U.S. Securities Law Briefing: SEC Requests Comment on Possible Changes to Industry Guide 3 for Bank Holding Company Disclosure

On March 1, 2017, the U.S. Securities and Exchange Commission ("SEC") voted to publish a request for public comment on disclosures required by Industry Guide 3, Statistical Disclosure by Bank Holding Companies.

Comments are due 60 days after publication of the request in the Federal Register.

Request for Comment

Industry Guide 3 contains the additional disclosure requirements that apply to bank holding companies that are SEC registrants. Although the financial services industry and financial products have evolved significantly in the last few decades, Guide 3 has not been substantively revised since 1986.

The SEC is now seeking comment to assist with updating the disclosure requirements and eliminating disclosure that is duplicative of or overlaps with other disclosure requirements. The SEC is also considering whether the Guide 3 disclosures, which are not technically SEC rules or requirements, should be codified as SEC rules.

Comparison to Other Disclosure Requirements

The request for comment compares the Guide 3 requirements with other disclosure requirements applicable to banks, including federal banking regulations, U.S. GAAP and Basel III, in the following areas:

  • Distribution of assets, liability and stockholders’ equity, interest rate and interest differential; 
  • Investment portfolio;
  • Loan portfolio;
  • Summary of loan loss experience;
  • Deposits;
  • Return on equity and assets; and
  • Short-term borrowings.

Among other things, the SEC requests comment as to whether the Guide 3- mandated disclosures in these areas provide investors with the information

they need and whether other regulatory regimes already require similar disclosures.

Potential New Disclosures

The SEC is also requesting comment on several new disclosure areas, in light of the fact that the scope of activities permitted to bank holding companies has expanded significantly. These new requirements may include:

  • Disclosure of non-interest income activities –Guide 3 currently focuses on interest-earning and interest-bearing activities and does not address other revenues that a bank holding company may earn, even though non-interest income –such as trading revenue, fee income from deposits and servicing income –represented more than 35% of total new operating revenue for all FDIC-insured institutions in the first three-quarters of 2016;
  • Disclosure of risk management, resolution plans and other disclosures not related specifically to the financial statements; and
  • Requiring Guide 3 disclosures to be prepared in XBRL format.

Not Just Bank Holding Companies?

Guide 3 currently only applies to bank holding companies, although the SEC staff has indicated that the disclosures should also be provided by other registrants with material lending and deposit activities.

The SEC is considering whether to expand the applicability of Guide 3 beyond bank holding companies to entities such as marketplace lenders, insurance companies and real estate investment trusts.

It is also requesting comment on whether it should adopt an "activity-based approach" whereby Guide 3 disclosures are required to the extent that investments are material to a registrant’s operations, whether or not the registrant is a bank holding company.

Non-U.S. Registrants

The SEC is also requesting comment on possible changes to how Guide 3 applies to non-U.S. registrants in the following areas:

  • Whether Guide 3 should apply to non-U.S. registrants;
  • Whether to eliminate the accommodation in Instruction 6 of Guide 3, which states that the disclosure requirements only apply to non-U.S. registrants to the extent the information is available or can be compiled with unwarranted or undue burden or expense; and
  • How to deal with the Guide 3 concepts and disclosures that IFRS does not recognize (e.g., nonaccrual) or contradicts IFRS (e.g., IFRS 9).
Size Thresholds and Reporting Periods

Finally, the request for comment also asks whether Guide 3’s scaled disclosure for registrants with less than US$200 million in total assets or less than US$10 million of equity should be scaled even further by shortening the reporting periods.

We will continue to monitor developments in this area and welcome any queries you may have.