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SEC Staff Views & Speeches - Page 6

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The Auditor’s Responsibility for Fraud Detection, Paul Munter, Acting Chief Accountant, Office of the Chief Accountant

Auditor Independence and Ethical Responsibilities: Critical Points to Consider When Contemplating an Audit Firm Restructuring, Paul Munter, Acting Chief Accountant, Office of the Chief Accountant

The Critical Importance of the General Standard of Auditor Independence and an Ethical Culture for the Accounting Profession, Paul Munter, Acting Chief Accountant, Office of the Chief Accountant

“The Name’s Bond:" Remarks at City Week, Gary Gensler, Chairman - April, 2022

Resolving the Lack of Audit Transparency in China and Hong Kong: Remarks at the International Council of Securities Associations (ICSA) Annual General Meeting by YJ Fischer, Director, Office of International Affairs

Remarks at Securities Enforcement Forum West 2022 by Gurbir S. Grewal, Director, Division of Enforcement

May 03, 2022: Sample Letter to Companies Regarding Disclosures Pertaining to Russia’s Invasion of Ukraine and Related Supply Chain Issues 

Assessing Materiality: Focusing on the Reasonable Investor When Evaluating Errors, Paul Munter, Acting Chief Accountant, Office of the Chief Accountant

Business Combinations –SEC Staff Updates Compliance and Disclosure Interpretations

The Shareholder Proposal Rule: A Cornerstone of Corporate Democracy by Renee Jones, Acting Chief Accountant

Release No. 34-94615: Rules Relating to Security-Based Swap Execution and Registration and Regulation of Security-Based Swap Execution Facilities 

Release No. 34-94524: Further Definition of “As a Part of a Regular Business” in the Definition of Dealer and Government Securities Dealer 

Release No. 33-11048: Special Purpose Acquisition Companies, Shell Companies, and Projections 

Release No. 34-94499: Removal of References to Credit Ratings From Regulation M 

Release No. 33-11042: The Enhancement and Standardization of Climate-Related Disclosures for Investors 

Release No. 33-11038: Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure

Release No.33-11047: Technical Amendments to Commission Rules and Forms 

Release Nos. 33-11043: Adoption of Updated EDGAR Filer Manual 

Staff Accounting Bulletin No. 121 

SEC Staff Views: Staff Report on Nationally Recognized Statistical Rating Organizations 

SEC Staff Speeches: Statement on the FASB’s Agenda Consultation: Engagement with Investors and Other Stakeholders Vital to Development of High Quality Accounting Standards by Paul Munter, Acting Chief Accountant 

SEC Staff Views: Announcement Regarding Staff Responses to Rule 14a - 8 No -- Action Requests

SEC Staff Views: December 21, 2021: Sample Letter to China-Based Companies SEC Staff Views: Staff Statement Regarding Form CRS Disclosures

SEC Staff Speeches: Statement of Commissioner Elad L. Roisman, Elad L. Roisman, Commissioner - December, 2021 

SEC Staff Views: Announcement Regarding Personally Identifiable and Other Sensitive Information in Rule 14a-8 Submissions and Related Materials

SEC Staff Speech, Falling Further Back - Statement on Chair Gensler’s Regulatory Agenda, Hester M. Peirce and Elad L. Roisman, Commissioner - December, 2021 

SEC Staff Speech, Virtual Remarks at the Center for American Progress and Sierra Club: Down the Rabbit Hole of Climate Pledges, Caroline Crenshaw, Commissioner - December, 2021

SEC Staff Views: Announcement Regarding Staff Responses to Rule 14a-8 No-Action Requests SEC Staff Views: Remarks Before the Healthy Markets Association Conference, Gary Gensler, Chairman - December, 2021

SEC Staff Views: Staff Accounting Bulletin No. 120 SEC Staff Views: SEC Staff Statement on LIBOR Transition - Key Considerations for Market Participants

SEC Staff Views: AICPA & CIMA Conference on Current SEC and PCAOB Developments - 2021

SEC Staff Views: The Lessons of Structured Data, Caroline Crenshaw, Commissioner - November, 2021

SEC Staff Views: Remarks at the PepsiCo-PwC CPE Conference: Controlling Internal Controls, Caroline Crenshaw, Commissioner - November, 2021

SEC Staff Views: President’s Working Group Report on Stablecoins, Gary Gensler, Chairman - November, 2021

SEC Staff Views: Prepared Remarks Before the SIFMA Annual Meeting, Gary Gensler, Chairman - November, 2021  

SEC Staff Views: Statement regarding Shareholder Proposals: Staff Legal Bulletin No. 14L, Gary Gensler, Chairman - November, 2021 

SEC Staff Views: Statement on PCAOB Rule 6100 to Fulfill Obligations under the HFCAA, Gary Gensler, Chairman - November, 2021 

SEC Staff Views: The Importance of High - Quality Independent Audits and Effective Audit Committee Oversight to High Quality Financial Reporting to Investors by Paul Munter, Acting Chief Accountant 

SEC Staff Views: Staff Report on Equity and Options Market Structure Conditions in Early 2021  

SEC Staff Views: Prepared Remarks at SEC Speaks, Gary Gensler, Chairman - October, 2021 

Stablecoins –SEC Chair Gensler Comments on President’s Working Group Report on Stablecoins 

SEC Staff Views: October 1, 2021: Sample Letter to Companies Regarding Climate Change Disclosures 

SEC Staff Views: Remarks Before the Alternative Reference Rates Committee’s SOFR Symposium, Gary Gensler, Chairman - September, 2021 

SEC Staff Views: Statement Regarding Information Bundling and Corporate Penalties, Caroline Crenshaw, Commissioner - September, 2021 

SEC Staff Views: The FINRA Certified Regulatory and Compliance Professional Program Georgetown University, Hester M. Peirce, Commissioner - July, 2021 

SEC Staff Views: Prepared Remarks Before the Principles for Responsible Investment “Climate and Global Financial Markets” Webinar, Gary Gensler, Chairman - July, 2021

SEC Staff Views: Statement on the IFRS Foundation’s Proposed Constitutional Amendments Relating to Sustainability Standards, Hester M. Peirce, Commissioner - July, 2021 

SEC Staff Views: Prepared Remarks for National Whistleblower Day Celebration, Gary Gensler, Chairman - July, 2021 

SEC Staff Views: Remarks Before the Aspen Security Forum, Gary Gensler, Chairman - August, 2021

Statement on the IFRS Foundation’s Proposed Constitutional Amendments Relating to Sustainability Standards, Hester M. Peirce, Commissioner - July, 2021 

SEC Staff Views: Climate, ESG, and the Board of Directors: “You Cannot Direct the Wind, But You Can Adjust Your Sails”, Allison Herren Lee, Commissioner - June, 2021 

Cryptocurrencies –SEC Chair Gensler Urges Stronger Investor Protections for Crypto 

Financial Markets –SEC Commissioner Peirce Discusses Financial Markets 

SPACs, IPOs and Liability Risk under the Securities Laws,John Coates, Acting Director, Division of Corporation Finance 

SEC Staff Speech, Public Input Welcomed on Climate Change Disclosures, Allison Herren Lee, Chairman - March, 2021 

SEC Staff Views: Staff Guidance on EDGAR Filing of Form C 

SEC Staff Speech, Division of Corporation Finance - CF Disclosure Guidance Official Text 

SEC Staff Speech, AICPA National Conference on Current SEC and PCAOB Developments - 2020 

SEC Staff Speech, Statement on Developments Related to the LIBOR Transition by Chairman Jay Clayton 

SEC Staff Speech, Topic No. 10: Disclosure Considerations for China-Based Issuers

SEC Staff Speech, The Regulation of Corporation Finance – A Principles-Based Approach by William Hinman Director, Division of Corporation Finance 

SEC Staff Speech, Transitional FAQs Regarding Amended Regulation S-K Items 101, 103 and 105

SEC Staff Speech, Modernization of Regulation S-K Items 101, 103, and 105 a Small Entity Compliance Guide

SEC Staff Speech, When the Nail Fails – Remarks before the National Society of Compliance Professionals by Commissioner Hester M. Peirce 

SEC Staff Speech, Volume, Value, and Impact: Remarks by the SEC Ombudsman Tracey L. McNeil 

SEC Staff Speech, Remarks At SEC Speaks 2020 by Commissioner Elad L. Roisman 

SEC Staff Speech, An Update on FY 2020 Results - Remarks at SEC Speaks by Chairman Jay Clayton 

SEC Staff Speech, The Car Talk of Capital Raising by Martha Miller, Advocate for Small Business Capital Formation 

SEC Staff Speech, Intellectual Siren Song by Commissioner Hester M. Peirce 

SEC Staff Speech, Diversity Matters, Disclosure Works, and the SEC Can Do More: Remarks at the Council of Institutional Investors Fall 2020 Conference by Commissioner Allison Herren Lee 

SEC Staff Speech, CAQ SEC International Practices Task Force 

SEC Staff Speech, Keynote Address - Regulating with our Eyes on the Future by Dalia Blass Director, Division of Investment Management 

SEC Staff Speech, Remarks at U.S. Treasury Market Conference by Commissioner Elad L. Roisman 

SEC Staff Speech, Cybersecurity - Safeguarding Client Accounts Against Credential Compromise 

SEC Staff Speech, CF Disclosure Guidance Topic: Topic No.7: Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b 2 

SEC Staff Speech, Statement on SEC Response to the Report of the President’s Working Group on Financial Markets by Chairman Jay Clayton 

SEC Enforcement – SEC Commissioner Peirce Discusses Views on Recent SEC Enforcement Case 

ESG – SEC Commissioner Roisman Discusses Environmental, Social and Governance Factors 

Financial Reporting – SEC Chief Accountant Emphasizes the Continued Need for High Quality Financial Reporting 

SEC Staff Speech, Emerging Market Investments Entail Significant Disclosure, Financial Reporting and Other Risks; Remedies are Limited by Chairman Jay Clayton 

Emerging Market Investments – SEC Chairman and Others Caution of Risks Associated with Emerging Market Investments 

Audit Firms – SEC Publishes Statement on Continued Dialogue with Audit Firm Representatives on Audit Quality in China and Other Emerging Markets 

SEC Staff Speech, Running on Empty: A Proposal to Fill the Gap Between Regulation and Decentralization by Commissioner Hester M. Peirce 

SEC Staff Speech, Staff Legal Bulletin No. 21 

SEC Staff Speech, Myths and Realities: Modernizing the Proxy Rules by Commissioner Elad L. Roisman 

SEC Staff Speech, Learning from Miami’s Emprendimientos by Martha Miller, Advocate for Small Business Capital Formation 

SEC Staff Q&A: Frequently Asked Questions on Regulation Best Interest 

SEC Staff Speech, Mochas, Mariners, and Morality - Remarks before the National Economists Club by Commissioner Hester M. Peirce 

SEC Staff Speech, What You Don’t Know Can Hurt You by Stephanie Avakian, Co-Director, Division of Enforcement 

SEC Staff Views, Division of Trading and Markets - Background Paper on the Market Structure for Thinly Traded Securities 

SEC Staff Speech, Start Off by Making Your Bed: Translating Military Lessons to Entrepreneurship by Martha Miller, Advocate for Small Business Capital Formation 

SEC Staff Speech, Dual-Class Shares: A Recipe for Disaster by Rick Fleming, Investor Advocate 

SEC Staff Views, Staff Legal Bulletin No. 14K 

Articles

The Auditor’s Responsibility for Fraud Detection, Paul Munter, Acting Chief Accountant, Office of the Chief Accountant

Summary - SEC Acting Chief Accountant, Paul Munter, recently shared his perspectives on the auditor’s responsibility for fraud detection. Munter indicates that “Auditors are gatekeepers and therefore the importance of their responsibilities with respect to the identification of risks of material misstatement due to fraud (“fraud risks”) and the detection of material misstatements in the financial statements due to fraud should not be underestimated. This is particularly true because any changes to the macroeconomic and geopolitical environment in which companies operate may result in new pressures, opportunities, or rationalizations for fraud.”

Munter’s comments focus on the following topics:

The auditor’s responsibilities with respect to fraud, including observations of some auditor shortcomings;
How the auditor’s responsibilities are incorporated currently in the PCAOB standards, including the PCAOB’s quality control standards; and
Reminders on good practices.

