Risk-factor disclosures in companies' annual reports to the Securities and Exchange Commission have become so lengthy they are no longer helpful to investors in their current form, Paul Atkins, the agency's chair, told attendees at a conference in Washington, D.C., last week.

The regulator's leadership has been signaling plans to overhaul multiple disclosure requirements during public comments over the last few months, touching on everything from quarterly reporting to executive compensation.

The original intent behind 10-K risk factor disclosures was to provide a "few pages" of bullet points to let investors know what was keeping management "up at night," said Atkins, during a talk at the Council of Institutional Investors' spring conference. He noted that he voted in support of the disclosure requirement – labelled item 1A – when he was an SEC commissioner in 2005.

But over the years, this section has grown to become the single largest section of the average 10-K and is due for a "spring clean," Atkins said, pointing to one power company in Arkansas that filed a 10-K nearly 1,000 pages-long.

Companies, on the advice of their lawyers, now feel obligated to disclose even the most generic of risks, he added. A disclosure today might state something like, "If the government raises the corporate income tax, then your dividend may go down," Atkins said. "Well, duh!"

Atkins in recent public comments has spoken repeatedly about his plan to "make IPOs great again."

The SEC's move to overhaul reporting requirements reflects the agency's desire to boost the number of publicly listed companies by removing regulatory "burdens," said David Bartz, co-head of capital markets at law firm K&L Gates.

Though conversely, the regulator will require additional disclosures from foreign private issuers starting this month, Bartz noted. These companies have had a pared back reporting regime compared to domestic issuers, and the move appears designed to "even the playing field" between foreign and domestic firms, he said.

Other areas the SEC has flagged for change include giving companies the option of moving to semi-annual reporting – a move strongly supported by President Donald Trump – and reducing Regulation S-K disclosure requirements, in areas like cybersecurity policies and related-persons transactions.

The SEC held a roundtable last June examining executive compensation disclosure rules and encouraged public comment. The commission in January also opened up a comment period on reforming Regulation S-K as a whole.

The agency's two other sitting commissioners, Mark Uyeda and Hester Peirce, both Republicans, are supportive of plans to overhaul disclosure requirements, according to comments they've made in recent public statements.

"The Commission must re-establish its focus on financial materiality in its regulatory regime," Uyeda said during a Jan. 26 speech in Coronado, California, according to a transcript published on the SEC's website.

Disclosure reductions will arrive in "targeted pieces" rather than through one sweeping overhaul, Janaya Moscony, the president of SEC3 Compliance and a former SEC staffer, told FundFire in an email.

The entire process could take more than three years, but "hopefully, and more likely" the areas to see change first will be the ones that are widely viewed as costly or duplicative, including Regulation S-K, she said.

"I am very much in favor of weeding out over-disclosure and using materiality standards," Moscony added. "While I read the disclosures thoroughly for our clients and I also did so when I was with the SEC, I can't tell you I have read all the disclosures related to my own personal investments."

SEC Chair Calls for 'Spring Clean' of Risk-Factor Disclosures

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