largely avoid ESG except to add a principles-based disclosure requirement for a description of the registrant’s “human capital resources.” Two of the five SEC Commissioners objected to the SEC’s refusal to address climate change or to go further with the human capital disclosure requirements in the amendments. 
The new rules will become effective 30 days after they are published in the Federal Register. 


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