Key observations by Munter and the Office of the Chief Accountant (OCA) includes:

An auditor should avoid exhibiting bias, which may result from focusing the risk assessment and the related audit response on risks of error and overlooking or failing to identify the fraud risks. It is critical that auditors evaluate whether information gathered throughout the audit indicates that one or more fraud risk factors are present and how fraud could be perpetrated or concealed by management.

An auditor’s consideration of fraud is incorporated into many PCAOB auditing standards. OCA emphasizes that the auditor’s risk assessment and use of the fraud lens is an ongoing and iterative process that continues until the issuance of the audit report.
A strong system of audit firm quality controls enables individual auditors to successfully perform their responsibilities with respect to fraud in the audit. Auditors may face pressures from various sources, both internal and external, during the audit. These pressures can distract an auditor from appropriately identifying and responding to fraud risks thereby reducing the likelihood that the auditor will detect material misstatements in the financial statements resulting from fraud.

Auditors should be skeptical of evidence provided by management when the timing or manner in which such evidence is produced is questionable. This may include invoices for large amounts with vague descriptions, invoices with related parties with descriptions that are outside of the normal course of business, or “new” evidence provided by management in the late stages of the audit to address a potentially difficult or contentious audit matter. Auditors should avoid any assumptions of honesty, be mindful of potential unconscious biases, and apply the appropriate level of professional skepticism.

It is critical for auditors to be alert to financial reporting areas that may be more frequently related to fraudulent schemes, such as improper revenue recognition and the intentional misstatement of accounting estimates.

Auditors should avoid using the examples of fraud risk considerations and related responses included within the auditing standards as an exhaustive checklist. Audit responses should be tailored to the identified fraud risk and dynamic to changing business environments if auditors are to fulfill their professional responsibilities to consider fraud and to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether caused by fraud or error.

Access to granular data and information can increase transparency into underlying transactions, which through the use of technology may provide useful insights to assist with identifying unusual or unexpected relationships or helping auditors in performing more robust planning analytics. That said, it is important to remember that the use of technology is most effective when combined with sound professional judgment and other audit procedures that do not lend themselves to the use of technology.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Auditor Independence and Ethical Responsibilities: Critical Points to Consider When Contemplating an Audit Firm Restructuring, Paul Munter, Acting Chief Accountant, Office of the Chief Accountant

Summary - The SEC’s Acting Chief Accountant, Paul Munter, recently discussed auditor independence and ethical responsibility considerations in the context of audit firm restructuring transactions. Munter indicates that the SEC’s Office of the Chief Accountant (OCA) has observed “audit firms exploring the sale of a portion of their business to an external party while retaining an equity interest or other form of continuing involvement in that business, or divesting all or portions of the accounting firm’s consulting practice to a third-party entity. While such contemplated sale and divestiture deals are not new, in the view of OCA staff, complex transactions with investors that are not traditional accounting firms, and have not previously been subject to the same independence and ethical responsibilities, elevate the risk to an auditor’s independence with respect to its audit clients. In these complex practice structures and divestitures, it is paramount that the accounting firm fully understands its responsibility for maintaining auditor independence and it discloses such requirements to the non-accounting firm investors involved in the transaction so that the accounting firm can obtain the information necessary to fulfill its responsibilities.”

OCA has observed that recent contemplated transactions by accounting firms may involve private equity or other investment structures purchasing ownership interests in the accounting firm. Munter cautions that, ‘When an accounting firm is considering obtaining an investment from a private equity or other investment structure, each entity within such structure would need to be carefully evaluated to determine if the entity is an ‘associated entity’ and is therefore part of the accounting firm for purposes of assessing potential impacts on, among other things, compliance with the Commission’s auditor independence requirements.”

Munter discussed the following broad topics in relation to auditor independence considerations related to audit firm restructuring transactions:

  • OCA staff observations related to these transactions;
  • Additional challenges from private equity investment; and
  • Divestiture of a portion of a business.

Munter reminds accountants of the requirement to be independent in both fact and appearance, and when auditor independence is a close-to-the-line call, accounting firms need to have a strong culture and tone at the top that prioritizes independence and ethical responsibilities above all else.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

The Critical Importance of the General Standard of Auditor Independence and an Ethical Culture for the Accounting Profession, Paul Munter, Acting Chief Accountant, Office of the Chief Accountant

Summary - The SEC’s Acting Chief Accountant, Paul Munter, recently discussed the importance of the general standard of auditor independence and fostering an ethical culture. Munter indicates that high-quality audits are “critical to the process of providing decision-useful financial information for the benefit of investors, and auditors serve an important gatekeeping and investor protection function by helping to ensure that issues are promptly identified and addressed. The Commission has long-recognized that audits by professional, objective, and skilled accountants that are independent of their audit clients contribute to both investor protection and investor confidence in the financial statements.”

Specific topics discussed by Munter included:

The auditor independence framework of rule 2-01(b) of Regulation S-X;
The office of the chief accountant’s approach to auditor independence consultations;
Certain recurring issues in recent oca staff auditor independence consultations; and
The paramount importance that accounting firms foster an ethical culture with respect to auditor independence and fulfill their professional responsibilities.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

“The Name’s Bond:" Remarks at City Week, Gary Gensler, Chairman - April, 2022

Summary - SEC Chair Gary Gensler recently discussed his views on the oversight of U.S. fixed income markets. Gensler indicated that given the “sheer size and importance of the fixed income markets, I think we should focus on how we can make improvements to them.” Topics discussed by Gensler included:

  • Transparency in the markets;
  • Trading platforms;
  • Enhancing resiliency of the fixed income markets.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Resolving the Lack of Audit Transparency in China and Hong Kong: Remarks at the International Council of Securities Associations (ICSA) Annual General Meeting by YJ Fischer, Director, Office of International Affairs

Summary - YJ Fischer, SEC Director of the Office of International Affairs, recently discussed recent regulatory developments related to the lack of US inspections of audits and investigations in China and Hong Kong, and the implications for continued trading of China-based issuers on US exchanges. Fischer indicated that for “more than a decade, local authorities in those jurisdictions have hampered the Public Company Accounting Oversight Board’s (“PCAOB”) ability to obtain audit work papers and interview audit engagement personnel as statutorily mandated. This situation is untenable because, among other things, it exposes US investors to significant risks.”

Fischer’s comments focused on and emphasized the following points:

  • PCAOB-registered public accounting firms must provide the PCAOB with access to their audit work papers, and, any claim that audit work papers cannot be produced because they contain national security materials is questionable at best;
    Although there have been ongoing and productive discussions between US and Chinese authorities regarding audit inspections and investigations, significant issues remain and time is quickly running out
  • Even if US and Chinese authorities reach an agreement in the near future to commence PCAOB audit inspections and investigations in China and Hong Kong—and I want to emphasize this point—such an agreement will only be the start towards satisfying the PCAOB’s statutory mandate; and
  • Should the issuers or the relevant Chinese authorities wish, they can effectuate the voluntary delisting of China-based issuers that they deem “too sensitive to comply” with PCAOB requirements, but allow other companies and audit firms to comply fully with the PCAOB inspection and investigative processes, thereby allowing the remainder of China-based issuers to avoid potential trading prohibitions in the US.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Remarks at Securities Enforcement Forum West 2022 by Gurbir S. Grewal, Director, Division of Enforcement

Summary - Gurbir S. Grewal, Director of SEC Enforcement, recently discussed the SEC Division of Enforcement’s role in increasing public confidence in our markets and in government. Grewal indicated that one important factor in building this confidence is the SEC’s investigation process, which he believes should move quickly and efficiently.

Grewal provided his thoughts on aspects of the SEC’s investigation process, including views on:

  • Document productions;
  • Defense counsel tactics to delay SEC investigations; and
  • Witness interrogations.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

May 03, 2022: Sample Letter to Companies Regarding Disclosures Pertaining to Russia’s Invasion of Ukraine and Related Supply Chain Issues 

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has published a Sample Letter to Companies Regarding Disclosures Pertaining to Russia’s Invasion of Ukraine and Related Supply Chain Issues. The letter indicates that Corp Fin believes that companies should provide detailed disclosure, to the extent material or otherwise required, regarding:

  • Direct or indirect exposure to Russia, Belarus, or Ukraine through their operations, employee base, investments in Russia, Belarus, or Ukraine, securities traded in Russia, sanctions against Russian or Belarusian individuals or entities, or legal or regulatory uncertainty associated with operating in or exiting Russia or Belarus;
  • Direct or indirect reliance on goods or services sourced in Russia or Ukraine or, in some cases, in countries supportive of Russia;
  • Actual or potential disruptions in the company’s supply chain; or
  • Business relationships, connections to, or assets in, Russia, Belarus, or Ukraine.

The financial statements may also need to reflect and disclose:

  • The impairment of assets;
  • Changes in inventory valuation;
  • Deferred tax asset valuation allowance;
  • Disposal or exiting of a business;
  • De-consolidation;
  • Changes in exchange rates; and
  • Changes in contracts with customers or the ability to collect contract considerations.

In addition, Corp Fin indicates that since Russia’s invasion of Ukraine, many companies have experienced heightened cybersecurity risks, increased or ongoing supply chain challenges, and volatility related to the trading prices of commodities regardless of whether they have operations in Russia, Belarus, or Ukraine that warrant disclosure.

Corp Fin also indicates that companies should also “consider how these matters affect management’s evaluation of disclosure controls and procedures, management’s assessment of the effectiveness of internal control over financial reporting, and the role of the board of directors in risk oversight of any action or inaction related to Russia’s invasion of Ukraine, including consideration of whether to continue or to halt operations or investments in Russia and/or Belarus.”

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Assessing Materiality: Focusing on the Reasonable Investor When Evaluating Errors, Paul Munter, Acting Chief Accountant, Office of the Chief Accountant

Summary - SEC Acting Chief Accountant Paul Munter recently discussed assessing materiality when considering errors in financial statements. Munter indicated that one SEC staff has observed an increased need for objectivity is “in the assessment of qualitative factors. The interpretive guidance on materiality in SAB No. 99 speaks to circumstances where a quantitatively small error could, nevertheless, be material because of qualitative factors. However, we are often involved in discussions where the reverse is argued—that is, a quantitatively significant error is nevertheless immaterial because of qualitative considerations. We believe, however, that as the quantitative magnitude of the error increases, it becomes increasingly difficult for qualitative factors to overcome the quantitative significance of the error.”

Topics discussed by Munter included:

  • Concept of Materiality and the Correction of Material Errors;
  • Objective Assessment of Materiality; and
  • Observations from Recent Interactions with Registrants and Auditors on Materiality.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Business Combinations –SEC Staff Updates Compliance and Disclosure Interpretations

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has updated the following Compliance and Disclosure Interpretations (C&DIs):

  • Exchange Act Form 8-K (Question 102.04-102.05);
  • Proxy Rules and Schedules 14A/14C (101.02, 132.01-132.02); and
  • Tender Offers and Schedules (166.01).

Corp Fin has updated these C&DIs to provide additional guidance on disclosures associated with entering into a business combination agreement. This updated guidance includes discussion of when a company must disclose material terms and conditions when entering into a business combination agreement that is reportable under Item 1.01 of Form 8-K. The updated guidance also discusses certain proxy disclosure rules related to whether public communications represent solicitations subject to such rules. Finally, the updated guidance discusses Corp Fin’s views on whether SEC Rule 14e-5 on the prohibition of purchases outside of a tender offer applies to transactions involving Special Purpose Acquisition Companies. 

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

The Shareholder Proposal Rule: A Cornerstone of Corporate Democracy by Renee Jones, Acting Chief Accountant

Summary - Renee Jones, SEC Director of the Division of Corporation Finance (Corp Fin), recently discussed the shareholder proposal rule. Jones indicates that the shareholder proposal rule is “not self-executing. Each year questions arise as to whether a company may exclude a proposal under one of the bases for exclusion in the rule. To facilitate resolution and to forestall litigation, the Division has engaged in the informal practice of expressing its enforcement position on these matters. If a company intends to exclude a proposal from its proxy, Rule 14a-8(j) requires the company to “file its reasons” for doing so with the Commission. These notifications generally take the form of a “no-action” request seeking the Division’s concurrence that it will not recommend enforcement action if the company omits the proposal. If the staff declines to take a “no-action” position, the company is expected to include the proposal in the proxy statement for a shareholder vote. Proponents or companies can challenge the staff’s position in court and from time to time the courts have weighed in on staff or Commission action in interpreting Rule 14a8.”

