Risk & Compliance

SEC Chair Says Disclosure Burden Excessive

Increased disclosure "may render alternatives for raising capital, such as the private markets, increasingly attractive to companies," Jay Clayton ...
Matthew HellerJuly 12, 2017
SEC Chair Says Disclosure Burden Excessive

The new head of the U.S. Securities and Exchange Commission believes its fundamental regulatory approach is sound but is concerned that disclosure burdens may be deterring some companies from going public.

In a speech Wednesday, SEC Chairman Jay Clayton noted that the commission, lawmakers, and other regulators “have slowly but significantly expanded the scope of required disclosures beyond the core concept of materiality,” while the total number of U.S.-listed public companies has declined about 50% in the past two decades.

“While there are many factors that drive the decision of whether to be a public company, increased disclosure and other burdens may render alternatives for raising capital, such as the private markets, increasingly attractive to companies that only a decade ago would have been all but certain candidates for the public markets,” Clayton told the Economic Club of New York.

He did not cite specific regulations he would like to amend but as Reuters reports, his comments are are “likely to be seen as welcome news to corporate lobbying groups such as the U.S. Chamber of Commerce, which has long criticized an array of SEC disclosure rules for cluttering up corporate filings with unnecessary information.”

Over the past two decades, Clayton said, “studies show the median word-count for SEC filings has more than doubled, yet readability of those documents is at an all-time low.”

Clayton, a former partner at the law firm of Sullivan & Cromwell, spent decades representing large banks including Goldman Sachs and Barclays before President Donald Trump nominated him to replace Mary Jo White as SEC chair.

His nomination was opposed by Democrats, with one calling him “one of Wall Street’s most loyal guardians” and others suggesting he would steer the SEC away from the enforcement agenda it has pursued since the 2008 financial crisis.

But in his speech Wednesday, Clayton stressed that he would “continue deploying significant resources to root out fraud and shady practices in the markets, particularly in areas where Main Street investors are most exposed.”

“Investors should know that the SEC is looking out for them,” he added.