In a recent speech, SEC Chairman Jay Clayton emphasized three areas of risk disclosure that the SEC will monitor in the upcoming filing season: (1) Brexit, (2) the transition away from LIBOR in financial contracts and (3) cybersecurity. The following points from this speech provide insight into what the SEC staff may be looking for in reviewing companies' public disclosures, in particular in the "Risk Factors" and "Operating and Financial Review and Prospects" sections of Form 20-F and other company reports.

Brexit

Chairman Clayton stated he believed that the potential impact of Brexit has been understated, and indicated that the SEC will focus on disclosure regarding risks and uncertainties faced by SEC reporting companies in connection with the United Kingdom's exit from the European Union.

Chairman Clayton noted that:

  • he has directed the SEC staff to focus on disclosures companies make about Brexit; and
  • in contrast to some existing disclosures that simply state that Brexit presents a risk, he would like to see more robust disclosure regarding management's consideration of Brexit and its potential impact on companies and their operations.

Transition away from LIBOR

With LIBOR set to be phased out by 2021, the SEC will be looking to ensure that companies have planned and are acting accordingly.

Specifically, disclosures should address the following:

  • For companies with floating rate obligations tied to LIBOR, does the documentation provide fallback language?
  • If so, will it work in such a situation?
  • Will consents be needed to amend the documentation, and have market participants considered the difficulty and costs associated with obtaining such consents?

Cybersecurity risk

From a disclosure perspective, key takeaways include:

  • The importance of sufficiently informing investors of cybersecurity risk
  • Ensuring that disclosure controls and procedures are in place for the disclosure of material cybersecurity events, as well as policies that protect against corporate insiders trading in advance of company disclosures of material cyber incidents.

For further guidance, the SEC has issued interpretive guidance to assist public companies in preparing their disclosures on cybersecurity risks, which is accessible here.

Chairman Jay Clayton's speech is available here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.