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 34-94615: Rules Relating to Security-Based Swap Execution and Registration and Regulation of Security-Based Swap Execution Facilities

Summary - The SEC has issued for public comment proposed new Regulation SE under the Securities Exchange Act of 1934 (the Exchange Act) to “create a regime for the registration and regulation of security-based swap execution facilities (SBSEFs). The new regulatory framework was one of the major reforms required under Title VII of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) relating to the over-the-counter derivatives market.”

If adopted, the proposal would:

  • Implement the Exchange Act’s trade execution requirement for security-based swaps and address the cross-border application of that requirement;
  • Implement Section 765 of the Dodd-Frank Act to mitigate conflicts of interest at SBSEFs and national securities exchanges that trade security-based swaps; and
  • Promote consistency between proposed Regulation SE and existing rules under the Exchange Act.

The SEC indicates that In developing this proposal, it “sought to harmonize as closely as practicable with parallel rules of the Commodity Futures Trading Commission (CFTC) that govern swap execution facilities and swap execution generally.” The SEC seeks to obtain regulatory benefits comparable to those under the CFTC regime while minimizing costs imposed on SBSEFs and their members.

The public comment period will remain open for 60 days following publication of the proposing release on the SEC’s website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 34-94524: Further Definition of “As a Part of a Regular Business” in the Definition of Dealer and Government Securities Dealer

Summary - The SEC has issued for public comment two proposed rules that would require market participants, such as proprietary (or principal) trading firms, who assume certain dealer functions, in particular those who act as liquidity providers in the markets, to register with the SEC, become members of a self-regulatory organization (SRO), and comply with federal securities laws and regulatory obligations.

The SEC indicates that if adopted, the proposed rules, “Exchange Act Rules 3a5-4 and 3a44-2, would further define the phrase “as a part of a regular business” in Sections 3(a)(5) and 3(a)(44) of the Act to identify certain activities that would cause persons engaging in such activities to be “dealers” or “government securities dealers” and subject to the registration requirements of Sections 15 and 15C of the Act, respectively.”

Under the proposed rules, any market participant that engages in activities as described in the rules would be a “dealer” or “government securities dealer” and, absent an exception or exemption, required to: register with the Commission under Section 15(a) or Section 15C, as applicable; become a member of an SRO; and comply with federal securities laws and regulatory obligations, including as applicable, SEC, SRO, and Treasury rules and requirements.

The public comment period will remain open for 60 days following publication of the proposing release on the SEC’s website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-11048: Special Purpose Acquisition Companies, Shell Companies, and Projections

Summary - The SEC has issued for public comment proposed new rules and amendments to enhance disclosure and investor protection in initial public offerings by special purpose acquisition companies (SPACs) and in business combination transactions involving shell companies, such as SPACs, and private operating companies.

The proposed new rules and amendments would require, among other things, “additional disclosures about SPAC sponsors, conflicts of interest, and sources of dilution. They also would require additional disclosures regarding business combination transactions between SPACs and private operating companies, including disclosures relating to the fairness of these transactions. Further, the new rules would address issues relating to projections made by SPACs and their target companies, including the Private Securities Litigation Reform Act safe harbor for forward-looking statements and the use of projections in Commission filings and in business combination transactions.”

If adopted, the proposed rules would more closely align the required financial statements of private operating companies in transactions involving shell companies with those required in registration statements for an initial public offering.

The proposal also includes a new rule addressing the status of SPACs under the Investment Company Act of 1940, which is designed to increase attention among SPACs about this important assessment. Under the proposed rule, SPACs that satisfy certain conditions that limit their duration, asset composition, business purpose, and activities would not be required to register under the Investment Company Act.

The public comment period will remain open for 60 days following publication of the proposing release on the SEC's website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 34-94499: Removal of References to Credit Ratings From Regulation M

Summary - The SEC has proposed for public comment changes that would remove the references to credit rating agencies from existing exceptions provided in Rule 101 and Rule 102 of Regulation M, a set of rules designed to preserve market integrity by prohibiting activities that could artificially influence the market for an offered security.

The SEC “proposes to replace the credit-rating requirement included in Rule 101’s exception, which is available to distribution participants and their affiliated purchasers, with requirements that the nonconvertible debt securities and nonconvertible preferred securities meet a specified probability of default threshold, and that the asset-backed securities be offered pursuant to an effective shelf registration statement filed on the Commission’s Form SF-3. In addition, the proposed changes would eliminate Rule 102’s exception, which is available to issuers, selling security holders, and their affiliates, for investment grade nonconvertible debt securities, nonconvertible preferred securities, and asset-backed securities.”

The proposal also includes a recordkeeping requirement under Rule 17a-4(b)(17) for broker-dealers who make probability of default determinations in reliance on Rule 101’s proposed exception for nonconvertible debt securities and nonconvertible preferred securities.

The comment period will remain open for 60 days following publication of the proposing release on the SEC's website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-11042: The Enhancement and Standardization of Climate-Related Disclosures for Investors

Summary - The SEC has proposed for public comment rule changes that would require companies to include certain climate-related disclosures in their registration statements and periodic reports, including “information about climate-related risks that are reasonably likely to have a material impact on their business, results of operations, or financial condition, and certain climate-related financial statement metrics in a note to their audited financial statements.” The required information about climate-related risks also would include disclosure of a company’s greenhouse gas emissions, which have become a commonly used metric to assess a company’s exposure to such risks.

The proposed rule changes would require disclosure of information about:

  • The company’s governance of climate-related risks and relevant risk management processes;
  • How any climate-related risks identified by the company have had or are likely to have a material impact on its business and consolidated financial statements;
  • How any identified climate-related risks have affected or are likely to affect the company’s strategy, business model, and outlook; and
  • The impact of climate-related events (severe weather events and other natural conditions) and transition activities on the line items of a company’s consolidated financial statements, as well as on the financial estimates and assumptions used in the financial statements.

The proposed rules also would require a company to disclose information about its direct greenhouse gas (GHG) emissions (Scope 1) and indirect emissions from purchased electricity or other forms of energy (Scope 2). In addition, a company would be required to disclose GHG emissions from upstream and downstream activities in its value chain (Scope 3), if material or if the company has set a GHG emissions target or goal that includes Scope 3 emissions. The SEC indicates that these proposals for GHG emissions disclosures would provide investors with decision-useful information to assess a company’s “exposure to, and management of, climate-related risks, and in particular transition risks. The proposed rules would provide a safe harbor for liability from Scope 3 emissions disclosure and an exemption from the Scope 3 emissions disclosure requirement for smaller reporting companies.” The proposed disclosures are similar to those that many companies already provide based on broadly accepted disclosure frameworks, such as the Task Force on Climate-Related Financial Disclosures and the Greenhouse Gas Protocol.

Under the proposed rule changes, accelerated filers and large accelerated filers would be required to include an attestation report from an independent attestation service provider covering Scopes 1 and 2 emissions disclosures, with a phase-in over time, to promote the reliability of GHG emissions disclosures for investors.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No. 33-11038: Cybersecurity Risk Management, Strategy, Governance, and Incident Disclosure

Summary - The SEC proposed amendments to its rules to enhance and standardize disclosures regarding cybersecurity risk management, strategy, governance, and incident reporting by public companies. The SEC indicates that the proposed amendments would “require, among other things, current reporting about material cybersecurity incidents and periodic reporting to provide updates about previously reported cybersecurity incidents.” The proposal would also require periodic reporting about:

 A company’s policies and procedures to identify and manage cybersecurity risks;
The company’s board of directors' oversight of cybersecurity risk; and
Management’s role and expertise in assessing and managing cybersecurity risk and implementing cybersecurity policies and procedures.

In addition, the proposal would require annual reporting or certain proxy disclosure about the board of directors’ cybersecurity expertise, if any. The proposed amendments are intended to better inform investors about a company's risk management, strategy, and governance and to provide timely notification to investors of material cybersecurity incidents.

The comment period will remain open for 60 days following publication of the proposing release on the SEC's website or 30 days following publication of the proposing release in the Federal Register, whichever period is longer.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release No.33-11047: Technical Amendments to Commission Rules and Forms

Summary - The SEC has adopted technical amendments to various rules and forms under the Securities Act of 1933, the Investment Company Act of 1940, and the Investment Advisers Act of 1940. These revisions make technical changes to correct typographical errors and erroneous cross-references, as well as to clarify instructions.

These amendments are effective upon publication in the Federal Register.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Release Nos. 33-11043: Adoption of Updated EDGAR Filer Manual

Summary - The SEC has published a new edition of its EDGAR Filer Manual. This new edition includes an amendment to Volume I to add a link to the Glossary of Commonly Used Terms, Acronyms, and Abbreviations. This new edition is also being updated to reflect various new SEC rule amendments.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Staff Accounting Bulletin No. 121

Summary - The SEC’s Division of Corporation Finance (Corp Fin) has published Staff Accounting Bulletin (SAB) No. 121 which provides guidance on accounting for obligations to safeguard crypto-assets an entity holds for platform users. Specifically, SAB 121 updates SAB Topic 5, Miscellaneous Accounting and provides guidance on various topics associated with these types of arrangements, including how entities that hold crypto-assets should account for liabilities associated with these arrangements. This guidance includes consideration of financial and non-financial disclosures associated with these types of arrangements.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Staff Report on Nationally Recognized Statistical Rating Organizations

Summary - The SEC issued its annual Staff Report on Nationally Recognized Statistical Rating Organizations, providing a summary of the SEC staff’s examinations of Nationally Recognized Statistical Rating Organizations (NRSROs) and discussing the state of competition, transparency, and conflicts of interest among NRSROs.

The combined report includes a variety of substantive and organizational changes to provide greater transparency about NRSROs and their credit ratings businesses, and the market more broadly. The report highlights the risk-based approach of OCR's examination program. As described in the report, in addition to the eight statutorily mandated review areas, OCR staff examined the NRSROs’:

Consideration of ESG factors and products;
COVID-19 related risk areas;

  • Activities related to collateralized loan obligations, commercial real estate, and consumer asset-backed securities;
  • Adherence to policies, procedures, and methodologies with respect to rating low-investment grade corporate securities; and
  • Controls, policies, and procedures for ratings of municipal securities.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speeches: Statement on the FASB’s Agenda Consultation: Engagement with Investors and Other Stakeholders Vital to Development of High Quality Accounting Standards by Paul Munter, Acting Chief Accountant

Summary - SEC Acting Chief Accountant Paul Munter issued a Statement on the FASB’s Agenda Consultation: Engagement with Investors and Other Stakeholders Vital to Development of High Quality Accounting Standards. Munter indicates that it “is critically important that the FASB, and the Trustees of the Financial Accounting Foundation (the “FAF”) in its important oversight role over the FASB, continue to improve processes for obtaining and considering investor and other stakeholder feedback, and for clearly communicating with those stakeholders regarding how that feedback has impacted the standard-setting process. On behalf of Commission staff in OCA, in this statement, we highlight below why engagement with investors and other stakeholders is vital to the FASB’s ability to develop high quality accounting and financial reporting standards, and we provide observations on the FASB’s standard-setting process, its agenda consultation, and the related ITC feedback from investors and other stakeholders.”

Munter discusses the importance of investors and other stakeholders to the standard-setting process. Also included in the statement is observations of the FASB’s agenda consultation. Munter indicated that in the FASB’s “decisions to add projects to its agenda or make changes to its standards, the FASB should clearly make the case for change, whether through a preliminary yet robust analysis of the need for a project or through an explanation of its consideration of the expected costs and benefits of a change. In the FASB’s consideration of what would provide decision-useful information to investors, and in making the case for change, it should consider costs to both preparers and users, including the costs to users from not making needed improvements to accounting and disclosure requirements.”

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Announcement Regarding Staff Responses to Rule 14a - 8 No -- Action Requests

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has published an Announcement Regarding Staff Responses to Rule 14a-8 No-Action Requests. This announcement reconsiders Corp Fin’s previous guidance on responding to each shareholder proposal no-action requests.

The announcement indicates that during “the last two proxy seasons, the staff instead responded with a written letter only in limited instances and communicated the vast majority of responses via notations to a chart maintained on the Division’s website. We have reconsidered this approach, and after review of the practice we believe that written responses will provide greater transparency and certainty to shareholder proponents and companies alike. Beginning with the publication of this announcement, we will return to our prior practice and the staff will once again respond to each shareholder proposal no-action request with a written letter, similar to those issued in prior years. Our response letters will be posted publicly on the Division’s website in a timely manner. We will no longer communicate our responses via a chart, but we expect to publish a chart upon completion of the proxy season.”

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: December 21, 2021: Sample Letter to China-Based Companies

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has published a Sample Letter to China-Based Companies. This letter provides views of the Corp Fin staff, indicating that the recent events “have highlighted the risks associated with investing in companies that are based in or that have the majority of their operations in the People’s Republic of China (China-based companies). The Division of Corporation Finance believes that more prominent, specific, and tailored disclosure about these risks, and companies’ use of the variable interest entity (VIE) structure specifically, is warranted to provide investors with the information they need to make informed investment decisions and for companies to comply with their disclosure obligations under the federal securities laws.” Although not considered an exhaustive list, the letter contains sample comments that Corp Fin may issue China-based companies.

In light of these concerns, Corp Fin indicates that it is issuing comments to China-based companies seeking more specific and prominent disclosure about the legal and operational risks associated with China-based companies. Corp Fin’s comments focus on the need for clear and prominent disclosure regarding the structure of the company, including:

  • The relationship between the entity conducting the offering and the entities conducting the operating activities;
  • Risks associated with a company’s use of the VIE structure; and
  • The potential impact on the company’s operations and investors’ interests if such structure were disallowed or the contracts were determined to be unenforceable.

Corp Fin’s comments also focus on additional legal, regulatory, and enforcement risks that may apply to investments in China-based companies, such as the potential impact of the Holding Foreign Companies Accountable Act and related rules and any necessary PRC permissions a China-based company may need to operate its business or offer securities to foreign investors.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Staff Statement Regarding Form CRS Disclosures

Summary - The SEC’s Standards of Conduct Implementation Committee (Committee) has issued Staff Statement Regarding Form CRS Disclosures. This document provides guidance on disclosures within Form CRS. Form CRS is a brief relationship summary designed to help retail investors make informed choices regarding what type of relationship (brokerage, investment advisory, or a combination of both) best suits a retail investor’s particular circumstances and investment objectives. The statement reviews observations from the Committee on disclosures within Form CRS on relationship summaries.

The Committee is comprised of staff from the Division of Trading and Markets, the Division of Investment Management, the Division of Examinations, and the Office of Investor Education and Advocacy.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speeches: Statement of Commissioner Elad L. Roisman, Elad L. Roisman, Commissioner - December, 2021

Summary - SEC Commissioner Elad L. Roisman has informed President Joe Biden that he is resigning his position at the end of January 2022. In his statement, Roisman indicates that serving “the American people as a Commissioner and an Acting Chairman of this agency has been the greatest privilege of my professional life. It has been the utmost honor to work alongside my extraordinary SEC colleagues, who care deeply about investors and our markets. Over the next several weeks, I remain committed to working with my fellow Commissioners and the SEC’s incredible staff to further our mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation.”

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Announcement Regarding Personally Identifiable and Other Sensitive Information in Rule 14a-8 Submissions and Related Materials

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has issued Announcement Regarding Personally Identifiable and Other Sensitive Information in Rule 14a-8 Submissions and Related Materials. The announcement indicates that Rule 14a-8 submissions and related materials frequently include personally identifiable and other sensitive information about shareholder proponents, companies and other parties that is not relevant to Corp Fin’s consideration of a no-action request. While the Corp Fin seeks to redact, to the extent practicable, this information before making the materials publicly available, this process can result in delays in the public dissemination of these materials.

Corp Fin announces that beginning immediately, companies and shareholder proponents should redact all personally identifiable and other sensitive information from Rule 14a-8 submissions and related materials prior to submitting them to the division. For example, companies should redact personally identifiable information from an individual shareholder’s cover letter accompanying the proposal. Shareholder proponents should also limit the personally identifiable and sensitive information in the materials they provide to companies by including only the information that is necessary to establish their eligibility to submit the proposal and for the company to communicate with them. Corp Fin may require parties to resubmit any materials it receives that contain personally identifiable or sensitive information, in which case Corp Fin will not consider the substance of those materials until they are resubmitted.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, Falling Further Back - Statement on Chair Gensler’s Regulatory Agenda, Hester M. Peirce and Elad L. Roisman, Commissioner - December, 2021

Summary - SEC Commissioners Hester M. Peirce and Elad L. Roisman expressed their disappointment in SEC Chair Gary Gensler’s regulatory agenda. Peirce and Roisman indicated that the regulatory agenda “fails to include any items intended to facilitate capital formation and misses opportunities to foster fair, orderly, and efficient markets and further investor protection. Instead the agenda is brimming with plans to redo recently completed rules, add new regulatory obligations, and constrain investor choice.”

The SEC’s regulatory agenda lists short- and long-term regulatory actions that the agency plans to take.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, Virtual Remarks at the Center for American Progress and Sierra Club: Down the Rabbit Hole of Climate Pledges, Caroline Crenshaw, Commissioner - December, 2021

Summary - SEC Commissioner Caroline A. Crenshaw recently discussed her views on climate-change corporate disclosures. Crenshaw indicated that accurate “and reliable climate metrics are not only important for investors’ evaluation of sustainability efforts or how companies are spending shareholder money on politics, it is also critical for assessing fundamental and traditional corporate governance matters, like executive compensation. Recent surveys indicate that more executive compensation is being linked to “sustainability performance.” Linking executive pay to achieving ESG or sustainability-related goals can be a positive alignment of incentives. However, without reliable and consistent disclosures about those ESG targets, I wonder whether investors and Boards have the tools to accurately assess if such targets have been met and if that alignment between executive pay and ESG targets has been achieved.”

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Announcement Regarding Staff Responses to Rule 14a-8 No-Action Requests

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has issued Announcement Regarding Staff Responses to Rule 14a-8 No-Action Requests. The announcement indicates that in 2019, Corp Fin discontinued the longstanding practice of responding to each shareholder proposal “no-action request” with a written letter. During the last two proxy seasons, Corp Fin instead responded with a written letter only in limited instances and communicated the vast majority of responses via notations to a chart maintained on the division’s website.

Corp Fin indicates that it has “reconsidered this approach, and after review of the practice we believe that written responses will provide greater transparency and certainty to shareholder proponents and companies alike. Beginning with the publication of this announcement, we will return to our prior practice and the staff will once again respond to each shareholder proposal no-action request with a written letter, similar to those issued in prior years. Our response letters will be posted publicly on the Division’s website in a timely manner. We will no longer communicate our responses via a chart, but we expect to publish a chart upon completion of the proxy season.”

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Remarks Before the Healthy Markets Association Conference, Gary Gensler, Chairman - December, 2021

Summary - SEC Chair Gary Gensler recently shared his thoughts on the use of special purpose acquisition companies (SPACs) to go public. Gensler indicates that due to “the various moving parts and SPACs’ two-step structure, I believe these vehicles may have additional conflicts inherent to their structure. There are conflicts between the investors who vote then cash out, and those who stay through the deal — what might be called “redeemers” and “remainers.” Thus, to reduce the potential for such information asymmetries, conflicts, and fraud, I’ve asked staff for proposals for the Commission’s consideration around how to better align the legal treatment of SPACs and their participants with the investor protections provided in other IPOs, with respect to disclosure, marketing practices, and gatekeeper obligations.”

Regarding disclosures and transparency, Gensler indicates that he has asked the SEC to provide recommendations about how investors might be better informed about the fees, projections, dilution, and conflicts that may exist during all stages of SPACs, and how investors can receive those disclosures at the time they’re deciding whether to invest. The SEC staff is also considering clarifying disclosure obligations under existing rules.

Gensler raised concerns of who, in the SPAC transaction process, is performing the role of “gatekeepers,” which may include directors, officers, SPAC sponsors, financial advisors, and accountants. Gensler indicates that there may be “some who attempt to use SPACs as a way to arbitrage liability regimes. Many gatekeepers carry out functionally the same role as they would in a traditional IPO but may not be performing the due diligence that we’ve come to expect. Make no mistake: When it comes to liability, SPACs do not provide a “free pass” for gatekeepers.” The SEC staff is expected to provide recommendations about how the SEC can better align incentives between gatekeepers and investors, and how the SEC can address the status of gatekeepers’ liability obligations. Gensler cautioned that as the SEC and its staff evaluates these policy areas, the SEC’s Division of Enforcement continues to be the “cop on the beat” to ensure that investors are being protected in the SPAC space.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: AICPA & CIMA Conference on Current SEC and PCAOB Developments - 2021

Summary - As discussed above, on December 6-8, 2021, representatives of the SEC, FASB, PCAOB, IASB, and AICPA spoke at the 2021 AICPA & CIMA Conference on Current SEC and PCAOB Developments. Topics discussed during the 2021 conference covered a number of important financial reporting and auditing issues. Principal themes of the conference included:

  • The importance of transparency and integrity on financial reporting, including the role of the auditor in providing assurance and trust in the financial reports of entities;
  • Disclosure and assurance of economic, social, or governance (ESG) matters (integrated or sustainability reporting);
  • Disclosures and reporting special-purpose acquisition company (SPAC) transactions;
  • The importance of internal control over financial reporting (ICFR), including the designing and implementation of controls, and the important role of auditors have in testing the effectiveness of ICFR; and
  • PCAOB standard-setting, inspection, and enforcement.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Staff Accounting Bulletin No. 120

Summary - The SEC staff has issued guidance for companies about how to properly recognize and disclose compensation cost for "spring-loaded awards" made to executives.

“Spring-loaded” awards are share-based compensation arrangements where a company grants stock options or other awards shortly before it announces market-moving information such as an earnings release with better-than-expected results or the disclosure of a significant transaction.

According to Staff Accounting Bulletin (SAB) No. 120 prepared by the SEC's Office of the Chief Accountant and the Division of Corporation Finance, non-routine spring-loaded grants merit particular scrutiny by those responsible for compensation and financial reporting governance at public companies.

The SEC staff believes that as companies measure compensation actually paid to executives, they must consider the impact that the material nonpublic information will have upon release. In other words, companies should not grant spring-loaded awards under any mistaken belief that they do not have to reflect any of the additional value conveyed to the recipients from the anticipated announcement of material information when recognizing compensation cost for the awards.

"It is important that companies' accounting and disclosures reflect the economics and terms of these compensation arrangements," SEC Chair Gary Gensler said. "This gets to the SEC's remit to protect investors."

The statements in SABs are not rules or interpretations of the Commission nor are they published bearing the Commission's official approval. They represent interpretations and practices followed by the Division of Corporation Finance and the Office of the Chief Accountant in administering the disclosure requirements of the federal securities laws.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: SEC Staff Statement on LIBOR Transition - Key Considerations for Market Participants

Summary - The SEC has published SEC Staff Statement on LIBOR Transition—Key Considerations for Market Participants. The SEC staff indicates that this statement is being issued to remind investment professionals of their obligations when recommending LIBOR-linked securities and to remind companies and issuers of asset-backed securities of their disclosure obligations related to the LIBOR transition. This statement follows previous staff statements addressing various aspects of the forthcoming LIBOR transition.

Topics discussed in this statement include:

  • Background and general considerations for market participants;
  • Broker-dealer registrants: recommendations to retail customers;
  • Broker-dealer registrants: municipal securities underwriting and sales to customers;
  • Registered investment advisers and funds; and
  • Disclosure considerations for public companies and asset-backed securities issuers.

Regarding disclosure considerations, the SEC staff encourages companies to provide qualitative disclosures and, when material, quantitative disclosures, such as the notional value of contracts referencing LIBOR and extending past December 31, 2021 or June 30, 2023, as applicable, to provide context for the status of the company’s transition efforts and the related risks.

In general, companies generally include disclosures about the LIBOR transition as part of risk factors, recent developments, MD&A and/or quantitative and qualitative disclosures about market risk. To the extent a company provides this disclosure in response to more than one disclosure requirement within a filing, consider providing a cross-reference or otherwise summarizing or tying the information together so an investor has a complete and clear view of the company’s plan for the discontinuation of LIBOR, the status of the company’s efforts, and the related risks and impacts.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: The Lessons of Structured Data, Caroline Crenshaw, Commissioner - November, 2021

Summary - SEC Commissioner Caroline A. Crenshaw recently discussed structured data (XBRL) and the need to provide better data going forward. Crenshaw indicated that she believes XBRL data is delivering a myriad benefits, “there is room for improvement in terms of the quality and accuracy of the data. Some users have found material error rates in data tagged in our filings, including errors in tags that are likely to be crucially important to investors like Revenues, Net Income, and Assets, and scaling errors that can be impactful.”

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Remarks at the PepsiCo-PwC CPE Conference: Controlling Internal Controls, Caroline Crenshaw, Commissioner - November, 2021

Summary - SEC Commissioner Caroline A. Crenshaw recently discussed internal accounting and controls and ESG risks facing companies today. Crenshaw indicated that “internal accounting controls must be dynamic enough to consider and respond to changes in the markets, such as those posed by ESG issues. Companies have to evolve over time because the market place is constantly changing in response to new developments and challenges. These changes can be prompted by new technology, developments in the global economy, or even by our planet. Change drives innovation for not just corporate America, but investors, consumers and citizens. Change can be a good thing. But as markets change, so do the risks that can impact a company’s financial statements. Corporate internal accounting controls must evolve as well. Although these are relatively technical matters often thought of as within the remit of accounting and legal professionals of a specific company, I am regularly reminded that, in the aggregate, these details matter to all Americans.”

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: President’s Working Group Report on Stablecoins, Gary Gensler, Chairman - November, 2021

Summary - SEC Chair Gary Gensler issued a statement in response to the President’s Working Group Report on Stablecoins. This week, the President’s Working Group on Financial Markets (PWG), along with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, published a report on stable value coins, or so-called stablecoins. Stablecoins are crypto tokens pegged or linked to the value of fiat currencies. Gensler noted that based on the report’s findings, “the use of stablecoins presents a number of public policy challenges with respect to protecting investors.”

Gensler indicates that the PWG report “highlights a number of recommendations to address these public-policy challenges. While Congress and the public evaluate this report, we at the SEC and our sibling agency, the Commodity Futures Trading Commission, will deploy the full protections of the federal securities laws and the Commodity Exchange Act to these products and arrangements, where applicable.”

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Prepared Remarks Before the SIFMA Annual Meeting, Gary Gensler, Chairman - November, 2021

Summary - SEC Chair Gary Gensler recently discussed capital market structure. Gensler indicates that given the “rapidly changing technology and business models, I think we at the SEC need to look for opportunities to freshen up our rules to continue to maintain markets that are the envy in the world.” Gensler went on to say that ultimately, “promoting fair, orderly, and efficient markets can help reduce the cost of capital for issuers and increase the rate of returns for investors across each of these markets. This helps contribute to economic growth and is a competitive advantage for our nation.”

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Statement regarding Shareholder Proposals: Staff Legal Bulletin No. 14L, Gary Gensler, Chairman - November, 2021

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has issued Staff Legal Bulletin No. 14L, Shareholder Proposals. This guidance provides information for companies and shareholders regarding Rule 14a-8 under the Securities Exchange Act of 1934. Specifically, this bulletin rescinds Staff Legal Bulletin Nos. 14I, 14J and 14K (the “rescinded SLBs”) after a review of Corp Fin staff experience applying the guidance in them. In addition, to the extent the views expressed in any other prior Corp Fin staff legal bulletin could be viewed as contrary to those expressed herein, this staff legal bulletin controls.

This bulletin outlines Corp Fin’s views on Rule 14a-8(i)(7), the ordinary business exception, and Rule 14a-8(i)(5), the economic relevance exception. We are also republishing, with primarily technical, conforming changes, the guidance contained in SLB Nos. 14I and 14K relating to the use of graphics and images, and proof of ownership letters. In addition, we are providing new guidance on the use of e-mail for submission of proposals, delivery of notice of defects, and responses to those notices.

In Rule 14a-8, the SEC has provided a means by which shareholders can present proposals for the shareholders’ consideration in the company’s proxy statement. This process has become a cornerstone of shareholder engagement on important matters. Rule 14a-8 sets forth several bases for exclusion of such proposals. Companies often request assurance that the staff will not recommend enforcement action if they omit a proposal based on one of these exclusions (“no-action relief”). Corp Fin is issuing this bulletin to streamline and simplify our process for reviewing no-action requests, and to clarify the standards the staff will apply when evaluating these requests.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Statement on PCAOB Rule 6100 to Fulfill Obligations under the HFCAA, Gary Gensler, Chairman - November, 2021

Summary - The SEC has approved the PCAOB’s Rule 6100, Board Determinations Under the Holding Foreign Companies Accountable Act. Rule 6100 will establish a framework for the PCAOB’s determinations under the Holding Foreign Companies Accountable Act (HFCAA) that the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by an authority in that jurisdiction.

The SEC indicates that the Sarbanes-Oxley Act of 2002, as amended, mandates that the PCAOB inspect registered public accounting firms in both the United States and in foreign jurisdictions and investigate potential statutory, rule, and professional standards violations committed by registered public accounting firms and their associated persons. The HFCAA requires that the PCAOB determine whether it is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by an authority in that jurisdiction. PCAOB Rule 6100 establishes the:

  • Process for the PCAOB’s determinations under the HFCAA;
  • Factors the PCAOB will evaluate and the documents and information the PCAOB will consider when assessing whether a determination is warranted;
  • Form, public availability, effective date, and duration of such determinations; and
  • Process by which the PCAOB will reaffirm, modify, or vacate any such determinations.

SEC Chair Gary Gensler issued a statement in connection with the passage of this rule.

For more information, click here.

© 2022 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: The Importance of High - Quality Independent Audits and Effective Audit Committee Oversight to High Quality Financial Reporting to Investors by Paul Munter, Acting Chief Accountant

Summary - SEC Acting Chief Accountant Paul Munter released a Public Statement, The Importance of High Quality Independent Audits and Effective Audit Committee Oversight to High Quality Financial Reporting to Investors. In this statement, Munter indicates that with the upcoming 20th anniversary of enactment of the Sarbanes-Oxley Act of 2002 (SOX) “it is critical for all gatekeepers in the financial reporting ecosystem (auditors, management, and their audit committees) to maintain constant vigilance in the faithful implementation of the requirements of SOX by fulfilling their shared responsibilities to continue to produce high quality financial disclosures that are decision-useful to investors and maintain the public trust in our capital markets. An integral part of the faithful implementation of SOX is for audit firms to remain independent of their audit clients and for audit committees to take ownership of their oversight responsibilities with respect to the independent auditor.”

Topics discussed in Munter’s statement include:

  • The importance of auditor independence;
  • Responsibility of audit committees and management;
  • Responsibility of audit firms;
  • General standard of independence; and
  • Importance of audit committee oversight of the independent auditor.

Regarding the responsibility of audit committees to oversee auditor independence, Munter indicates that the SEC continues to “encourage audit committees to consider the sufficiency of the auditor’s and the issuer’s monitoring processes, including those that address corporate changes or other events that potentially affect auditor independence. This is particularly relevant in the current environment as companies seek to access public markets through new and innovative transactions, and audit firms continue to expand business relationships and non-audit services.” Since audit committees have financial reporting and audit oversight authority and responsibility, Munter indicates that “they also are instrumental in setting the tone at the top for the quality of the issuer’s financial reporting to investors. In selecting, retaining, and evaluating the independent auditor, the audit committee always should be focused, in the first instance, on audit quality.”

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Staff Report on Equity and Options Market Structure Conditions in Early 2021

Summary - The SEC published a Staff Report on Equity and Options Market Structure Conditions in Early 2021 (Report), which focuses on the January 2021 trading activity of certain "meme stocks." Because the meme stock episode raised several questions about market structure, the Report also provides an overview of the equity and options market structure for individual investors.

The Report concludes with the staff identifying areas of market structure and our regulatory framework for potential study and additional consideration. These include:

  • Forces that may cause a brokerage to restrict trading;
  • Digital engagement practices and payment for order flow;
  • Trading in dark pools and wholesalers; and
  • The market dynamics of short selling.

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Prepared Remarks at SEC Speaks, Gary Gensler, Chairman - October, 2021

Summary - SEC Chair Gary Gensler, several SEC Commissioners and SEC staff discussed SEC and financial reporting topics at the 2021 SEC Speaks Conference held via webcast. Highlights from their remarks is as follows:

SEC Chair Gary Gensler
Chair Gensler discussed the growing use of digital analytics in finance. Gensler indicated that predictive “data analytics, including machine learning, are increasingly being adopted in finance — from trading, to asset management, to risk management. Though we’re still in the early stages of these developments, I think the transformation we’re living through now could be every bit as big as the internet was in the 1990s.” Gensler discussed public policy considerations associated with developments of our digital platforms, including conflicts of interest, bias, and systematic risk.

SEC Commissioner Caroline A. Crenshaw
Commissioner Crenshaw discussed the growth in digital asset securities, indicating that “to move these markets forward there must be a meaningful exchange of ideas between innovators and regulators. And while we share common goals, we may prioritize issues differently and our initial proposed solutions might reflect those distinctions. And that’s ok – even good. Different viewpoints coupled with constructive dialogue will yield better results in the long run.” Crenshaw praised the current regulatory regime for raising traditional capital but cautioned that as digital asset securities evolve, “we must think about how best to reconcile a regime that has worked consistently for more than 80 years, with products and systems that are evolving rapidly and may not always be an intuitive fit within the existing system.”

SEC Commissioner Allison Herren Lee
Commissioner Lee discussed the explosive growth of private markets and the impact this has on transparency in U.S. equity markets. Due to this growth in raising capital in private markets, Lee cautioned that investors and the public “are increasingly left in the dark when it comes to ever expanding segments of the economy. This has implications for the future vitality of the private markets (which depend in many ways on the transparency and discipline of public markets) and it has implications for optimizing capital allocation across both markets.”

SEC Commissioner Elad L. Roisman
Commissioner Roisman provided his thoughts on preserving and expanding opportunities for businesses in our economy to raise capital and for investors to share in their success. Topics discussed by Roisman included: (1) a look-back at capital formation; (2) COVID-19: a case study in capital market resilience; and (3) looking forward. Roisman cautioned that the best way to be ready for uncertainty in the future “is to allow the market to allocate capital as it digests information. We should not hang onto outdated models at the risk of stifling innovation when we need it most.”

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Stablecoins –SEC Chair Gensler Comments on President’s Working Group Report on Stablecoins

Summary - SEC Chair Gary Gensler issued a statement in response to the President’s Working Group Report on Stablecoins. This week, the President’s Working Group on Financial Markets (PWG), along with the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, published a report on stable value coins, or so-called stablecoins. Stablecoins are crypto tokens pegged or linked to the value of fiat currencies. Gensler noted that based on the report’s findings, “the use of stablecoins presents a number of public policy challenges with respect to protecting investors.”

Gensler indicates that the PWG report “highlights a number of recommendations to address these public-policy challenges. While Congress and the public evaluate this report, we at the SEC and our sibling agency, the Commodity Futures Trading Commission, will deploy the full protections of the federal securities laws and the Commodity Exchange Act to these products and arrangements, where applicable.” 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: October 1, 2021: Sample Letter to Companies Regarding Climate Change Disclosures

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has published a Sample Letter to Companies Regarding Climate Change Disclosures. This letter provides views of the Corp Fin staff, indicating that the “letter contains sample comments that the Division may issue to companies regarding their climate-related disclosure or the absence of such disclosure. The sample comments do not constitute an exhaustive list of the issues that companies should consider. Any comments issued would be appropriately tailored to the specific company and industry, and would take into consideration the disclosure that a company has provided in Commission filings.”

The letter reminds companies that SEC disclosure rules may require disclosure related to climate change. Companies also must disclose, in addition to the information expressly required by SEC regulation, “such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.”

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Remarks Before the Alternative Reference Rates Committee’s SOFR Symposium, Gary Gensler, Chairman - September, 2021

Summary - SEC Chair Gary Gensler recently spoke about the transition from LIBOR. Gensler cautioned that “as we transition away from LIBOR, I want to be sure our replacement rates are appropriately clothed. To that end, I have several concerns about one rate that a number of commercial banks are advocating as a replacement for LIBOR. This rate is called the Bloomberg Short-Term Bank Yield Index (BSBY). I believe BSBY has many of the same flaws as LIBOR. Both benchmarks are based upon unsecured, term, bank-to-bank lending.” Gensler went on to indicate that he agrees “with the ARRC that the Secured Overnight Financing Rate (SOFR), which is based on a nearly trillion-dollar market, is a preferable alternative rate.”

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Statement Regarding Information Bundling and Corporate Penalties, Caroline Crenshaw, Commissioner - September, 2021

Summary - SEC Commissioner Caroline A. Crenshaw recently discussed information bundling and SEC corporate penalties. In her remarks, Crenshaw discussed her concern that corporate benefits are “notoriously difficult to quantify. If we limit penalties to only those benefits that are easy to count, we will invariably undercount, leaving the corporation in a potentially better economic position for having committed the violation. That is precisely the wrong outcome to advance our goals of punishing misconduct and delivering effective specific and general deterrents. Paying a penalty cannot be just a cost of doing business.”

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: The FINRA Certified Regulatory and Compliance Professional Program Georgetown University, Hester M. Peirce, Commissioner - July, 2021

Summary - SEC Commissioner Hester M. Peirce recently discussed the U.S. financial markets and opportunities to engage more investors. Peirce indicates that regulation of the securities markets plays an important part in engaging investors and should be carefully considered. Peirce indicates that our financial markets “are among the greatest wealth-generating machines ever developed by any society. Countless Americans have invested in these markets to generate the returns that empower them to buy homes, to pay for their children’s educations, to start businesses, and to prepare for retirement. Over the long term, our public markets have generated consistently strong returns that make it possible for our fellow citizens to pursue these and other dreams.”

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Prepared Remarks Before the Principles for Responsible Investment “Climate and Global Financial Markets” Webinar, Gary Gensler, Chairman - July, 2021

Summary - SEC Chair Gary Gensler recently discussed climate risk disclosures and the SEC. Gensler indicates that when it comes to climate risk disclosures, “investors are raising their hands and asking regulators for more.” As a result, Gensler has asked the SEC staff to develop a mandatory climate risk disclosure rule proposal for the SEC’s consideration by the end of 2021. Gensler indicates that he believes the SEC can bring greater clarity to climate risk disclosures. Points of emphasis on climate risk disclosures indicated by Gensler in his remarks included:

  • Climate risk disclosures should be consistent and comparable.The consistency with which issuers report information leads to comparability between companies, today and over time. In the proposing draft likely later this year, Gensler has asked staff to consider whether these disclosures should be filed in the Form 10-K, living alongside other information that investors use to make their investment decisions.
  • Climate risk disclosures should be “decision-useful.”A decision-useful disclosure has sufficient detail so investors can gain helpful information and is not simply generic text. In appropriate circumstances, Gensler believes such prescribed disclosure strengthens comparability. Gensler has asked the SEC staff to consider a variety of qualitative and quantitative information about climate risk that investors either currently rely on, or believe would help them make investment decisions going forward.

Gensler indicates that he has asked the SEC staff to learn from and be inspired by external standard-setters. However, Gensler believes that the SEC should move forward to write rules and establish the appropriate climate risk disclosure regime for our markets, as it has in prior generations for other disclosure regimes.

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Statement on the IFRS Foundation’s Proposed Constitutional Amendments Relating to Sustainability Standards, Hester M. Peirce, Commissioner - July, 2021

Summary - SEC Commissioner Hester M. Peirce recently announced that she has provided comments to the IFRS in response to its request for comment addressing the IFRS Foundation’s proposed constitutional amendments relating to sustainability standards. Specifically, the IFRS Foundation is formally exploring the creation of an International Sustainability Standards Board under the Foundation’s governance structure. Peirce urges the IFRS Foundation “not to wade into sustainability standard-setting because doing so would (i) improperly equate sustainability standards with financial reporting standards, (ii) undermine the Foundation’s current important, investor-centered work, and (iii) raise serious governance concerns.”

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Prepared Remarks for National Whistleblower Day Celebration, Gary Gensler, Chairman - July, 2021

Summary - SEC Char Gary Gensler recently marked the National Whistleblower Day celebration. Gensler indicates that he believes “deeply in whistleblower programs and look forward to building on the work of past Chairs to ensure the continued strength of the SEC’s program.” Gensler has asked the SEC staff to examine whether and how the program could be further strengthened to ensure that misconduct within the power of the SEC is identified, addressed, and stopped. Gensler also believes that the SEC should look for opportunities to continue to reduce processing times in SEC whistleblower award determinations. Gensler has directed the SEC staff to prepare for the SEC’s consideration later this year potential revisions to these two rules that would address the concerns that these recent amendments would discourage whistleblowers from coming forward. In particular, the SEC staff is considering whether the rules should be revised to permit the SEC to make awards for related actions that might otherwise be covered by an alternative whistleblower program that is not comparable to the SEC’s own program, and to clarify that the SEC will not lower an award based on its dollar amount

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Remarks Before the Aspen Security Forum, Gary Gensler, Chairman - August, 2021

Summary - SEC Chair Gary Gensler called the current state of crypto investing something akin to the Wild West and called for greater investor protections. Gensler cautions that the crypto asset class is “is rife with fraud, scams, and abuse in certain applications. There’s a great deal of hype and spin about how crypto assets work. In many cases, investors aren’t able to get rigorous, balanced, and complete information. If we don’t address these issues, I worry a lot of people will be hurt.”

Gensler believes that the current crypto market has many tokens that may be unregistered securities, without required disclosures or market oversight. Gensler indicates that the world of crypto finance now has platforms where people can trade tokens and other venues where people can lend tokens. He believes these platforms not only can implicate the securities laws and some platforms also can implicate the commodities laws and the banking laws. To the extent that there are securities on these trading platforms, under our laws they have to register with the SEC unless they meet an exemption.

Gensler called on Congress to act on crypto legislation. Gensler indicates that additional Congressional authorities are needed “to prevent transactions, products, and platforms from falling between regulatory cracks. We also need more resources to protect investors in this growing and volatile sector. We stand ready to work closely with Congress, the Administration, our fellow regulators, and our partners around the world to close some of these gaps. In my view, the legislative priority should center on crypto trading, lending, and DeFi platforms. Regulators would benefit from additional plenary authority to write rules for and attach guardrails to crypto trading and lending.”

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Statement on the IFRS Foundation’s Proposed Constitutional Amendments Relating to Sustainability Standards, Hester M. Peirce, Commissioner - July, 2021

Summary - SEC Commissioner Hester M. Peirce recently announced that she has provided comments to the IFRS in response to its request for comment addressing the IFRS Foundation’s proposed constitutional amendments relating to sustainability standards. Specifically, the IFRS Foundation is formally exploring the creation of an International Sustainability Standards Board under the Foundation’s governance structure. Peirce urges the IFRS Foundation “not to wade into sustainability standard-setting because doing so would (i) improperly equate sustainability standards with financial reporting standards, (ii) undermine the Foundation’s current important, investor-centered work, and (iii) raise serious governance concerns.”

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Views: Climate, ESG, and the Board of Directors: “You Cannot Direct the Wind, But You Can Adjust Your Sails”, Allison Herren Lee, Commissioner - June, 2021

Summary - SEC Commissioner Allison Herren Lee recently discussed the role corporate boards of directors play in navigating the challenges presented by climate change, racial injustice, economic inequality, and numerous other issues that are fundamental to the success and sustainability of companies, financial markets, and our economy. Lee discussed ESG in the context of the most recent proxy season which saw growing shareholder proposal support related to ESG initiatives and unprecedented access to corporate boards of directors from climate activists. In addition, Lee discusses understanding ESG and corporate board responsibilities and mitigating ESG risks and maximizing ESG opportunities.

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Cryptocurrencies –SEC Chair Gensler Urges Stronger Investor Protections for Crypto

Summary - SEC Chair Gary Gensler called the current state of crypto investing something akin to the Wild West and called for greater investor protections. Gensler cautions that the crypto asset class is “is rife with fraud, scams, and abuse in certain applications. There’s a great deal of hype and spin about how crypto assets work. In many cases, investors aren’t able to get rigorous, balanced, and complete information. If we don’t address these issues, I worry a lot of people will be hurt.”

Gensler believes that the current crypto market has many tokens that may be unregistered securities, without required disclosures or market oversight. Gensler indicates that the world of crypto finance now has platforms where people can trade tokens and other venues where people can lend tokens. He believes these platforms not only can implicate the securities laws and some platforms also can implicate the commodities laws and the banking laws. To the extent that there are securities on these trading platforms, under our laws they have to register with the SEC unless they meet an exemption.

Gensler called on Congress to act on crypto legislation. Gensler indicates that additional Congressional authorities are needed “to prevent transactions, products, and platforms from falling between regulatory cracks. We also need more resources to protect investors in this growing and volatile sector. We stand ready to work closely with Congress, the Administration, our fellow regulators, and our partners around the world to close some of these gaps. In my view, the legislative priority should center on crypto trading, lending, and DeFi platforms. Regulators would benefit from additional plenary authority to write rules for and attach guardrails to crypto trading and lending.” 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Financial Markets –SEC Commissioner Peirce Discusses Financial Markets

Summary - SEC Commissioner Hester M. Peirce recently discussed the U.S. financial markets and opportunities to engage more investors. Peirce indicates that regulation of the securities markets plays an important part in engaging investors and should be carefully considered. Peirce indicates that our financial markets “are among the greatest wealth-generating machines ever developed by any society. Countless Americans have invested in these markets to generate the returns that empower them to buy homes, to pay for their children’s educations, to start businesses, and to prepare for retirement. Over the long term, our public markets have generated consistently strong returns that make it possible for our fellow citizens to pursue these and other dreams.” 

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SPACs, IPOs and Liability Risk under the Securities Laws,John Coates, Acting Director, Division of Corporation Finance

Summary - John Coates, Acting Director of the SEC’s Division of Corporation Finance (Corp Fin) has issued a statement expanding on recent guidance by SEC Acting Chief Accountant Paul Munter and the Corp Fin staff. Munter’s original guidance highlighted a number of important financial reporting considerations for Special Purpose Acquisition Companies (SPACs), including highlighting challenges associated with the accounting for complex financial instruments that may be common in SPACs. Additionally, the Corp Fin staff also issued a recent statement highlighting key filing considerations for SPACs.

Coates indicates that Corp Fin “recently evaluated fact patterns relating to the accounting for warrants issued in connection with a SPAC’s formation and initial registered offering. While the specific terms of such warrants can vary, we understand that certain features of warrants issued in SPAC transactions may be common across many entities. We are issuing this statement to highlight the potential accounting implications of certain terms that may be common in warrants included in SPAC transactions and to discuss the financial reporting considerations that apply if a registrant and its auditors determine there is an error in any previously-filed financial statements.”

Coates guidance covers the following topics:

  • Indexation;
  • Tender offer provisions; and
  • Registrant filing considerations.

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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SEC Staff Speech, Public Input Welcomed on Climate Change Disclosures, Allison Herren Lee, Chairman - March, 2021

Summary - SEC Acting Char Allison Herren Lee issued a statement requesting input on climate change disclosures from investors, registrants, and other market participants. Lee indicates that since 2010, investor demand for, and company disclosure of information about, climate change risks, impacts, and opportunities has grown dramatically. As a result, questions arise about whether climate change disclosures adequately inform investors about known material risks, uncertainties, impacts, and opportunities, and whether greater consistency could be achieved.

Lee recently asked the SEC staff to evaluate agency disclosure rules with an eye toward facilitating the disclosure of consistent, comparable, and reliable information on climate change. Public input on the SEC’s disclosure rules and guidance as they apply to climate change disclosures, and whether and how they should be modified, can include comments on:

  • Existing disclosure requirements in Regulation S-K and Regulation S-X (or, for foreign private issuers, Form 20-F);
  • Potential new SEC disclosure requirements;
  • Potential new disclosure frameworks that the SEC might adopt or incorporate in its disclosure rules; and/or
  • Comments generally as to how the SEC can best regulate climate change disclosures are welcomed.

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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SEC Staff Views: Staff Guidance on EDGAR Filing of Form C

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has provided guidance on filing Form C related to offerings that rely on Regulation Crowdfunding. Effective March 15, 2021, a company issuing securities in reliance on Regulation Crowdfunding is permitted under Rule 100(a)(1) to raise a maximum aggregate amount of $5 million in a 12-month period. Before the amendments, the limit was $1.07 million. This document provides guidance on:

  • EDGAR Filing of Form C for Regulation Crowdfunding Offerings Exceeding $1,070,000; and
  • EDGAR Filing of Form C by Crowdfunding Issuers and Crowdfunding Vehicles Jointly Filing a Form C.

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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SEC Staff Speech, Division of Corporation Finance - CF Disclosure Guidance Official Text

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has published CF Disclosure Topic No. 11, Special Purpose Acquisition Companies. This guidance provides Corp Fin’s views about certain disclosure considerations for special purpose acquisition companies, commonly referred to as SPACs, in connection with their initial public offerings and subsequent business combination transactions. Topics discussed in this guidance include disclosure considerations for a SPAC involving an Initial Public Offering and a business combination transaction.

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, AICPA National Conference on Current SEC and PCAOB Developments - 2020

Summary - On December 7-9, 2020, representatives of the SEC, FASB, PCAOB, IASB, and AICPA spoke at the annual AICPA Conference on Current SEC and PCAOB Developments. This years’ conference was held virtually. Topics discussed during the 2020 conference covered a number of important financial reporting and auditing issues. Principal themes of the conference included:
The importance of transparency and integrity on financial reporting, including the role of the auditor in providing assurance and trust in the financial reports of entities;

  • Accounting, financial reporting, and auditing responses to the COVID-19 global pandemic;
  • Disclosures on economic, social, or governance matters (integrated or sustainability reporting);
  • The importance of internal control over financial reporting (ICFR), including the designing and implementation of controls, and the important role of auditors have in testing the effectiveness of ICFR;
  • PCAOB standard-setting, inspection, and enforcement; and
  • Implementation of important new accounting and audit requirements, including accounting standards on leases, credit losses, and LIBOR, and the PCAOB’s Critical Audit Matters requirements.

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, Statement on Developments Related to the LIBOR Transition by Chairman Jay Clayton

Summary - SEC Chairman Jay Clayton released a brief statement on developments related to LIBOR transition. Specifically, the U.S. Federal Reserve and U.K regulators announced that it is urging banks to wrap up contracts using LIBOR. In response, Clayton indicates that the “announcements establish a pragmatic, market-oriented path for managing the transition away from LIBOR. We encourage registrants to proactively transition to market-based reference rates and stand ready to assist market participants.”

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, Topic No. 10: Disclosure Considerations for China-Based Issuers

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has published CF Disclosure Topic No. 10, Disclosure Considerations for China-Based Issuers. This guidance provides Corp Fin’s views regarding certain disclosure considerations for companies based in or with the majority of their operations in the People’s Republic of China (“PRC” or “China”). Topics discussed in this guidance include:

  • Risks Associated with China-based Issuers;
  • Differences in Shareholder Rights and Recourse, Governance, and Reporting Associated with China-based Issuers; and
  • Disclosure Considerations for China-based Issuers.

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, The Regulation of Corporation Finance – A Principles-Based Approach by William Hinman Director, Division of Corporation Finance

Summary - William Hinman, SEC Director of Corp Fin, recently discussed rulemaking around new digital assets or other areas of financial reporting. Hinman indicated that “the Commission’s principles-based approach to disclosure can be applied to new, complex and evolving situations. Significant examples include Brexit, the upcoming LIBOR transition, cybersecurity developments, climate change, and most recently, the global coronavirus (COVID-19) pandemic we are battling today.”
Hinman’s remarks focused on:

  • Digital assets;
  • Principles-based disclosure and rulemaking; and
  • Corporate hygiene and what should be disclosed.

Regarding corporate disclosures, Hinman indicated that “thoughtful and proactive compliance with the federal securities laws, particularly our laws and rules around trading in company securities and corporate disclosure, is not a bad first step as companies set out on the path of defining their proper purpose as corporate citizens. The importance of good disclosure to the broader markets and the public cannot be overstated. Disclosure that is specific and tailored to a company’s circumstances, that is well-vetted by accounting, legal and financial gatekeepers, provides everyone with information that can be trusted and acted on with confidence. The disclosure that companies make in their Commission filings is special in no small part because it is vetted by gatekeepers, subject to potential staff review and, of course, subject to the liability standards of the federal securities laws. These processes and rigor add credibility and weight to statements made in a report or document filed with the Commission.”

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, Transitional FAQs Regarding Amended Regulation S-K Items 101, 103 and 105

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has published Transitional FAQs Regarding Amended Regulation S-K Items 101, 103 and 105. This document provides guidance on the disclosure requirements and related rules adopted in the Modernization of Regulation S-K Items 101, 103, and 105 rulemaking (Securities Act Release No. 33-10825). These previously adopted amendments modernize the description of business (Item 101), legal proceedings (Item 103), and risk factor disclosures (Item 105) that registrants are required to make pursuant to Regulation S-K. Corp Fin’s guidance provides views on transition to these new rules which are effective on November 9, 2020.

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, Modernization of Regulation S-K Items 101, 103, and 105 a Small Entity Compliance Guide

Summary - The SEC staff has published Modernization of Regulation S-K Items 101, 103, and 105 A Small Entity Compliance Guide. This guide provides guidance on the SEC’s amendments to modernize the description of business (Item 101), legal proceedings (Item 103), and risk factor disclosures (Item 105) that registrants are required to make pursuant to Regulation S-K. The amendments the SEC adopted update these items to reflect the many changes in our capital markets and the domestic and global economy in recent decades. The amendments to Regulation S-K Items 101, 103, and 105 are intended to elicit improved disclosures for investors and add efficiencies to the compliance efforts of registrants.

The amendments are also intended to improve the readability of disclosure documents, as well as discourage repetition and reduce the disclosure of unnecessary information.


This guide covers the following areas:

  • Who is affected by the amendments;
  • What are the changes under the amendments;
  • Compliance dates; and
  • Other resources.

For more information, click here.

© 2021 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, When the Nail Fails – Remarks before the National Society of Compliance Professionals by Commissioner Hester M. Peirce

Summary - SEC Commissioner Hester M. Peirce recently discussed her thoughts on the increasing personal liability for compliance officers and the risk that this could cause talented individuals to forgo a career in compliance, among other negative effects. Peirce indicated that compliance officers’ “responsibilities are growing, but the nature of the liability they face in executing those responsibilities remains unclear. Indeed, this past February, the New York City Bar published a report that distilled many of the concerns, and offered a number of recommendations.”

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, Volume, Value, and Impact: Remarks by the SEC Ombudsman Tracey L. McNeil

Summary - SEC Ombudsman Tracey L. McNeil recently discussed the SEC’s Office of the Investor Advocate which appointed her. McNeil highlighted her efforts indicating that she recognizes “the importance of the quality of service we provide. I have no real control over the volume or substance of matters that come in, and I never wanted to equate the volume of matters received to the value of the role. Assisting just one investor with one issue can make a significant difference to that investor, to their family, and at times, to the way I approach my work and to the agency and the industry. That is where the real value lies.”

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, Remarks At SEC Speaks 2020 by Commissioner Elad L. Roisman

Summary - SEC Commissioner Elad L. Roisman recently discussed SEC enforcement efforts. Roisman indicates that enforcement of the securities laws “is not a partisan matter. The vast majority of the Commission’s votes on enforcement matters are unanimous, bringing together those of us who may have stark disagreements on particular policy issues. Yet, each Commissioner approaches consideration of enforcement cases differently, and we do not always agree on every aspect of every case.”

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, An Update on FY 2020 Results - Remarks at SEC Speaks by Chairman Jay Clayton

Summary - SEC Chairman Jay Clayton recently discussed the results from the agency’s fiscal year 2020. Clayton indicated that he is pleased to report regarding the SEC “that while the pandemic significantly impacted how we do our work, it did not negatively impact the work itself. Our planned oversight, examination, rulemaking, and enforcement work continued with vigor, rigor and transparency. At the same time, we added to our work load. We (1) provided targeted regulatory relief to ensure the continued operation of our markets, (2) worked continuously with our domestic and foreign regulatory counterparts to monitor and mitigate the impacts of COVID-19, and (3) increased oversight and engagement in key areas of stress.”

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, The Car Talk of Capital Raising by Martha Miller, Advocate for Small Business Capital Formation

Summary - Martha Miller, Advocate for Small Business Capital Formation, recently discussed the SEC’s Office of the Advocate for Small Business Capital Formation efforts to promote small business capital formation. Miller indicates that the “current COVID-19 challenges are testing much of the capital raising ecosystem and are highlighting both its strengths and vulnerabilities. We are continuing to focus not only on longstanding capital raising issues, but also on timely issues presented by 2020’s curveballs.”

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, Intellectual Siren Song by Commissioner Hester M. Peirce

Summary - SEC Commissioner Hester M. Peirce recently discussed financial market regulation. Peirce indicates that “regulation is necessary. I think we can all agree with that. But less is very much more when it comes to the government deciding how free citizens may invest their money, plan for their and their families’ futures, and enter into contracts with other free citizens.”

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, Diversity Matters, Disclosure Works, and the SEC Can Do More: Remarks at the Council of Institutional Investors Fall 2020 Conference by Commissioner Allison Herren Lee

Summary - SEC commissioner Allison Herren Lee recently discussed diversity and inclusion. Lee indicates that recent events have “triggered an unprecedented national conversation on racial injustice that also highlights the urgency of ensuring diverse perspectives and representation at all levels of decision making in our country. At the SEC, a number of recent rulemakings have also pushed this issue to forefront. Our recent adoption of amendments to Regulation S-K, for example, took a step forward by adding human capital as a broad topic for possible disclosure, but declined to require, among other things, disclosure of diversity data—even data that most companies are already required to keep under Equal Employment Opportunity Commission (EEOC) rules.”

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, CAQ SEC International Practices Task Force

Summary - The Center for Audit Quality (CAQ) has published minutes from the November 19, 2020 International Task Force meeting. Topics discussed at this meeting included:

Transition to Foreign Private Issuer status of a foreign public shell immediately upon its reverse merger with a foreign operating company and basis of accounting reported by the operating company in conjunction with the transaction; and
Impact on updating schedules such as Schedule 12-28 (real estate) for the application of IAS 29.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, Keynote Address - Regulating with our Eyes on the Future by Dalia Blass Director, Division of Investment Management

Summary - SEC Director of Investment Management, Dalia Blass, recently discussed the need to regulate with an eye to the future. Dalia indicated that “the Division’s philosophy in recommending changes to the asset management regulatory framework has been to seek forward-looking solutions. We do not recommend that the Commission consider reforms just to address issues that have already happened. Instead we focus on regulations that will balance flexibility to accommodate future changes with promoting resiliency to future crises.”

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, Remarks at U.S. Treasury Market Conference by Commissioner Elad L. Roisman

Summary - SEC Commissioner Elad L. Roisman recently discussed his ideas for improving the market for U.S. Treasuries. Among his ideas were:

  • Ensuring that regulators have full view of secondary market trading;
  • Improving SEC understanding and, to the extent insufficient, oversight of key treasury market participants; and
  • Broadening access to central clearing in the cash market.

Roisman believes that prioritizing these three improvements would help optimize regulators‟ oversight capabilities and support the market’s efficient functioning.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, Cybersecurity - Safeguarding Client Accounts Against Credential Compromise

Summary - The staff in the SEC’s Office of Compliance Inspections and Examinations (OCIE) has issued a Risk Alert, Cybersecurity: Safeguarding Client Accounts against Credential Compromise. This risk alert highlights “credential stuffing,” which is a method of cyber-attack to client accounts that uses compromised client login credentials, resulting in the possible loss of customer assets and unauthorized disclosure of sensitive personal information.

OCIE indicates that it has observed in recent examinations an increase in the number of cyber-attacks against SEC-registered investment advisers and brokers and dealers using credential stuffing. Credential stuffing is “an automated attack on web-based user accounts as well as direct network login account credentials. Cyber attackers obtain lists of usernames, email addresses, and corresponding passwords from the dark web and then use automated scripts to try the compromised user names and passwords on other websites, such as a registrant’s website, in an attempt to log in and gain unauthorized access to customer accounts.”

OCIE cautions that credential stuffing is emerging as a more effective way for attackers to gain unauthorized access to customer accounts and/or firm systems than traditional brute force password attacks. When a credential stuffing attack is successful, “bad actors can use the access to the customer accounts to gain access to firms’ systems, where they are able to steal assets from customer accounts, access confidential customer information, obtain login credential/website information that they can sell to other bad actors on the dark web, gain access to network and system resources, or monitor and/or take over a customer’s or staff member’s account for other purposes.”

This guidance provides a summary of credential stuffing, highlights practices firms have implemented in response to help protect client accounts, and discusses other considerations for firms preparing for credential stuffing.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, CF Disclosure Guidance Topic: Topic No.7: Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b 2

Summary - The staff in the SEC’s Division of Corporation Finance (Corp Fin) has updated its guidance in CF Disclosure Topic No. 7, Confidential Treatment Applications Submitted Pursuant to Rules 406 and 24b-2. This guidance addresses how and what to submit when filing an application objecting to public release of information otherwise required to be filed under the Securities Act and the Securities Exchange Act. Corp Fin indicates that this guidance replaces and supersedes the guidance provided in Staff Legal Bulletins No. 1 and No. 1A.

Corp Fin updated the guidance relating to options available to companies whose confidential treatment orders are about to expire. Companies that previously have obtained a confidential treatment order have three choices of what to do when the order is about to expire:

Refile the unredacted exhibit;

  • Extend the confidential period pursuant to Rules 406 or 24b-2; or
  • Transition to the rules governing the filing of redacted exhibits under Regulation S-K Item 601(b)(10)(iv)[11] and parallel rules.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Staff Speech, Statement on SEC Response to the Report of the President’s Working Group on Financial Markets by Chairman Jay Clayton

Summary - SEC Chairman Jay Clayton and several other high-level SEC staff members issued a public statement, SEC Response to the Report of the President’s Working Group on Financial Markets. This statement addresses the SEC’s response to the release by the President’s Working Group on Financial Markets of its Report on Protecting United States Investors from Significant Risks from Chinese Companies (PWG Report).

The SEC indicates that the PWG Report includes five recommendations for the agency that are centered on strengthening protections for investors and promoting the integrity of capital markets by:
Leveling the playing field for all companies listed on U.S exchanges; and
Improving disclosure regarding, and consideration by fiduciaries and other market professionals of, the risks of investing in emerging markets, including China.

The statement indicates that SEC Chairman Clayton has “directed the SEC staff to prepare proposals in response to the report’s recommendations for consideration by the Commission and to provide assistance and guidance to investors and other market participants as may be necessary or appropriate. The SEC staff also stands ready to assist Congress with technical assistance in connection with any potential legislation regarding these matters.”

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

SEC Enforcement – SEC Commissioner Peirce Discusses Views on Recent SEC Enforcement Case

SEC Commissioner Hester M. Peirce recently discussed an SEC Enforcement case that involved digital assets. Peirce indicated that innovation in the digital asset industry “has and will continue to challenge us as securities regulators. I would prefer that we not only hold accountable the reckless innovators who skate among mirrors while playing the violin, but also attempt to provide the more cautious innovators some guidance on how to avoid the hall of mirrors and on what we consider to be adequate braking technology. I look forward to working with my colleagues to ensure that we do so in a consistent and transparent manner.”

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

ESG – SEC Commissioner Roisman Discusses Environmental, Social and Governance Factors

Summary - SEC Commissioner Elad L. Roisman recently provided his thoughts on aspects of Environmental, Social and Governance (ESG) factors.

Specifically, Roisman discussed:

  • Calls for mandated ESG disclosure for public companies; and
  • ESG disclosure by asset managers.

Roisman indicated that an “obvious problem with mandating ESG disclosure is that the issues under this enormous umbrella of a term are usually subjective and constantly evolving based on current events. Because of this evolution, requiring prescriptive disclosure would be difficult.”

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

Financial Reporting – SEC Chief Accountant Emphasizes the Continued Need for High Quality Financial Reporting

Summary - SEC Chief Accountant Sagar Teotia has published a statement emphasizing the continued importance of high-quality financial reporting for investors in light of COVID-19. Teotia indicates that as “many public companies now prepare for their next reporting cycle (e.g., second quarter financial reporting), we emphasize that the participants in the financial reporting system continue to play an important role in the functioning of our markets and in our collective national effort to mitigate the COVID-19 pandemic. We look forward to our financial reporting system continuing to provide a steady flow of timely, decision-useful information to investors and our public capital markets.”

Topics discussed by Teotia include:

  • OCA’s Engagement and Work Related to High-Quality Financial Reporting;
  • Engagement with the FASB and the PCAOB;
  • Engagement with International Standard Setters and Other Regulators; and
  • Engagement with and the Vital Role of Audit Committees.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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SEC Staff Speech, Emerging Market Investments Entail Significant Disclosure, Financial Reporting and Other Risks; Remedies are Limited by Chairman Jay Clayton

Summary - SEC Chairman Jay Clayton issued a statement along with the head of the PCAOB and other SEC staff members discussing the regulatory risks associated with emerging market investments. Clayton and the others cautioned that their “ability to promote and enforce these standards in emerging markets is limited and is significantly dependent on the actions of local authorities which, in turn, are constrained by national policy considerations in those countries. As a result, in many emerging markets, including China, there is substantially greater risk that disclosures will be incomplete or misleading and, in the event of investor harm, substantially less access to recourse, in comparison to U.S. domestic companies.”

For more information, click here.

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Emerging Market Investments – SEC Chairman and Others Caution of Risks Associated with Emerging Market Investments

Summary - SEC Chairman Jay Clayton issued a statement along with the head of the PCAOB and other SEC staff members discussing the regulatory risks associated with emerging market investments. Clayton and the others cautioned that their “ability to promote and enforce these standards in emerging markets is limited and is significantly dependent on the actions of local authorities which, in turn, are constrained by national policy considerations in those countries. As a result, in many emerging markets, including China, there is substantially greater risk that disclosures will be incomplete or misleading and, in the event of investor harm, substantially less access to recourse, in comparison to U.S. domestic companies.”

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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Audit Firms – SEC Publishes Statement on Continued Dialogue with Audit Firm Representatives on Audit Quality in China and Other Emerging Markets

Summary - The SEC has published a statement on the agencies continued dialogue with audit firm representatives on audit quality in China and other emerging markets. The statement indicates that the SEC expects to hold further meetings with other U.S. audit firms that, through use of their own networks or otherwise, audit U.S.-listed companies with significant operations in emerging markets, including China.

The statement also discusses guidance on financial reporting considerations related to the Coronavirus. The SEC indicated it has had recent dialogue with the senior leaders of the largest U.S. audit firms and discussed the “potential exposure of companies to the effects of the coronavirus and the impact that exposure could have on financial disclosures and audit quality, including, for example, audit firm access to information and company personnel. This remains a dynamic situation where the effects on any particular company may be difficult to assess or predict, because actual effects may depend on factors beyond the control and knowledge of issuers.”

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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SEC Staff Speech, Running on Empty: A Proposal to Fill the Gap Between Regulation and Decentralization by Commissioner Hester M. Peirce

Summary - SEC Commissioner Hester Peirce recently discussed a possible centralized regulatory framework for oversight of tokens. Peirce indicated that many “crypto entrepreneurs are seeking to build decentralized networks in which a token serves as a means of exchange on, or provides access to a function of the network. In the course of building out the network, they need to get the tokens into the hands of other people. But these efforts can be stymied by concerns that such efforts may fall within the ambit of federal securities laws. The fear of running afoul of the securities

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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SEC Staff Speech, Staff Legal Bulletin No. 21

Summary - The staff in the SEC’s Office of Municipal Securities has issued Staff Legal Bulletin No. 21, Application of Antifraud Provisions to Public Statements of Issuers and Obligated Persons of Municipal Securities in the Secondary Market. This bulletin provides the views of the staff regarding the application of the antifraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5[2] to public statements made by issuers of municipal securities and obligated persons in the secondary market. The antifraud provisions apply to any statement of a municipal issuer that is reasonably expected to reach investors and the trading markets.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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SEC Staff Speech, Myths and Realities: Modernizing the Proxy Rules by Commissioner Elad L. Roisman

Summary - SEC Commissioner Elad L. Roisman recently discussed common myths associated with the SEC’s efforts to modernize its proxy rules. Regarding the SEC’s proxy rules, Roisman indicated that “the SEC’s proposals to modernize these rules were not only necessary, but long overdue. Yet the reaction from the loudest voices came swiftly and furiously. Even before the Commission voted on these proposals, the agency was accused of serving as a shill for corporate interests, suppressing shareholder votes, and sheltering CEOs of big corporations from accountability.” Roisman urged interested parties to provide feedback to the SEC on its proxy rule proposals.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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SEC Staff Speech, Learning from Miami’s Emprendimientos by Martha Miller, Advocate for Small Business Capital Formation

Summary - SEC Advocate for Small Business Capital Formation Martha Miller recently discussed efforts by the office to enhance capital raising. Miller indicated that her office wants “to create new resources to empower entrepreneurs to raise the capital you need.”

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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SEC Staff Q&A: Frequently Asked Questions on Regulation Best Interest

Summary - The staff in the SEC’s Division of Trading and Markets has published Frequently Asked Questions on Regulation Best Interest. This document provides responses to questions about Regulation Best Interest and is expected to be updated from time to time with the SEC’s responses to additional questions. These responses represent the views of the staff of the Division of Trading and Markets. Topics covered in the FAQ document include:

  • Recommendation;
  • Disclosure obligation;
  • Care obligation; and
  • Conflict of interest obligation.

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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SEC Staff Speech, Mochas, Mariners, and Morality - Remarks before the National Economists Club by Commissioner Hester M. Peirce

Summary - SEC Commissioner Hester M. Peirce recently spoke to economists on data and the trend towards sustainability investing. Regarding sustainability, Peirce indicated that the “motivating force behind this trend seems to be that finance has been too focused on raw dollars, and insufficiently focused on building a financial system that fosters a better, more sustainable society. Regulators are thinking about how they can force financial firms to take into account environmental and social considerations as they allocate capital.”

For more information, click here.

© 2020 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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SEC Staff Speech, What You Don’t Know Can Hurt You by Stephanie Avakian, Co-Director, Division of Enforcement

Summary - SEC Co-Director Stephanie Avakian recently discussed enforcement actions taken by the SEC Enforcement Division. Avakian indicated that the division is “spending a lot of time on is identifying material financial conflicts of interest, particularly those conflicts that are harmful to investors.” Avakian discussed the Share Class Selection Disclosure self-reporting initiative that the Enforcement Division undertook last year. The Initiative was designed to identify and address harm resulting from undisclosed conflicts of interest in the sale of mutual fund shares by investment advisers.

For more information, click here.

© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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SEC Staff Views, Division of Trading and Markets - Background Paper on the Market Structure for Thinly Traded Securities

Summary - As discussed above, the SEC issued a statement on "thinly traded securities." In conjunction with issuing the statement, the staff in the SEC’s Division of Trading and Markets issued a Background Paper on the Market Structure for Thinly Traded Securities. This background paper:

Summarizes a variety of materials regarding secondary market trading of thinly traded securities;
Discusses the SEC staff Roundtable on Market Structure for Thinly-Traded Securities, which was held in April 2018; and
Discusses the current regulatory framework for thinly traded securities.

For more information, click here.

© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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SEC Staff Speech, Start Off by Making Your Bed: Translating Military Lessons to Entrepreneurship by Martha Miller, Advocate for Small Business Capital Formation

Summary - SEC Advocate for Small Business Capital Formation Martha Miller recently discussed entrepreneurship at a conference for military veteran business owners. Miller indicated that “small businesses and their investors are looking for the most efficient way to raise the capital they need. We also understand one size does not fit all.”

For more information, click here.

© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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SEC Staff Speech, Dual-Class Shares: A Recipe for Disaster by Rick Fleming, Investor Advocate

Summary - SEC Investor Advocate Rick Fleming recently expressed his concerns with the increased use of dual-class shares by companies that seek to go public. Fleming cautioned that “companies with dual-class structures tend to underperform companies with dispersed voting power.”

For more information, click here.

© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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SEC Staff Views, Staff Legal Bulletin No. 14K

Summary - The SEC staff has published Staff Legal Bulletin No. 14K. This bulletin provides information for companies and shareholders regarding Rule 14a-8 under the Securities Exchange Act of 1934 (Exchange Act). This bulletin is part of a continuing effort by the SEC staff to provide guidance on important issues arising under Exchange Act Rule 14a-8. Specifically, this bulletin contains information regarding:

The analytical framework of Rule 14a-8(i)(7);
Board analyses provided in no-action requests to demonstrate that the policy issue raised by the proposal is not significant to the company;
The scope and application of micromanagement as a basis to exclude a proposal under Rule 14a-8(i)(7); and
Proof of ownership letters.

For more information, click here.

© 2019 CCH Incorporated and/or its affiliates. All rights reserved. Used with permission.

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